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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ------- to -------
Commission file number 1-13395
SONIC AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C>
DELAWARE 56-2010790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5401 EAST INDEPENDENCE BOULEVARD
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA
28212
(Address of Principle Executive Offices) (Zip Code)
</TABLE>
(704) 532-3320
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- ------------------------------------------- ------------------------
<S> <C>
Class A Common Stock, $.01 Par Value New York Stock Exchange
</TABLE>
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Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the voting common stock held by
non-affiliates of the registrant was approximately $165,950,000 based upon the
closing sales price of the registrant's Class A common stock on March 29, 1999
of $14.25 per share. As of March 29, 1999, there were 12,155,963 shares of Class
A common stock, par value $.01 per share, and 12,400,000 shares of Class B
common stock, par value $.01 per share, outstanding. Unless otherwise indicated,
all other share and share price information contained herein takes into account
the effect of the two for one stock split effected as of January 25, 1999 in the
form of a 100% stock dividend payable to stockholders of record as of January 4,
1999 (the "Stock Split").
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<PAGE>
FORM 10-K TABLE OF CONTENTS
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PAGE
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<S> <C> <C>
PART I
Item 1. Business .................................................................................. 3
Item 2. Properties ................................................................................ 10
Item 3. Legal Proceedings ......................................................................... 12
Item 4. Submission of Matters to a Vote of Security Holders ....................................... 12
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters ................. 13
Item 6. Selected Financial Data ................................................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ..... 15
Item 7a. Quantitative and Qualitative Disclosures About Market Risk ................................ 24
Item 8. Financial Statements and Supplementary Data ............................................... 24
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...... 24
PART III
Item 10. Directors and Executive Officers of the Registrant ........................................ 25
Item 11. Executive Compensation .................................................................... 27
Item 12. Security Ownership of Certain Beneficial Owners and Management ............................ 32
Item 13. Certain Relationships and Related Transactions ............................................ 34
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .......................... 39
SIGNATURES ....................................................................................... 42
INDEX TO FINANCIAL STATEMENTS .................................................................... F-1
</TABLE>
The following discussion and analysis should be read in conjunction with the
Consolidated Financial Statements (including the Notes thereto) appearing
elsewhere herein. Statements in this Annual Report on Form 10-K that reflect
projections or expectations of future financial or economic performance of
Sonic Automotive, Inc., and statements of Sonic's plans and objectives for
future operations, including those contained in the "Business," "Legal
Proceedings" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" sections or relating to Sonic's future acquisitions,
are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Words such as
"expects," "anticipates," "believes," "intends," and "hopes," variations of such
words and similar expressions are intended to identify such forward-looking
statements. No assurance can be given that actual results or events will not
differ materially from those projected, estimated, assumed or anticipated in any
such forward- looking statements. Important factors that could result in such
differences, in addition to the other factors noted with such forward-looking
statements, include: general economic conditions in Sonic's markets, including
inflation, recession, interest rates and other economic factors; the ability of
Sonic to finance its acquisition efforts on acceptable terms; and other factors
that generally effect the business of automobile retail companies.
2
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PART I
ITEM 1. BUSINESS
Sonic Automotive, Inc. (together with its subsidiaries, "Sonic" or "we")
was incorporated in the State of Delaware in February 1997. Sonic originally
consisted of five automotive dealerships affiliated through the common
ownership and control of Mr. O. Bruton Smith, Sonic's Chairman and Chief
Executive Officer. These five dealerships became wholly-owned subsidiaries of
Sonic on June 30, 1997 pursuant to a reorganization in which Sonic exchanged
approximately 12.5 million shares of its Class B common stock, par value $.01
per share for the common stock or membership interests of the five dealerships.
On November 12, 1997, Sonic completed an initial public offering of 10.0
million shares of its Class A common stock, par value $.01 per share.
Sonic is one of the top five automotive retailers in the United States, as
measured by total revenue, operating 45 dealerships and 17 collision repair
centers in 11 metropolitan areas of the southeastern, southwestern and
midwestern United States. We sell new and used cars, light trucks and
replacement parts and provide vehicle maintenance, warranty, paint and repair
services. We also arrange related financing and insurance ("F&I") for our
automotive customers. As of March 30, 1999, Sonic operates dealerships in the
following metropolitan markets:
<TABLE>
<S> <C> <C>
o Atlanta o Columbus o Montgomery
o Birmingham o Daytona Beach o Nashville
o Charlotte o Greenville/Spartanburg o Tampa/Clearwater
o Chattanooga o Houston
</TABLE>
In several of our markets, our dealerships have a significant market share for
new cars and light trucks.
We sell the following 28 domestic and foreign brands:
<TABLE>
<S> <C> <C> <C> <C> <C>
o Acura o Chevrolet o Hyundai o KIA o Mitsubishi o Subaru
o Audi o Chrysler o Infiniti o Lexus o Oldsmobile o Toyota
o BMW o Dodge o Isuzu o Lincoln o Plymouth o Volkswagen
o Buick o Ford o Jeep o Mercedes o Porsche o Volvo
o Cadillac o Honda o Mercury o Range Rover
</TABLE>
GROWTH STRATEGY
o ACQUIRE SELECTED DEALERSHIPS. We believe that attractive acquisition
opportunities exist for dealership groups with significant equity capital and
experience in identifying, acquiring and professionally managing dealerships.
The automotive retailing industry is highly fragmented, with the largest 100
dealer groups generating approximately 10% of the industry's $673 billion of
total sales in 1997 and controlling less than 5% of all new vehicle dealerships
in the United States. We believe that these factors, together with the
increasing capital costs of operating automobile dealerships, the lack of
alternative exit strategies (especially for larger dealerships) and the aging
of many dealership owners provide attractive consolidation opportunities. We
believe our "hub and spoke" acquisition strategy will allow us to capitalize on
economies of scale, offer a greater breadth of products and services and
increase brand diversity. Generally, we retain the management of a well-run
dealership in order to benefit from its market knowledge, name recognition and
local reputation. In addition, we selectively acquire dealerships that have
underperformed the industry average but which carry attractive product lines or
have attractive locations and which would benefit from our existing
infrastructure.
o INCREASE SALES OF HIGHER MARGIN PRODUCTS AND SERVICES. Sonic intends to
pursue opportunities to increase its sales of higher-margin products and
services by, for instance, expanding its collision repair business and
increasing sales of used vehicles. Our collision repair business provides
favorable margins and is not significantly affected by economic cycles or
consumer spending habits. Our strategy is to acquire and develop collision
repair businesses near our dealerships in order to capitalize on relationships
with existing customers and insurance companies.
We also believe that significant opportunities exist to improve our used
vehicle departments, which historically have generated higher margins on sales
than our new vehicle departments, by (1) increasing the number of used vehicles
sold and (2) increasing gross profit margins on sales of used vehicles. For
example, our ability to manage inventory levels more effectively created
increased gross profit margins on sales of used vehicles to 10.7% for the year
ended December 31, 1998 from 8.6% for the year ended December 31, 1997.
3
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o CONTROL COSTS. We are focused on controlling expenses and expanding
margins at the dealerships we acquire and integrate into our organization.
Approximately 73% of our operating costs for the year ended December 31, 1998
were variable. We are able to adjust these expenses as the operating or
economic environment impacting our dealerships changes. We manage these
variable costs, such as floor plan (8%), advertising (10%) and compensation
(50%) expenses, so that they are generally related to vehicle sales and can be
adjusted in response to changes in vehicle sales volume. In addition,
management compensation is tied to individual dealership profitability and
stock price appreciation through stock options. This incentive compensation
focuses all levels of our organization on cost reduction. We also focus on
controlling components of fixed cost. For example, Sonic has reduced its
property and casualty and workers' compensation insurance costs due to the
benefits of economies of scale.
o ENHANCE PROFIT OPPORTUNITIES IN FINANCE AND INSURANCE. Sonic offers a
wide range of financing and leasing alternatives for the purchase of vehicles,
as well as credit life, accident and health and disability insurance and
extended service contracts. As a result of our size and scale, we have
negotiated increased commissions on the origination of customer vehicle
financing and insurance policies, which resulted in incremental F&I commissions
exclusive of acquisitions of $2.1 million for the year ended December 31, 1998.
o TRAIN, DEVELOP AND MOTIVATE QUALIFIED MANAGEMENT. We believe that our
well trained dealership personnel is key to our long-term prospects. We require
all of our employees, from service technicians to regional vice presidents, to
participate in in-house training programs. We believe that our comprehensive
training of all employees and the institution of a decentralized, multi-tiered
management structure to supervise effectively our dealership operations provide
us with a competitive advantage over other dealership groups. This training and
organizational structure enables high-level supervision over the dealerships,
accurate financial reporting and the ability to maintain good controls as Sonic
expands. In order to motivate management, we employ an incentive compensation
program for each officer, vice president and dealer/operators, a portion of
which is provided in the form of Sonic stock options with additional incentives
based on the performance of individual profit centers. We believe that this
organizational structure, together with the opportunity for promotion and for
equity participation, serve as a strong motivation for our employees.
o ACHIEVE HIGH LEVELS OF CUSTOMER SATISFACTION. We focus on maintaining
high levels of customer satisfaction. Our personalized sales process is
designed to satisfy customers by providing high-quality vehicles in a positive,
"consumer friendly" buying environment. Some manufacturers offer specific
performance incentives, on a per vehicle basis, if certain customer
satisfaction index ("CSI") levels (which vary by manufacturer) are achieved by
a dealer. Manufacturers consider CSI scores in approving acquisitions. In order
to keep management focused on customer satisfaction, we include CSI results as
a component of our incentive compensation program.
DEALERSHIP MANAGEMENT
Operations of the dealerships are overseen by Regional Vice Presidents,
who report to Sonic's Chief Operating Officer. Each of our dealerships is
managed by a dealer/operator who is responsible for the operations of the
dealership and the dealership's financial and customer satisfaction
performance. The dealer/operator is responsible for selecting, training and
retaining dealership personnel. All dealer/operators report to Sonic's Regional
Vice Presidents, who in turn report to Sonic's senior management on a regular
basis.
Each dealer/operator is generally complemented by a team which includes
two senior managers who aid in the operation of the dealership. The general
sales manager is primarily responsible for the operations, personnel, financial
performance and customer satisfaction performance of the new vehicle sales,
used vehicle sales, and finance and insurance departments. The parts and
service director is primarily responsible for the operations, personnel,
financial and customer satisfaction performance of the service, parts and
collision repair departments (if applicable). Each of the departments of the
dealership typically has a manager who reports to the general sales manager or
parts and service director.
NEW VEHICLE SALES
As of December 31, 1998, the Company sold 23 brands of cars, light trucks
and sport utility vehicles. The products have a broad range of prices from
lower priced, or economy vehicles, to luxury vehicles. We believe that our
brand, product and price diversity reduces the risk of changes in customer
preferences, product supply shortages and aging products. Approximately 14.1%
of new vehicle sales in 1998 were luxury brands (for example, BMW, Cadillac,
Infiniti and Volvo).
4
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The following table presents information with respect to Sonic's new
vehicle sales:
<TABLE>
<CAPTION>
NEW VEHICLE SALES
------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
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(DOLLARS IN THOUSANDS)
1994 1995 1996 1997 1998
------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Unit sales .............. 9,686 10,273 11,693 15,715 41,592
Sales revenue ........... $ 164,970 $ 186,859 $ 233,979 $ 343,941 $ 962,939
Gross profit ............ 12,103 13,926 18,001 26,427 75,494
Gross profit margin ..... 7.3% 7.5% 7.7% 7.7% 7.8%
</TABLE>
New vehicle sales include retail lease transactions and lease-type
transactions, both of which are arranged by Sonic. New vehicle leases generally
have short terms. Lease customers, therefore, return to the new vehicle market
more frequently. Leases also provide a source of late-model, generally low
mileage, vehicles for our used vehicle inventory. Generally, leased vehicles
are under warranty for the entire lease term, which allows us to provide repair
service to the lessee throughout the term of the lease.
USED VEHICLE SALES
Sonic sells a broad variety of makes and models of used cars, vans, trucks
and sport utility vehicles. We obtain used vehicles through customer trade-ins,
at "closed" auctions which may be attended only by new vehicle dealers and
which offer off-lease, rental and fleet vehicles, and at "open" auctions which
offer repossessed vehicles and vehicles sold by other dealers. We sell our used
vehicles to retail customers and, in the case of vehicles in poor condition or
vehicles which remain unsold for a specified period of time, to other dealers
or wholesalers. Sales to other dealers or wholesalers are frequently close to
or below cost and therefore negatively affect our gross margin on used vehicle
sales.
The following table sets forth information on Sonic's used vehicle sales:
<TABLE>
<CAPTION>
USED CAR SALES
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YEAR ENDED DECEMBER 31,
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(DOLLARS IN THOUSANDS)
1994 1995 1996 1997 1998
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Retail unit sales ........................ 4,374 5,172 5,488 6,712 24,591
Retail sales revenue ..................... $ 47,537 $ 60,766 $ 68,054 $ 85,132 $324,740
Retail gross profit ...................... 5,182 5,792 5,748 7,294 34,826
Retail gross profit margin ............... 10.9% 9.5% 8.4% 8.6% 10.7%
Wholesale unit sales ..................... 4,656 5,009 5,344 7,287 21,886
Wholesale sales revenue .................. $ 16,062 $ 20,025 $ 25,642 $ 38,785 $119,351
Wholesale gross profit/(loss) ............ 43 (45) (23) (599) (1,166)
Wholesale gross profit/(loss) margin ..... 0.3% (0.2)% (0.1)% (1.5)% (1.0)%
Total unit sales ......................... 9,030 10,181 10,832 13,999 46,477
Total sales revenue ...................... $ 63,599 $ 80,791 $ 93,696 $123,917 $444,091
Total gross profit ....................... 5,225 5,747 5,725 6,695 33,660
Total gross profit margin ................ 8.2% 7.1% 6.1% 5.5% 7.6%
</TABLE>
SERVICE AND PART SALES
Sonic provides service and parts at each of our franchised dealerships. We
also provide maintenance and repair services at each of our franchised
dealerships, offering both warranty and non-warranty services. Service and
parts sales provide higher gross margins than vehicle sales.
5
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The following table sets forth information regarding Sonic's service and
parts sales:
<TABLE>
<CAPTION>
SERVICE AND PARTS
------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
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(DOLLARS IN THOUSANDS)
1994 1995 1996 1997 1998
------------ ------------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C>
Sales revenue .............. $ 30,298 $ 31,958 $ 37,132 $ 51,033 $ 146,456
Gross profit ............... 10,344 11,033 12,593 18,118 62,152
Gross profit margin ........ 34.1% 34.4% 33.9% 35.5% 42.4%
</TABLE>
COLLISION REPAIR
As of December 31, 1998, Sonic operated collision repair centers, or body
shops, at fourteen of our dealership locations. Our collision repair business
provides favorable margins and, similar to service and parts, is not
significantly affected by business cycles or consumer preferences. In addition,
because of the higher cost of used vehicles, insurance adjusters are more
hesitant to declare a vehicle a total loss, resulting in more significant, and
higher cost, repair jobs.
The following table sets forth information regarding Sonic's collision
repair operations:
<TABLE>
<CAPTION>
COLLISION REPAIR SALES
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1994 1995 1996 1997 1998
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales revenue ............... $ 3,686 $ 3,903 $ 4,942 $ 6,504 $ 16,204
Gross profit ................ 1,870 1,956 2,452 3,092 8,114
Gross profit margin ......... 50.7% 50.1% 49.6% 47.5% 50.0%
</TABLE>
FINANCE AND INSURANCE
Sonic offers its customers a wide range of financing and leasing
alternatives for the purchase of vehicles. In addition, as part of each sale,
we also offer customers credit life, accident and health and disability
insurance to cover the financing cost of their vehicle, as well as extended
service contracts.
We assign our vehicle financing contracts and leases to other parties,
instead of directly financing sales, which reduces our exposure to loss from
financing activities. We receive a commission from the lender for originating
and assigning the loan or lease, but are assessed a chargeback fee by the
lender if a loan is canceled, in most cases, within 120 days of making the
loan. Early cancellation can result from early repayment because of refinancing
of the loan, the sale or trade-in of the vehicle, or default on the loan. We
establish a reserve to absorb estimated chargebacks and refunds. Finance and
insurance commission revenue is recorded net of such chargebacks. Commission
expense related to finance and insurance commission revenue is charged to cost
of sales upon recognition of such revenue.
The following table sets forth information regarding Sonic's finance and
insurance operations:
<TABLE>
<CAPTION>
FINANCE AND INSURANCE
--------------------------------------------------------------
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
(DOLLARS IN THOUSANDS)
1994 1995 1996 1997 1998
------------ ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Commission revenue .......... $ 5,181 $ 7,813 $ 7,118 $ 10,606 $ 34,011
Gross profit ................ 4,359 6,561 6,043 8,856 28,022
Gross profit margin ......... 84.1% 84.0% 84.9% 83.5% 82.4%
</TABLE>
SALES AND MARKETING
Sonic's marketing and advertising activities vary among our dealerships
and among our markets. We advertise primarily through television, newspapers,
radio and direct mail and regularly conduct special promotions designed to
focus vehicle buyers on our product offerings. We also utilize computer
technology to aid sales people in prospecting for customers. Under arrangements
with certain manufacturers, we receive a subsidy for a portion of our
advertising expenses incurred in connection with a manufacturer's vehicles.
6
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RELATIONSHIPS WITH MANUFACTURERS
Each of Sonic's dealerships operates under a separate franchise or dealer
agreement which governs the relationship between the dealership and the
manufacturer. In general, each dealer agreement specifies the location of the
dealership for the sale of vehicles and for the performance of certain approved
services in a specified market area. The designation of such areas generally
does not guarantee exclusivity within a specified territory. In addition, most
manufacturers allocate vehicles on a "turn and earn" basis which rewards high
volume. A dealer agreement requires the dealer to meet specified standards
regarding showrooms, the facilities and equipment for servicing vehicles,
inventories, minimum net working capital, personnel training, and other aspects
of the business. The dealer agreement with each dealership also gives the
related manufacturer the right to approve the dealership's general manager and
any material change in management or ownership of the dealership. Each
manufacturer may terminate a dealer agreement under certain circumstances, such
as a change in control of the dealership without manufacturer approval, the
impairment of the reputation or financial condition of the dealership, the
death, removal or withdrawal of the dealership's general manager, the
conviction of the dealership or the dealership's owner or general manager of
certain crimes, the failure to adequately operate the dealership or maintain
wholesale financing arrangements, insolvency or bankruptcy of the dealership or
a material breach of other provisions of the dealer agreement.
Many automobile manufacturers are still developing their policies
regarding public ownership of dealerships. We believe that these policies will
continue to change as more dealership groups sell their stock to the public,
and as the established, publicly-owned dealership groups acquire more
franchises. To the extent that new or amended manufacturer policies restrict
the number of dealerships which may be owned by a dealership group, or the
transferability of Sonic's common stock, such policies could have a material
adverse effect on us.
In the course of acquiring Jaguar franchises in Chattanooga and
Greenville, Jaguar declined to consent to our proposed acquisitions of these
franchises. In settling legal actions brought against Jaguar by the seller of
the Chattanooga Jaguar franchise, Sonic agreed with Jaguar not to acquire any
Jaguar franchise until August 3, 2001.
Under Sonic's agreement with Ford, Ford may force the sale of Sonic's Ford
franchises if any investor acquires 15% or more of Sonic's voting securities.
Under Sonic's Dealer Agreements with Toyota and Infiniti, Toyota and Infiniti
have the right to approve any ownership or voting rights of Sonic of 20% or
greater by any individual or entity. Honda may force the sale of Sonic's Honda
franchise if any person or entity, other than the current holders of our Class
B common stock and their lineal descendants and affiliates, acquires 5% or
greater Sonic's common stock (10% or greater if such entity is an institutional
investor), and Honda deems such person or entity to be unsatisfactory.
Volkswagen has approved the sale of no more than 25% of the voting control of
Sonic, and any future changes in ownership or transfers among Sonic's current
stockholders that could effect the voting or managerial control of Sonic's
Volkswagen franchisee subsidiaries requires the prior approval of Volkswagen.
Similarly, Chrysler has approved of the public sale of only 50% of Sonic's
common stock and requires prior approval of any future sales that would result
in a change in voting or managerial control of Sonic. Mercedes requires 60 days
advance notice to approve any acquisition of 20% or more of Sonic's voting
securities.
Certain state statutes in Florida and other states limit manufacturers'
control over dealerships. Under Florida law, notwithstanding any contrary terms
in a dealer agreement, manufacturers may not unreasonably withhold approval for
the sale of a dealership. Acceptable grounds for disapproval include material
shortcomings in the character, financial condition or business experience of
the proposed transferee. In addition, dealerships may challenge manufacturers'
attempts to establish new dealerships in the dealer's markets, and state
regulators may deny applications to establish new dealerships for a number of
reasons, including a determination that the manufacturer is adequately
represented in the area. Manufacturers must have "good cause" for any
termination or failure to renew a dealer agreement, and an automaker's license
to distribute vehicles in Florida may be revoked if, among other things, the
automaker has forced or attempted to force an automobile dealer to accept
delivery of motor vehicles not ordered by that dealer.
Under Texas law, despite the terms of contracts between manufacturers and
dealers, manufacturers may not unreasonably withhold approval of a transfer of
a dealership. It is unreasonable under Texas law for a manufacturer to reject a
prospective transferee of a dealership who is of good moral character and who
otherwise meets the manufacturer's written, reasonable and uniformly applied
standards or qualifications relating to the prospective transferee's business
experience and financial qualifications. In addition, under Texas law and the
laws of other states, franchised dealerships may challenge manufacturers'
attempts to establish new franchises in the franchised dealers' markets, and
state regulators may deny applications to establish new dealerships for a
number of reasons, including a determination that the manufacturer is
adequately represented in the region. Texas law limits the ability of
manufacturers
7
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to terminate or fail to renew franchises. In addition, other laws in Texas and
elsewhere limit the ability of manufacturers to withhold their approval for the
relocation of a franchise or require that disputes be arbitrated. In addition,
a manufacturer's license to distribute vehicles in Texas may be revoked if,
among other things, the manufacturer has forced or attempted to force an
automobile dealer to accept delivery of motor vehicles not ordered by that
dealer.
Georgia law provides that no manufacturer may arbitrarily reject a
proposed change of control or sale of an automobile dealership, and any
manufacturer challenging such a transfer of a dealership must provide written
reasons for its rejection to the dealer. Manufacturers bear the burden of proof
to show that any disapproval of a proposed transfer of a dealership is not
arbitrary. If a manufacturer terminates a franchise agreement due to a proposed
transfer of the dealership or for any other reason not considered to constitute
good cause under Georgia law, such termination will be ineffective. As an
alternative to rejecting or accepting a proposed transfer of a dealership or
terminating the franchise agreement, Georgia law provides that a manufacturer
may offer to purchase the dealership on the same terms and conditions offered
to the prospective transferee.
Under Tennessee law, a manufacturer may not modify, terminate or refuse to
renew a franchise agreement with a dealer except for good cause, as defined in
the governing Tennessee statutes. Further, a manufacturer may be denied a
Tennessee license, or have an existing license revoked or suspended if the
manufacturer modifies, terminates, or suspends a franchise agreement due to an
event not constituting good cause. Good cause includes material shortcomings in
the character, financial condition or business experience of the dealer. A
manufacturer's Tennessee license may also be revoked if the manufacturer
prevents or attempts to prevent the sale or transfer of the dealership by
unreasonably withholding consent to the transfer.
Alabama law prohibits manufacturers from terminating or refusing to
continue or renew a franchise agreement except for "good cause." "Good cause"
to discontinue a relationship may exist if, for example, a dealer violates a
material term of, or fails to perform its duties under, a franchise agreement.
In addition, a manufacturer is prohibited from interfering with the transfer of
a dealership unless the transfer is to a person who would not qualify for a
dealer's license under Alabama law. Finally, a manufacturer may not
unreasonably establish a new dealership within the market area of an existing
dealer. A manufacturer who violates Alabama law may be required to pay the
dealer for the damages incurred, as well as the costs of suing the manufacturer
for damages including attorneys fees.
Under Ohio law, a dealer must obtain manufacturer approval before it can
sell or transfer an interest in a dealership. The manufacturer may only
prohibit the sale or transfer, however, for "good cause" after considering,
among other things, the proposed new owner's business experience and financing.
Similarly, a manufacturer may terminate or refuse to continue or renew a
franchise agreement only for "good cause" considering, for example, the
dealership's sales, the dealer's investment in the business, and the dealer's
satisfaction of its warranty obligations. Finally, a manufacturer may not site
a new dealership in a relevant market area without either the consent of the
local dealers or by showing "good cause." Dealers may protest a manufacturer's
actions to the Ohio Motor Vehicle Dealers Board, and eventually the courts, if
there is no "good cause" for the transfer restriction or termination or siting
of a new dealership. If the manufacturer violates Ohio's automobile franchise
law, a dealer may be entitled to double its actual damages, as well as court
costs and attorneys fees, from a manufacturer.
South Carolina law forbids a manufacturer from imposing unreasonable
restrictions on a dealer's rights to transfer, sell, or renew a franchise
agreement unless the dealer is compensated. A manufacturer may not terminate or
refuse to renew a franchise agreement without due cause. Further, although a
dealer must obtain the manufacturer's consent to transfer a dealership, the
manufacturer may not unreasonably withhold its consent. Finally, manufacturers
are generally prohibited from acting in bad faith or engaging in arbitrary or
unconscionable conduct. Manufacturers who violate South Carolina's law may be
liable for double the actual damages incurred by the dealer and/or punitive
damages in limited circumstances.
COMPETITION
The retail automotive industry is highly competitive. Depending on the
geographic market, Sonic competes with both dealers offering the same brands
and product lines as Sonic and dealers offering other automakers' vehicles. We
also compete for vehicle sales with auto brokers and leasing companies. We
compete with small, local dealerships and with large multi-franchise auto
dealerships. Some of our competitors are larger and have greater financial and
marketing resources and are more widely known than us. Some of our competitors
also may utilize various marketing techniques that are not currently used by
us.
8
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We also compete with regional and national car rental companies, which
sell their used rental cars, and used automobile "superstores," such as
AutoNation and CarMax. In addition, Ford and GM have announced that they are
entering into joint ventures to acquire dealerships in various cities in the
United States, and Saturn is seeking to acquire its dealerships. In addition,
other manufacturers may directly enter the retail market in the future, which
could have a material adverse effect on us. As we seek to acquire dealerships
in new markets, we may face significant competition (including competition from
other publicly-owned dealer groups) as we strive to gain market share.
We believe that the principal competitive factors in vehicle sales are the
marketing campaigns conducted by automakers, the ability of dealerships to
offer a wide selection of the most popular vehicles, the location of
dealerships and the quality of customer service. Other competitive factors
include customer preference for makes of automobiles, pricing (including
manufacturer rebates and other special offers) and warranties.
In addition to competition for vehicle sales, we also compete with other
auto dealers, service stores, auto parts retailers and independent mechanics in
providing parts and service. We believe that the principal competitive factors
in parts and service sales are price, the use of factory-approved replacement
parts, the familiarity with a dealer's makes and models and the quality of
customer service. A number of regional and national chains offer selected parts
and service at prices that may be lower than our prices.
In arranging or providing financing for our customers' vehicle purchases,
we compete with a broad range of financial institutions. We believe that the
principal competitive factors in providing financing are convenience, interest
rates and contract terms.
Our success depends, in part, on national and regional automobile-buying
trends, local and regional economic factors and other regional competitive
pressures. We sell our vehicles in the Atlanta, Birmingham, Charlotte,
Chattanooga, Columbus, Daytona Beach, Greenville/Spartanburg, Houston,
Montgomery, Nashville and Tampa/Clearwater markets. Conditions and competitive
pressures affecting these markets, such as price-cutting by dealers in these
areas, or in any new markets we enter, could adversely affect us, although the
retail automobile industry as a whole might not be affected.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL MATTERS
A number of regulations affect Sonic's business of marketing, selling,
financing and servicing automobiles. Sonic also is subject to laws and
regulations relating to business corporations generally.
Under North Carolina, South Carolina, Tennessee, Florida, Georgia, Texas,
Ohio and Alabama law as well as the laws of other states into which we may
expand, we must obtain a license in order to establish, operate or relocate a
dealership or operate an automotive repair service. These laws also regulate
our conduct of business, including our advertising and sales practices. Other
states may have similar requirements.
Our operations are also subject to certain consumer protection laws known
as "Lemon Laws." These laws typically require a manufacturer or dealer to
replace a new vehicle or accept it for a full refund within one year after
initial purchase if the vehicle does not conform to the manufacturer's express
warranties and the dealer or manufacturer, after a reasonable number of
attempts, is unable to correct or repair the defect. Federal laws require
certain written disclosures to be provided on new vehicles, including mileage
and pricing information.
The imported automobiles purchased by us are subject to United States
customs duties and, in the ordinary course of our business, we may, from time
to time, be subject to claims for duties, penalties, liquidated damages, or
other charges. Currently, United States customs duties are generally assessed
at 2.5% of the customs value of the automobiles imported, as classified
pursuant to the Harmonized Tariff Schedule of the United States.
Our financing activities with customers are subject to federal
truth-in-lending, consumer leasing and equal credit opportunity regulations as
well as state and local motor vehicle finance laws, installment finance laws,
usury laws and other installment sales laws. Some states regulate finance fees
that may be paid as a result of vehicle sales. Federal, state and local
environmental regulations, including regulations governing air and water
quality, the clean-up of contaminated property and the storage and disposal of
gasoline, oil and other materials, also apply to us and our dealership
properties.
We believe that we comply in all material respects with the laws affecting
our business. Possible penalties for violation of any of these laws include
revocation of our licenses and fines. In addition, many laws may give customers
a private cause of action.
As with automobile dealerships generally, and service, parts and body shop
operations in particular, our business involves the use, storage, handling and
contracting for recycling or disposal of hazardous or toxic substances or
wastes and other environmentally sensitive materials. Our business also
involves the past and current operation and/or removal of
9
<PAGE>
aboveground and underground storage tanks containing such substances or wastes.
Accordingly, we are subject to regulation by federal, state and local
authorities which establish health and environmental quality standards, provide
for liability related to those standards, and in certain circumstances provide
penalties for violations of those standards. We are also subject to laws,
ordinances and regulations governing remediation of contamination at facilities
we operate or to which we send hazardous or toxic substances or wastes for
treatment, recycling or disposal.
We believe that we do not have any material environmental liabilities and
that compliance with environmental laws and regulations will not, individually
or in the aggregate, have a material adverse effect on our results of
operations or financial condition. However, soil and groundwater contamination
is known to exist at certain properties used by us. Further, environmental laws
and regulations are complex and subject to frequent change. In addition, in
connection with our acquisitions, it is possible that we will assume or become
subject to new or unforeseen environmental costs or liabilities, some of which
may be material. We cannot assure you that compliance with current or amended,
or new or more stringent, laws or regulations, stricter interpretations of
existing laws or the future discovery of environmental conditions will not
require additional expenditures by Sonic, or that such expenditures will not be
material.
EMPLOYEES
As of December 31, 1998, Sonic employed approximately 3,040 people, of
whom approximately 430 were employed in managerial positions, 980 were employed
in non-managerial sales positions, 1,170 were employed in non-managerial parts
and service positions and 460 were employed in administrative support
positions.
We believe that many dealerships in the retail automobile industry have
difficulty in attracting and retaining qualified personnel for a number of
reasons, including the historical inability of dealerships to provide employees
with an equity interest in the profitability of the dealerships. We provide
certain executive officers, managers and other employees with stock options and
all employees with a stock purchase plan and we believe this type of equity
incentive is attractive to our existing and prospective employees.
We believe that our relationship with our employees is good. None of our
employees is represented by a labor union. Because of our dependence on the
manufacturers, however, we may be affected by labor strikes, work slowdowns and
walkouts at the manufacturer's manufacturing facilities.
ITEM 2: PROPERTIES
Sonic's principal executive offices are located at 5401 East Independence
Boulevard, Charlotte, North Carolina 28212, and our telephone number is (704)
532-3320. These executive offices are located on the premises leased by Town &
Country Ford. The following table identifies each of the properties utilized by
Sonic's operations and their respective locations:
ATLANTA MARKET
o Dyer & Dyer Volvo, 5260 Peachtree Industrial Blvd., Atlanta, GA
o Global Imports, 500 & 550 Interstate North Parkway, N.W., Atlanta, GA(1)
BIRMINGHAM MARKET
o Tom Williams Buick, 401 S. 20th Street, Birmingham, AL(1)
o Tom Williams Cadillac, 325 S. 20th Street, Birmingham, AL(1)
o Tom Williams Imports, 2200 34d Avenue South, Birmingham, AL(1)
o Tom Williams Lexus, 300 S. 22nd Street, Birmingham, AL(1)
CHARLOTTE MARKET
o Fort Mill Chrysler-Plymouth-Dodge, 3310 Hwy. 51, Fort Mill, SC
o Fort Mill Ford, 788 Gold Hill Rd., Fort Mill, SC
o Frontier Oldsmobile-Cadillac, 2501 Roosevelt Blvd., Monroe, NC
o Lake Norman Chrysler-Plymouth-Jeep, Chartwell Center Dr., Cornelius, NC
o Lake Norman Dodge, I-77 & Torrence Chapel Rd., Cornelius, NC
o Town & Country Chrysler-Plymouth-Jeep of Rock Hill, 803 North Anderson Rd.,
Rock Hill, SC
o Town & Country Ford, 5401 East Independence Blvd., Charlotte, NC
o Town & Country Toyota, 9101 South Blvd., Charlotte, NC
10
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CHATTANOOGA MARKET
o BMW/Volvo of Chattanooga, 5949 Brainard Rd., Chattanooga, TN
o Cleveland Chrysler-Plymouth-Jeep, 717 South Lee Hwy., Cleveland, TN
o Dodge of Chattanooga, 402 West Martin Luther King Blvd., Chattanooga, TN
o Economy Honda, Hwy. 153 at Shallowford Rd., Chattanooga, TN(1)
o Infiniti of Chattanooga, 5915 Brainard Rd., Chattanooga, TN
o KIA/VW of Chattanooga, 6015 International Dr., Chattanooga, TN
o Town & Country Ford of Cleveland, 2496 South Lee Hwy., Cleveland, TN
COLUMBUS MARKET
o Hatfield Hyundai & Hatfield Isuzu & Hatfield Subaru, 1400 Automall Dr.,
Columbus, OH
o Trader Bud's Westside Chrysler-Plymouth-Jeep, 3700 West Broad St., Columbus,
OH
o Hatfield Lincoln Mercury, 1495 Automall Dr., Columbus, OH
o Toyota West, 1500 Automall Dr., Columbus, OH
o Trader Bud's Westside Dodge, 4000 West Broad St., Columbus, OH
o Hatfield KIA/Volkswagen West & Jeep Eagle West, 1455 Automall Dr., Columbus,
OH
DAYTONA BEACH MARKET
o Halifax Ford-Mercury, 1307 N. Dixie Hwy., New Smyrna Beach, FL
o Higginbotham Automobiles, 1720 Mason Ave., Daytona Beach, FL
o Higginbotham Chevy-Olds, 1919 N. Dixie Hwy., New Smyrna Beach, FL
o HMC Finance, 3741 S. Nova Rd., Port Orange, FL
o Sunrise Auto World, 241 Ridgewood Ave., Holly Hill, FL
GREENVILLE/SPARTANBURG MARKET
o Century BMW, 2752 Laurens Rd., Greenville, SC
o Heritage Lincoln Mercury, 2424 Laurens Rd., Greenville, SC
HOUSTON MARKET
o Casa Ford, 4701 I-10 East, Baytown, TX
o Lone Star Ford, 8477 North Freeway, Houston, TX
o Ron Craft Chevrolet-Cadillac-Oldsmobile-Geo, 3401 N. Main, Baytown, TX
o Ron Craft Chrysler Plymouth Jeep, 5221 I-10 East, Baytown, TX
MONTGOMERY MARKET
o Capitol Chevrolet, 711 Eastern Blvd., Montgomery, AL
o Capitol Hyundai & Capitol Mitsubishi, 190 Eastern Blvd., Montgomery, AL
o Capitol KIA, 845 Eastern Blvd., Montgomery, AL
NASHVILLE MARKET
o BMW of Nashville, 4040 Armory Oaks Drive, Nashville, TN
o VW of Nashville, 630 Murfreesboro Pike, Nashville, TN
o Rally Mitsubishi, 1620 West End Ave., Nashville, TN(1)
TAMPA/CLEARWATER MARKET
o Clearwater Collision Center, 2300 Drew Street, Clearwater, FL
o Clearwater Mitsubishi, 21699 US Hwy 19N, Clearwater, FL
o Clearwater Toyota, 21799 US Hwy 19N, Clearwater, FL
o Freedom Ford, 24825 US Hwy. 19 North, Clearwater & 3925 Tampa Rd., Oldsmar,
FL
o Tampa Volvo, 6008 N. Dale Mabry, Tampa, FL
- ---------
(1) Represents an acquisition that was completed in the first quarter of 1999.
Our dealerships are generally located along major U.S. or interstate
highways. One of the principal factors considered by Sonic in evaluating an
acquisition candidate is its location. We prefer to acquire dealerships located
along major thoroughfares, primarily interstate highways with ease of access,
which can be easily visited by prospective customers.
At December 31, 1998 we owned the properties of Fort Mill Ford and Town
and Country Toyota. All other properties utilized by our dealership operations
were leased. In January 1999, we sold the properties of Fort Mill Ford and Town
and Country Toyota to MMR Holdings, LLC, a limited liability company owned by
Bruton Smith ("MMR Holdings"), and are currently leasing these properties back
from MMR Holdings.
On July 9, 1998, Sonic entered into a strategic alliance agreement with
Mar Mar Realty Trust, a real estate investment trust ("MMRT"). MMRT owns or
will own, through its expected acquisition of MMR Holdings, certain real estate
11
<PAGE>
associated with various automobile dealerships, automotive aftermarket
retailers and other automotive related businesses and leases such properties to
the business operators located thereon. Bruton Smith, Sonic's Chairman and
Chief Executive Officer, serves as the chairman of MMRT's board of trustees.
Under the terms of our franchise agreements, Sonic must maintain an
appropriate appearance and design of its facilities and is restricted in its
ability to relocate its dealerships.
ITEM 3: LEGAL PROCEEDINGS
On March 1, 1999, a civil complaint was filed in the Circuit Court of
Montgomery County, Alabama in a matter styled "FRANK E. MCGOUGH V. SONIC
AUTOMOTIVE, INC., CAPITOL CHEVROLET AND IMPORTS, INC., ET AL." (the "McGough
Complaint"). This action arises from Sonic's acquisition by merger of Capitol
Chevrolet and Imports, Inc. from plaintiff, who was its former stockholder. The
McGough Complaint alleges that Sonic untimely delivered an erroneous
post-closing balance sheet to settle outstanding accounts among the parties to
the merger and that Sonic made misrepresentations concerning the preparation of
this post-closing balance sheet. Plaintiff states that these allegations
entitle him to declaratory judgement allowing him to receive all funds escrowed
by Sonic for the resolution of post-merger accounts or, alternatively,
rescission of the merger. Sonic denies the allegations of the McGough Complaint
and will defend itself vigorously. Sonic believes that its post-closing balance
sheet was properly prepared and that plaintiff is not entitled to the relief
sought. Furthermore, the merger agreement at issue specifically provides for
the arbitration of disputes concerning the post-closing balance sheet, and,
consequently, Sonic believes that the McGough Complaint was improperly filed.
From time to time, Sonic is named in claims involving the manufacture of
automobiles, contractual disputes and other matters arising in the ordinary
course of our business. Currently, no legal proceedings, other than the
proceeding described above, are pending against or involve the Company that, in
the opinion of management, could reasonably be expected to have a material
adverse effect on our business, financial condition or results of operations.
Because of their vehicle inventory and nature of business, automobile
retail dealerships generally require significant levels of insurance covering a
broad variety of risks. Sonic's insurance includes an umbrella policy as well
as insurance on our real property, comprehensive coverage for our vehicle
inventory, general liability insurance, employee dishonesty coverage and errors
and omissions insurance in connection with our vehicle sales and financing
activities.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of stockholders held on December 3, 1998, William P.
Benton, William I. Belk and Bryan Scott Smith were elected directors by Sonic's
stockholders. Directors whose terms of office continued after the meeting were
O. Bruton Smith, Theodore M. Wright, Nelson E. Bowers, II and William R.
Brooks. In addition to the election of three directors, the stockholders
approved an amendment to increase the authorized number of shares of Class A
common stock issuable under the Sonic Employee Stock Purchase Plan from 300,000
to 600,000, approved the adoption of the Sonic Formula Stock Option Plan for
Independent Directors, approved and ratified the issuance of up to 600,000
shares of Sonic's Class A convertible preferred stock, par value $.10 per share
and ratified the appointment of Deloitte & Touche LLP as Sonic's independent
public accountant for the fiscal year ending December 31, 1998.
<TABLE>
<CAPTION>
VOTES
VOTES FOR VOTES AGAINST ABSTAINED UNVOTED
------------ --------------- ----------- ------------
<S> <C> <C> <C> <C>
Election of William P. Benton ................................... 68,439,855 41,350 679,616
Election of William I. Belk ..................................... 68,439,855 41,350 679,616
Election of Bryan Scott Smith ................................... 68,439,855 41,350 679,616
Approval of amendment to Sonic Employee Stock Purchase Plan ..... 67,295,719 576,250 111,015 1,177,837
Approval of adoption of Sonic Formula Stock Option Plan ......... 67,514,644 357,400 110,940 1,177,837
Approval of issuance of Preferred Stock ......................... 67,946,611 33,635 2,738 1,177,837
Appointment of Deloitte & Touche LLP ............................ 68,479,530 750 925 679,616
</TABLE>
12
<PAGE>
PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Sonic's Class A common stock is currently traded on the New York Stock
Exchange ("NYSE") under the symbol "SAH."
As of December 31, 1998, with giving effect to the Stock Split, 11,959,274
shares of Class A common stock and 12,400,000 shares of Sonic's Class B common
stock were outstanding. As of March 29, 1999, there were 30 record holders of
the Class A common stock and four record holders of the Class B common stock.
As of March 29, 1999, the closing stock price for the Class A common stock was
$14.25.
Sonic intends to retain future earnings to provide funds for operations
and future acquisitions. As a holding company, Sonic will depend on dividends
and other payments from its subsidiary dealership operations to pay cash
dividends to stockholders, as well as to meet debt service and operating
expense requirements.
We do not anticipate paying any dividends in the foreseeable future. Under
an Indenture dated as of July 1, 1998 (the "Indenture") among Sonic and U.S.
Bank Trust National Association, as trustee, and under the credit agreement
between Sonic and Ford Motor Credit Company ("Ford Motor Credit"), no dividends
may be paid by Sonic. Any decision concerning the payment of dividends on the
common stock will depend upon the results of operations, financial condition and
capital expenditure plans of Sonic, as well as other factors as the Board of
Directors, in its sole discretion, may consider relevant.
The following table sets forth the high and low closing sales prices for
Sonic's Class A common stock for each calendar quarter during the periods
indicated as reported by the NYSE Composite Tape, as adjusted to reflect the
Stock Split. Prior to November 10, 1997, Sonic was privately held and there was
no public market for the Class A common stock.
<TABLE>
<CAPTION>
1998 HIGH LOW
- ------------------------------------------------ ----------- ----------
<S> <C> <C>
First Quarter ......................... 8 5/8 4 7/8
Second Quarter ........................ 9 3/8 7 11/16
Third Quarter ......................... 11 15/16 8 1/4
Fourth Quarter ........................ 17 9/16 6 11/32
1997 HIGH LOW
- ----------------------------------------------- ----------- ----------
Fourth Quarter (from November 10, 1997
through December 31, 1997) .......... 5 31/32 4 13/16
</TABLE>
Set forth below is certain information as to all equity securities sold by
Sonic during the periods discussed that were not registered under the
Securities Act. As to all such transactions, an exemption was claimed under
Section 4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder ("Regulation D") as transactions not involving a public offering in
view of sophistication of the purchasers, their access to material information
about Sonic, the disclosures actually made to them by Sonic, the absence of any
general solicitation or advertising, the status of the purchasers as
"accredited investors" as that term is defined in Rule 501 (a) of Regulation D
and the filing by Sonic of the appropriate forms in connection therewith. All
such private sales of Sonic's equity securities were made to the owners of
assets associated with, or the capital stock of, automobile dealerships
acquired by Sonic as a part of Sonic's dealership acquisition strategy.
Sonic has privately issued its Class A common stock in the following
dealership acquisition transactions:
On September 18, 1998, Sonic issued 970,588 shares of its Class A common
stock to acquire the assets of HMC Finance Corporation, Inc., Halifax
Ford-Mercury, Inc., Higginbotham Automobiles, Inc., Higginbotham Chevrolet-
Oldsmobile, Inc., and Sunrise Auto World, Inc. with a value of approximately
$8.3 million.
Sonic has also privately issued its Class A convertible preferred stock,
par value $.10 per share (the "Preferred Stock") in dealership acquisition
transactions. The Preferred Stock is divided into three series: the Series I
Preferred Stock, the Series II Preferred Stock and the Series III Preferred
Stock. 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 yet been converted are subject to mandatory conversion to
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<PAGE>
Class A Common Stock at the option of Sonic. No fractional shares of Class A
common stock will be issued upon conversion of any shares of Preferred Stock.
Instead, Sonic will pay cash equal to the value of such fractional shares.
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 Series II and
Series III Preferred Stock). "Market Price" is defined generally as the average
closing price per share of the Class A common stock on the New York Stock
Exchange for twenty trading days immediately preceding the date of
determination. Before the first anniversary of the date of issuance of the
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.
Sonic has privately issued Preferred Stock in the following dealership
acquisition transactions:
On March 24, 1998, Sonic issued 3,960 shares of its Series III Preferred
Stock to acquire the assets of M&S Auto Resources, Inc. (d/b/a Clearwater
Toyota), Clearwater Auto Resources, Inc. (d/b/a Clearwater Mitsubishi) and
Clearwater Collision Center, Inc. with a value of approximately $3.9 million.
On July 8, 1998, Sonic issued 14,025 shares of its Series I Preferred
Stock to acquire the assets of Hatfield Jeep Eagle, Inc., Hatfield Lincoln
Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota West, Inc., and
Hatfield Hyundai, Inc. with a value of approximately $12.5 million.
On July 14, 1998, Sonic issued 400 shares of Series II Preferred Stock to
acquire the assets of Fairway Management Company d/b/a Heritage Lincoln-Mercury
with a value of approximately $0.4 million.
On July 31, 1998, Sonic issued 2,166.5 shares of Series II Preferred Stock
to acquire the assets of Century Auto Sales, Inc. d/b/a Century BMW with a
value of approximately $2.3 million.
On July 31, 1998, Sonic issued 381.3 shares of Series I Preferred Stock
and 3,813 shares of Series II Preferred Stock to acquire the outstanding
capital stock of Capitol Chevrolet and Imports, Inc. with a value of
approximately $4.0 million.
On July 31, 1998, Sonic issued 2,313 shares of Series III Preferred Stock
to acquire the outstanding capital stock of Casa Ford of Houston, Inc. with a
value of approximately $2.5 million.
On December 15, 1998, Sonic issued 3,675 shares of Series II Preferred
Stock to acquire the outstanding capital stock of Ron Craft Chevy-Olds with a
value of approximately $3.7 million.
In addition, Sonic has privately issued warrants to purchase Class A
common stock in the following dealership acquisition transactions:
On January 15, 1998, Sonic issued warrants to purchase 88,782 shares of
its Class A common stock at an exercise price of $6 per share. These warrants
are currently exercisable at the option of the holder and expire on January 15,
2003. These warrants were issued as consideration paid by us to acquire the
assets of Dyer Volvo having an aggregate fair value of approximately $266,000.
On July 31, 1998, Sonic issued warrants to purchase 150,000 shares of its
Class A common stock at an exercise price of $10.40 per share. These warrants
are currently exercisable at the option of the holder and expire on July 31,
2003. These warrants were issued as consideration paid by us to acquire the
assets of Century BMW having an aggregate fair value of approximately $450,000.
On November 30, 1998, Sonic issued warrants to purchase 4,000 shares of
its Class A common stock at an exercise price of $11.27 per share. These
warrants are currently exercisable at the option of the holder and expire on
November 30, 2003. These warrants were issued as consideration paid by us to
acquire the assets of Tampa Volvo having an aggregate fair value of
approximately $12,000.
14
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
The selected consolidated statement of operations data for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998 and the selected consolidated
balance sheet data as of December 31, 1995, 1996, 1997 and 1998 are derived
from Sonic's audited financial statements. The selected consolidated balance
sheet data as of December 31, 1994 are derived from Sonic's unaudited financial
statements. In the opinion of management, these unaudited financial statements
reflect all adjustments necessary for a fair presentation of its results of
operations and financial condition. All such adjustments are of a normal
recurring nature. This selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and
related notes included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996(1) 1997(1) 1998(1)
----------- ------------ ------------ -------------- ---------------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Revenues:
Vehicle sales ...................................... $228,569 $ 267,650 $ 327,674 $ 467,858 $ 1,407,030
Parts, service, and collision repair ............... 33,984 35,860 42,075 57,537 162,660
Finance and insurance .............................. 5,181 7,813 7,118 10,606 34,011
-------- --------- --------- ---------- -----------
Total revenues ....................................... 267,734 311,323 376,867 536,001 1,603,701
Cost of sales ........................................ 233,833 272,130 332,122 473,003 1,396,259
-------- --------- --------- ---------- -----------
Gross profit ......................................... 33,901 39,193 44,745 62,998 207,442
Selling, general and administrative expenses ......... 23,810 28,091 32,602 46,770 150,130
Depreciation and amortization ........................ 838 832 1,076 1,322 4,607
-------- --------- --------- ---------- -----------
Operating income ..................................... 9,253 10,270 11,067 14,906 52,705
Interest expense, floor plan ......................... 3,001 4,505 5,968 8,007 14,096
Interest expense, other .............................. 443 436 433 1,199 9,395
Other income ......................................... -- 106 355 298 426
-------- --------- --------- ---------- -----------
Income before income taxes and minority interest ..... 5,809 5,436 5,021 5,998 29,640
Provision for income taxes ........................... 2,118 2,176 1,924 2,249 11,083
-------- --------- --------- ---------- -----------
Income before minority interest ...................... 3,691 3,260 3,097 3,749 18,557
Minority interest in earnings of subsidiary .......... 15 22 114 47 --
-------- --------- --------- ---------- -----------
Net income ........................................... $ 3,676 $ 3,238 $ 2,983 $ 3,702 $ 18,557
======== ========= ========= ========== ===========
Diluted net income per share ......................... $ 0.27 $ 0.74
Weighted average number of shares outstanding ........ 13,898 24,970
Consolidated Balance Sheet Data:
Working capital ...................................... $ 13,246 $ 18,140 $ 19,780 $ 44,098 $ 79,155
Total assets ......................................... 69,061 79,462 110,976 291,450 576,103
Long-term debt ....................................... 3,773 3,561 5,286 38,640 131,337
Total liabilities .................................... 57,274 62,956 84,367 207,085 433,674
Minority interest .................................... 177 200 314 -- --
Stockholders' equity ................................. 11,610 16,306 26,295 84,365 142,429
</TABLE>
- ---------
(1) Selected Financial Data for the years ended December 31, 1996, 1997, and
1998 include the results of operations of certain dealerships acquired
during those periods. All such acquisitions were accounted for using the
purchase method of accounting and, as a result, the results of operations
prior to the date of acquisition have been excluded. Accordingly, the
actual financial data for periods after the acquisitions may not be
comparable to data presented for periods prior to the acquisitions.
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion of the results of operations and financial
condition as of December 31, 1998 should be read in conjunction with the Sonic
Automotive, Inc. and Subsidiaries Consolidated Financial Statements and the
related notes thereto included elsewhere herein.
15
<PAGE>
OVERVIEW
Sonic is one of the top five automotive retailers in the United States,
operating 38 dealerships and 14 collision repair centers in the southeastern,
southwestern and midwestern United States. We sell new and used cars and light
trucks, sells replacement parts, provide vehicle maintenance, warranty, paint
and repair services and arrange related F&I for its automotive customers. Our
business is geographically diverse, with dealership operations in the Atlanta,
Charlotte, Chattanooga, Columbus, Daytona Beach, Greenville/Spartanburg,
Houston, Montgomery, Nashville, and Tampa-Clearwater markets. Sonic sells 23
domestic and foreign brands, which consist of Acura, BMW, Cadillac, Chevrolet,
Chrysler, Dodge, Ford, Honda, Hyundai, Infiniti, Isuzu, Jeep, KIA, Lincoln,
Mercedes, Mercury, Mitsubishi, Oldsmobile, Plymouth, Subaru, Toyota, Volkswagen
and Volvo.
New vehicle revenues include both the sale and lease of new vehicles. Used
vehicle revenues include amounts received for used vehicles sold to retail
customers, other dealers and wholesalers. Other operating revenues include
parts and services revenues, fees and commissions for arranging F&I and sales
of third party extended warranties for vehicles. In connection with vehicle
financing contracts, Sonic receives a finance fee from the lender for
originating the loan. If, within 90 days of origination, the customer pays off
the loans through refinancing or selling/trading in the vehicle or defaults on
the loan, the finance company will assess a charge (a "chargeback") for a
portion of the original commission. The amount of the chargeback depends on how
long the related loan was outstanding. As a result, Sonic has established
reserves based on its historical chargeback experience. Sonic also sells
warranties provided by third-party vendors, and recognizes a commission at the
time of sale.
While the automotive retailing business is cyclical, we sell several
products and services that are not closely tied to the sale of new and used
vehicles. Such products and services include our parts and service and
collision repair businesses, both of which are not dependent upon near-term new
vehicle sales volume.
Our cost of sales and profitability are also affected by the allocations
of new vehicles which our dealerships receive from manufacturers. When we do
not receive allocations of new vehicle models adequate to meet customer demand,
we may purchase additional vehicles from other dealers at a premium to the
manufacturer's invoice, reducing the gross margin realized on the sales of such
vehicles. In addition, we follow a disciplined approach in selling vehicles to
other dealers and wholesalers when the vehicles have been in our inventory
longer than the guidelines set by us. Such sales are frequently at or below
cost and, therefore, reduce our overall gross margin on vehicle sales. Sonic's
salary expense, employee benefits costs and advertising expenses comprise the
majority of our selling, general and administrative expenses. Sonic's interest
expense fluctuates based primarily on the level of the inventory of new
vehicles held at our dealerships, substantially all of which is financed
through floor plan financing, as well as the amount of indebtedness incurred
for acquisitions.
We have accounted for all of our dealership acquisitions using the
purchase method of accounting and, as a result, we do not include in our
financial statements the results of operations of these dealerships prior to
the date they were acquired by us. The Consolidated Financial Statements of
Sonic discussed below reflect the results of operations, financial position and
cash flows of each of our dealerships acquired prior to December 31, 1998. As a
result of the effects of our acquisitions, the historical consolidated
financial information described in "Management's Discussion and Analysis of
Financial Condition and Results of Operations" is not necessarily indicative of
the results of operations, financial position and cash flows of Sonic in the
future or the results of operations, financial position and cash flows which
would have resulted had such acquisitions occurred at the beginning of the
periods presented in the Consolidated Financial Statements.
The automobile industry is cyclical and historically has experienced
periodic downturns, characterized by oversupply and weak demand. Many factors
affect the industry including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
available credit.
Sonic's profit margins are primarily impacted by changes in the percentage
of revenues attributed to new vehicle sales.
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RESULTS OF OPERATIONS
The following table summarizes, for the periods presented, the percentages
of total revenues represented by certain items reflected in Sonic's statement
of operations.
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES FOR
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
New vehicle sales ........................... 62.0% 64.2% 60.0%
Used vehicle sales .......................... 24.9% 23.1% 27.8%
Parts, service and collision repair ......... 11.2% 10.7% 10.1%
Finance and insurance ....................... 1.9% 2.0% 2.1%
Total revenues .............................. 100.0% 100.0% 100.0%
Cost of sales ............................... 88.1% 88.2% 87.1%
Gross profit ................................ 11.9% 11.8% 12.9%
Selling, general and administrative ......... 8.9% 9.0% 9.6%
Operating income ............................ 2.9% 2.8% 3.3%
Interest expense ............................ 1.7% 1.7% 1.5%
Income before taxes ......................... 1.3% 1.5% 1.8%
</TABLE>
TWELVE MONTHS ENDED DECEMBER 31, 1998 COMPARED TO TWELVE MONTHS ENDED
DECEMBER 31, 1997
REVENUES. Revenues grew in each of Sonic's primary revenue areas for 1998
as compared with 1997, causing total revenues to increase 199% to $1.6 billion.
This increase was due primarily to revenues contributed by our acquisitions
completed in 1997 and 1998 of approximately $994.4 million. New vehicle sales
revenue increased 180% to $962.9 million in 1998, compared with $ 343.9 million
in 1997. The increase was due primarily to an increase in new vehicle unit
sales of 165% to 41,592, as compared with 15,715 in 1997 resulting principally
from 24,922 units contributed by the acquisitions completed during 1997 and
1998. The remainder of the increase was due to a 6% increase in the average
selling price of new vehicles resulting principally from sales of higher priced
luxury and import vehicles contributed by Sonic's acquisitions.
Used vehicle revenues from retail sales increased 281% to $324.7 million
in 1998 from $85.1 million in 1997. The increase was due primarily to an
increase in used vehicle unit sales of 266% to 24,591, as compared with 6,712
in 1997, resulting from additional unit sales contributed by the acquisitions
completed in 1997 and 1998. The remainder of the increase was due to a 4%
increase in the average selling price of used vehicles, resulting principally
from sales of higher priced luxury and import vehicles contributed by our
acquisitions, along with an increase in used vehicle revenues from stores owned
for longer than one year of 23% in 1998 over 1997.
Sonic's parts, service and collision repair revenue increased 183% to
$162.7 million in 1998 compared to $57.5 million in 1997, due principally to
our acquisitions. Finance and insurance revenue increased $23.4 million, or
221%, due principally to increased new vehicle sales and related financing
contributed by the acquisitions completed in 1997 and 1998.
GROSS PROFIT. Gross profit increased 229% to $207.4 million in 1998 from
$63.0 million in 1997 due principally to increases in revenues contributed by
our acquisitions. Gross profit as a percentage of sales increased to 12.9% from
11.8% due to increases in new vehicle gross margins from 7.7% to 7.8% resulting
from sales of higher margin import vehicles contributed by our acquisitions, as
well as improved gross margins of used vehicles from 8.6% to 10.7% resulting
from efforts made to improve management of used vehicle inventories. In
addition, because gross margins from used vehicle revenues are higher than
gross margins from new vehicle revenues, an increase in used vehicle revenues
as a percentage of total revenues from 23.1% in 1997 to 27.8% in 1998, and a
decrease in new vehicle revenues as a percentage of total revenues from 64.2%
in 1997 to 60.0% in 1998, also contributed to the overall increase in gross
profits as a percentage of total revenues.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, increased
222% to $154.7 million in 1998 from $48.1 million in 1997. Such expenses as a
percentage of revenues increased to 9.6% from 9.0% due principally to expenses
inherent with the rapid growth and formation of Sonic. In addition, because
sales compensation, which comprises over 50% of total selling, general, and
administration
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expenses, is based on gross profits as opposed to revenues, the increase in
gross profit margins resulted in an increase in total selling, general, and
administrative expenses as a percent of total revenues.
INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 76%
to $14.1 million from $8.0 million, due primarily to floor plan interest
incurred by our acquisitions. As a percentage of total revenues, floor plan
interest decreased from 1.5% to 0.9% due to decreased interest rates under
Sonic's floor plan financing arrangements, as well as improvement in turnover
rates.
INTEREST EXPENSE, OTHER. Interest expense, other increased to $9.4 million
from $1.2 million, due primarily to interest incurred on Sonic's senior
subordinated notes and on acquisition-related indebtedness.
NET INCOME. As a result of the factors noted above, Sonic's net income
increased by $14.9 million in 1998 compared to 1997.
TWELVE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO TWELVE MONTHS ENDED DECEMBER
31, 1996
REVENUES. Revenues grew in each of Sonic's primary revenue areas for 1997
as compared with 1996, causing total revenues to increase 42.2% to $536.0
million. New vehicle sales revenue increased 47.0% to $343.9 million, compared
with $233.9 million. New vehicle unit sales increased from 11,693 to 15,715,
accounting for 34.4% of the increase in vehicle sales revenues. The remainder
of the increase was primarily due to a 9.4% increase in the average selling
price resulting from changes in vehicle prices, particularly a shift in
customer preference to higher cost light trucks and sport utility vehicles, and
additional revenues from our 1997 acquisitions.
Used vehicle revenues from retail sales increased 25.1% from $68.0 million
in 1996 to $85.1 million in 1997. The increase in used vehicle revenues was due
principally to additional revenues contributed from dealerships acquired in the
fourth quarter of 1997.
Sonic's parts, service and collision repair revenue increased 36.7% to
$57.5 million from $42.1 million, and declined as a percentage of revenue to
10.7% from 11.2%. The increase in service and parts revenue was due principally
to increased parts revenue, including wholesale parts, from our Lone Star Ford
and Fort Mill Ford locations and additional revenues from our acquisitions in
the fourth quarter of 1997. F&I revenue increased $3.5 million, due principally
to increased new vehicle sales and related financings.
GROSS PROFIT. Gross profit increased 40.8% in 1997 to $63.0 million from
$44.7 million in 1996 due to increases in new vehicle sales revenues
principally at our Lone Star Ford and Fort Mill Ford locations and additional
revenues from our acquisitions in the third and fourth quarter of 1997. Parts
and service revenue increases also contributed to the increase in gross profit.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses, including depreciation and amortization, increased
42.8% from $33.7 million to $48.1 million. These expenses increased due to
increases in sales volume as well as expenses inherent with the initial growth
and formation of Sonic.
INTEREST EXPENSE, FLOOR PLAN. Interest expense, floor plan increased 34.2%
to $8.0 million from $6.0 million, primarily due to our 1997 acquisitions. As a
percentage of total revenues, floor plan interest decreased from 1.6% to 1.5%.
INTEREST EXPENSE, OTHER. Interest expense, other increased 176.9% from
$0.4 million to $1.2 million. The increase in interest expense was due to
interest incurred on acquisition related indebtedness.
NET INCOME. As a result of the factors noted above, Sonic's net income
increased by $0.7 million in 1997 compared to 1996.
LIQUIDITY AND CAPITAL RESOURCES
Sonic's principal needs for capital resources are to finance acquisitions,
and fund debt service and working capital requirements. Historically, we have
relied on internally generated cash flows from operations, borrowings under its
various credit facilities, and borrowings and capital contributions from our
stockholders to finance our operations and expansion. On November 10, 1997,
Sonic completed its initial public offering of its Class A common stock,
providing approximately $53.7 million of additional capital resources for the
consummation of certain acquisitions. On July 31, 1998, Sonic completed its
private placement of $125 million of its 11% senior subordinated notes which
provided an additional $120.6 million of capital resources for the consummation
of certain acquisitions, for repayment of borrowings under our revolving line
of credit and for future acquisitions.
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Sonic currently has a standardized floor plan credit facility with Ford
Motor Credit for all its dealership subsidiaries (the "Floor Plan Facility")
used to finance purchases of new and used vehicle inventory. As of December 31,
1998, there was an aggregate of $228.2 million outstanding under the Floor Plan
Facility. The Floor Plan Facility at December 31, 1998 had an effective rate of
prime less 1.1% (6.65%) subject to certain incentives and other adjustments.
Typically new vehicle floor plan indebtedness exceeds the related inventory
balances. The inventory balances are generally reduced by the manufacturer's
purchase discounts which are not reflected in the related floor plan liability.
These manufacturer purchase discounts are standard in the industry, typically
occur on all new vehicle purchases, and are not used to offset the related
floor plan liability. These discounts are aggregated and generally paid to
Sonic by the manufacturer on a quarterly basis. The related floor plan
liability becomes due as vehicles are sold.
The Floor Plan Facility includes an available credit line for the purchase
of used vehicle inventory. Sonic's general practice is to utilize used vehicle
floor plan indebtedness only when purchasing large quantities of used vehicles
in bulk. As of December 31, 1998, there was approximately $18.5 million
available under Sonic's used vehicle credit line of which approximately $17.4
million was unused. Amounts outstanding under used floor plan indebtedness are
due when vehicles are sold.
Sonic makes monthly interest payments on the amount financed under the
Floor Plan Facility but is not required to make loan principal repayments prior
to the sale of the vehicles. The underlying notes are due when the related
vehicles are sold and are collateralized by vehicle inventories and other
assets of the relevant dealership subsidiary. The Floor Plan Facility contains
a number of covenants, including among others, covenants restricting Sonic with
respect to the creation of liens and changes in ownership, officers and key
management personnel.
Sonic generated net cash of $29.8 million from operating activities
in 1998, compared to $6.1 million in 1997. The increase was attributable
principally to increased net income and decreases in inventory levels.
Cash used for investing activities, excluding amounts paid in
acquisitions, was approximately $2.7 million for the year ended December 31,
1998 and related primarily to acquisitions of property and equipment. Cash used
in investing activities was $6.7 million, $86.8 million and $74.9 million in
1996, 1997 and 1998, respectively, including $1.9 million, $2.0 million and
$4.3 million of capital expenditures during such periods. Sonic's principal
capital expenditures typically include building improvements and equipment for
use in our dealerships. Of the capital expenditures in 1998, 0.6 million
related to the construction of new dealerships and a body shop which upon
completion is expected to be sold to an affiliate of MMRT and subsequently
leased back.
Cash provided by financing activities of approximately $78.6 million in
1998 primarily reflected proceeds received from the issuance of our senior
subordinated notes, plus borrowings under our revolving credit facility with
Ford Motor Credit (the "Revolving Facility"), less repayments of other debt.
The purpose of these borrowings was to finance acquisitions in 1998.
The Revolving Facility with Ford Motor Credit currently has a borrowing
limit of $100 million. Amounts outstanding under the Revolving Facility bear
interest at a fluctuating per annum rate equal to 2.75% above the 1 month
commercial finance paper rate as reported by the Federal Reserve Board (7.55% at
December 31, 1998).
The Revolving Facility will mature in March 2001, unless Sonic requests
that such term be extended, at the option of Ford Motor Credit, for a number of
additional one year terms to be negotiated by the parties. No assurance can be
given that such extensions will be granted. On July 31, 1998, all amounts
previously outstanding under the Revolving Facility were repaid with a portion
of the net proceeds of the sale of senior subordinated notes. The outstanding
balance of $8.9 million at December 31, 1998 represents amounts borrowed to
finance certain of Sonic's acquisitions completed in 1998. Amounts outstanding
under the Revolving Facility as of March 31, 1999 total approximately $53.7
million which reflects additional borrowings used to finance certain
acquisitions closed subsequent to December 31, 1998. Additional amounts to be
drawn under the Revolving Facility are to be used for the acquisition of
additional dealerships and to provide general working capital needs of Sonic
not to exceed $10 million.
We agreed under the Revolving Facility not to pledge any of our assets to
any third party (with the exception of currently encumbered real estate and
assets of Sonic's dealership subsidiaries that are subject to previous
pledges or liens). In addition, the Revolving Facility contains certain
negative covenants, including covenants restricting or prohibiting the payment
of dividends, capital expenditures and material dispositions of assets as well
as other customary covenants. Additional negative covenants include specified
ratios of
o total debt to tangible base capital (as defined in the Revolving
Facility),
o current assets to current liabilities,
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o earnings before interest, taxes, depreciation and amortization (EBITDA)
and rent less capital expenditures to fixed charges,
o EBITDA to interest expense,
o EBITDA to total debt and
o the current lending commitment under the Revolving Facility to scaled
assets (as defined in the Revolving Facility).
In addition, the loss of voting control over Sonic by Bruton Smith, Scott
Smith and their spouses or immediate family members or the failure by Sonic,
with certain exceptions, to own all the outstanding equity, membership or
partnership interests in its dealership subsidiaries will constitute an event
of default under the Revolving Facility. Sonic did not meet the specified total
debt to tangible equity ratios required by the Revolving Facility at March 31,
1998 and at June 30, 1998 and obtained a waiver with regard to such requirement
from Ford Motor Credit. In connection with Sonic's offering of its senior
subordinated notes, Sonic and Ford Motor Credit amended the Revolving Facility
to provide that the senior subordinated notes (which are subordinated to the
Revolving Facility) will be treated as equity capital for purposes of this
ratio. Accordingly, Sonic was in compliance with this and all other restrictive
covenants as of December 31, 1998.
On July 31, 1998, Sonic completed its private placement of its senior
subordinated notes in the aggregate principal amount of $125,000,000. The notes
are unsecured, mature on August 1, 2008, and are redeemable at Sonic's option
after August 1, 2003. Interest payments are due semi-annually on February 1 and
August 1, commencing February 1, 1999. The notes are subordinated to all
present and future senior indebtedness of Sonic, including the Revolving
Facility. Redemption prices during 12 month periods beginning August 1 are
105.500% in 2003, 103.667% in 2004, 101.833% in 2005 and 100% thereafter. Net
proceeds after commissions and discounts, including issuance discount of
$937,500, amounted to $120,625,000 and were used to finance certain of our 1998
acquisitions and to repay amounts outstanding under the Revolving Facility. On
December 7, 1998, Sonic completed an exchange offer to exchange the senior
subordinated notes for identical senior subordinated notes registered under the
Securities Act.
The indenture governing the senior subordinated notes contains certain
specified restrictive and required financial covenants. We have agreed not to
pledge our assets to any third party except under certain limited circumstances
(for example, floor plan indebtedness). We also have agreed to certain other
limitations or prohibitions concerning the incurrence of other indebtedness,
capital stock, guaranties, asset sales, investments, cash dividends to
shareholders, distributions and redemptions.
Under Sonic's Amended and Restated Certificate of Incorporation, 3 million
shares of preferred stock are authorized to be issued by Sonic with such
designations, rights and preferences as may be determined from time to time by
our Board of Directors. In March 1998, our Board of Directors designated
300,000 shares of preferred stock as Class A convertible preferred stock (the
"Preferred Stock"), which was divided into 100,000 shares of Series I Preferred
Stock, 100,000 shares of Series II Preferred Stock and 100,000 shares of Series
III Preferred Stock.
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A common stock as is determined by dividing $1,000 by
the average closing price for the Class A common stock on the NYSE for the 20
days preceding the date of determination of the shares of Preferred Stock (the
"Market Price"). Conversion of Series II Preferred Stock is subject to certain
adjustments which have the effect of limiting increases and decreases in the
value of the Class A common stock receivable upon conversion by 10% of the
original value of the shares of Series II Preferred Stock. Conversion of
Series III Preferred Stock is subject to certain adjustments which have the
effect of limiting increases in the value of Class A common stock receivable
upon conversion by 10% of the original value of the shares of Series III
Preferred Stock.
The Preferred Stock is redeemable at Sonic's option at any time after the
date of issuance. The redemption price of the Series I Preferred Stock is
$1,000 per share. The redemption price for the Series II Preferred Stock and
Series III Preferred Stock is as follows: (i) prior to the second anniversary
of the date of issuance, the redemption price is the greater of $1,000 per
share or the aggregate Market Price of the Class A common stock into which it
could be converted at the time of redemption, and (ii) after the second
anniversary of the date of issuance, the redemption price is the aggregate
Market Price of the Class A common stock into which it could be converted at
the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A common stock into which it could be
converted as of the record date for the vote. Holders of Preferred Stock are
entitled
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to participate in dividends payable on the Class A common stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
During 1998, Sonic acquired 19 dealerships for an aggregate purchase price
of approximately $134.0 million. The aggregate purchase price was paid with
approximately $96.2 million in cash, with 970,588 shares of Class A common
stock having an estimated fair value at the time of issuance of approximately
$8.3 million, with 30,733.8 shares of Preferred Stock (14,406.3 shares of
Series I Preferred Stock, 10,054.5 shares of Series II Preferred Stock, and
6,273 shares of Series III Preferred Stock) having an estimated fair value at
the time of issuance of approximately $29.3 million and with warrants to
purchase an aggregate of 154,000 shares of Class A common stock having an
approximate fair value of $0.5 million. The cash portion of the aggregate
purchase price was financed with a combination of cash obtained from the net
proceeds of Sonic's private offering on July 31, 1998 of $125 million in
aggregate principal amount of its 11% senior subordinated notes, cash obtained
from the Revolving Facility, and cash generated from Sonic's existing
operations. In addition, Sonic has issued to the sellers of certain of the
acquired dealerships warrants to purchase an aggregate of 154,000 shares of
Class A common stock having an approximate fair value of $0.5 million. Payables
for acquisitions as of December 31, 1998 on the accompanying consolidated
balance sheet includes $1.7 million of the cash portion of the aggregate
purchase price which was paid subsequent to December 31, 1998.
The difference between the aggregate purchase price of $134.0 million and
amounts paid of $134.3 represents the net of (i) $1.3 million due from a former
owner as a result of a shortage in the actual net book value of assets acquired
compared to the minimum net book value required in the purchase agreement, (ii)
$0.4 million due to a former owner as a result of an excess in the actual net
book value of assets acquired over the minimum net book value required in the
purchase agreement, and (iii) $0.6 million due to a former owner on the first
and second anniversaries of the acquisition date. The $1.3 million due from a
former owner has been included in other current assets on the accompanying
balance sheet. The $0.4 million and $0.6 million due to former owners have been
included in payable for acquisitions on the accompanying balance sheet.
In accordance with terms of certain of the purchase agreements, Sonic may
be required to pay additional consideration contingent upon future earnings of
certain of the dealerships acquired. As of December 31, 1998, Sonic had
recorded approximately $8.0 million relating to such consideration, which has
been accounted for as goodwill. Any additional amounts which may be payable in
the future will also be accounted for as goodwill.
During the first quarter of 1999, Sonic acquired 8 dealerships for
approximately $50.9 million in cash and 34,100 shares of Series III Preferred
Stock having a liquidation preference of $1,000 per share. The cash portion of
the purchase price was financed with a combination of cash borrowed under the
Revolving Facility and cash generated from Sonic's existing operations.
The acquisitions were accounted for using purchase accounting. Sonic may be
required to pay additional amounts based on pre-tax earnings of certain of the
dealerships acquired. Any additional amounts paid will be accounted for as
goodwill.
In connection with the subsequent acquisition of a Honda dealership
located in Chattanooga, Tennessee in March 1999, Sonic sold substantially all
of the assets of its Honda dealership in Cleveland, Tennessee for approximately
$3.6 million.
Sonic has signed definitive agreements to acquire 12 dealerships for
a minimum of approximately $54.9 million in cash, 11,425 shares of Series II
Preferred Stock and 10,525 shares of Series III Preferred Stock having a
liquidation value of $1,000 per share. The aggregate purchase price is subject
to adjustment based on the actual net book value of the assets acquired. The
cash portion of the purchase price will be paid with a combination of borrowings
under the Revolving Facility and with cash generated from Sonic's existing
operations. Sonic may be required to pay additional amounts based on future
pre-tax earnings of certain of these acquired dealerships. These acquisitions
are expected to be consummated in the second and third quarters of 1999.
Sonic incurred a tax liability of approximately $7.1 million in connection
with the change in its tax basis of accounting for inventory from the "last-in,
first-out" method of inventory accounting to the "first-in, first-out" method
of inventory accounting, which is payable over a six-year period beginning in
January 1998. In addition, in connection with certain of our 1998 acquisitions,
we incurred an additional tax liability in the amount of approximately $1.9
million as a result of the change in accounting for the inventory from the
"last-in, first-out" method of inventory accounting to the "first-in,
first-out" method of inventory accounting, which will be payable over a four
year period. As of December 31, 1998, the remaining cumulative balance of this
tax liability was $5.6 million. We expect to pay such obligation with cash
provided by operations.
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We believe that the net proceeds from the sale of the senior subordinated
notes, together with funds generated through future operations and availability
of borrowings under our floor plan financing (or any replacements thereof) and
our other credit arrangements will be sufficient to fund our debt service and
working capital requirements and any seasonal operating requirements, including
our currently anticipated internal growth, for the foreseeable future. Sonic
expects to fund any future acquisitions from its future cash flow from
operations, additional debt financing (including the Revolving Facility) or the
issuance of Class A common stock, Preferred Stock or other convertible
instruments.
SEASONALITY
Sonic's operations are subject to seasonal variations. The first quarter
generally contributes less revenue and operating profits than the second, third
and fourth quarters. Seasonality is principally caused by weather conditions
and the timing of manufacturer incentive programs and model changeovers.
YEAR 2000 COMPLIANCE
GENERAL
Due to the limited memory capacity of older computers, many computer
systems and software applications in earlier years were programmed to store
dates using six digit formats (e.g. mm/dd/yy) versus nine digit formats (e.g.
mm/dd/yyyy). Under the six digit format, most computer systems and software
applications are limited to recognizing dates within the 20th century only,
causing computers to interpret the year "00" as the year "1900" rather than the
year "2000." As we approach the beginning of year 2000, there is widespread
concern that the inability of computer systems to recognize dates beyond the
year 1999 will result in software errors and system failures that could be
disruptive to ordinary business operations.
We recognize the need to ensure that our operations will not be disrupted
by Year 2000 (Y2K) system failures either within our own computer systems or
within the computer systems of our primary lenders and suppliers. Each of our
dealerships has appointed a team comprised primarily of department managers
that, using guides developed by the National Automobile Dealers Association
(NADA), is responsible for assessing and resolving potential Year 2000
problems, and developing contingency plans to mitigate the impact of future
problems on operations.
STATE OF READINESS
INTERNAL DEALERSHIP SYSTEMS: Internal systems supporting the dealership's
daily operations are comprised of four primary systems: (i) the Dealer
Management System (DMS), which supports the critical operations of the
dealership including all vehicle sales, vehicle inventory, financing and
insurance operations, service and parts operations, and accounting functions;
(ii) the Dealer Communication System (DCS), which provides on-line
communication with manufacturers necessary for ordering vehicles and parts
inventory, submitting warranty claims, submitting dealership financial
statements, receiving delivery reports, and receiving technical information
used in service department operations; (iii) personal computer systems (PC
systems) used in providing information to and communicating with the parent
company; and (iv) "embedded systems" which use an electric processor or
computer chip to control, monitor, or assist with the operation of equipment,
machinery, and building management (e.g. building access, security and fire
alarms, automotive diagnostic equipment).
DEALER MANAGEMENT SYSTEM: The DMS systems used by our dealerships are
obtained from one of four primary vendors: Reynolds & Reynolds, Infiniti Net,
ADP and UCS. Each of these vendors has developed upgrades to correct Y2K
problems within the DMS systems, and we have completed the process of
installing such upgrades to our systems. In addition, we have received written
verification from each of these vendors that the DMS systems operating within
dealerships currently owned by Sonic are Y2K certified. With respect to
dealerships being acquired, dealerships using DMS systems which are not Y2K
certified are being transferred to existing systems which are Y2K certified.
DEALER COMMUNICATION SYSTEM: The DCS systems used in our dealerships are
provided by the respective manufacturers with whom the dealerships communicate.
As a result, the manufacturers have assumed responsibility for upgrading DCS
systems to Y2K compliant systems. To date, all but 18 of our dealerships have
received written verification from their respective manufacturer that their DCS
system is Y2K compliant. In addition, we have requested
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from each manufacturer that status reports be provided to both the dealership
and parent company to inform us of remediation efforts at those dealerships
that are not yet Y2K compliant, and when such remediation efforts are expected
to be completed.
PERSONAL COMPUTER SYSTEMS: Most PC systems currently operating in our
dealerships were installed within the past year and were determined to be Y2K
compliant at the time of installation. PC systems and local and wide area
networks used to communicate with our dealerships were also recently installed,
and were Y2K certified upon purchase. As a precautionary measure, we have
provided all dealerships with diskettes containing programs designed to test PC
systems for Y2K capability. All PC systems that have not met certification
standards for compliance will be upgraded or replaced with systems that are Y2K
compliant.
EMBEDDED SYSTEMS: Embedded systems refer to systems that use some sort of
electronic process or computer chip to track time and date information used in
the operation of that system. For example, security systems, or heating,
ventilation, and air-conditioning systems (HVAC) may be programmed to
automatically be activated or deactivated at a certain time. If a security
system is programmed to lock up a dealership on weekends, then some dealerships
may be locked out on Thursday, January 6, 2000 because the computer interprets
the date as Saturday, January 6, 1900. All facilities are currently conducting
an inventory of such systems, and will contact the manufacturer or supplier to
test such systems and obtain verification of Y2K certification. This process
has not yet been completed, though these systems are not considered critical
and a disruption in these systems is not expected to significantly affect
dealerships' daily operations.
EXTERNAL SYSTEMS: A dealership's operations may be adversely affected if
the lenders, suppliers, or other third parties with whom it regularly conducts
business are affected by Y2K problems within their systems. Other than
automobile manufacturers, we are primarily concerned about Y2K failures with
banks and other financial service providers, companies providing financing and
insurance to our customers, and utilities providing electricity and water. We
have received verification from our primary banks and lenders that their
systems are Y2K compliant and that service is not expected to be interrupted by
Y2K problems. We are still in the process of contacting other key vendors and
suppliers regarding their Y2K remediation efforts.
COSTS
The costs associated with converting our internal systems to Y2K compliant
systems have not been, and are not expected to be, material to our financial
position or results of operations. Costs associated with upgrading and
converting the DMS and DCS systems to Y2K compliant systems were covered by
monthly maintenance contracts with the respective suppliers and were expensed
as incurred. Costs associated with upgrading or replacing PC and embedded
systems have not been material and were expensed or capitalized in accordance
with our capitalization policy.
CONTINGENCY PLANS
We cannot state with certainty whether Year 2000 system failures either
within our own internal systems or within the systems of third-parties with
whom we are involved will have a material adverse impact on our results of
operations. In order to mitigate the potential impact of any future Year 2000
problems, each of our dealerships is in the process of developing contingency
plans which include the following:
1. Use of pre-printed and pre-numbered forms and checks (including repair
orders and parts counter tickets) and manual journals and ledger books to
assist in bookkeeping and accounting functions;
2. Use of hand held, battery operated finance computers in order to
continue providing finance services to our customers;
3. Establishing emergency reserves of supplies in the event that service
from third party lenders and suppliers is disrupted due to Y2K problems
within their systems; and
4. Training of employees to manually perform functions that are currently
performed on computers.
While we believe that we are taking appropriate steps to ensure we are
adequately prepared to deal with Year 2000 problems as they arise, we cannot
make assurances that Year 2000 problems will not have a material adverse affect
on our results of operations or financial condition. In a worst case scenario,
Year 2000 problems may delay our ability to sell vehicles, provide financing
and insurance to our customers, provide parts and repair service to our
customers, complete acquisitions or meet third-party obligations until Year
2000 problems can be resolved in the affected systems.
23
<PAGE>
SIGNIFICANT MATERIALITY OF GOODWILL
Goodwill represents the excess purchase price over the estimated fair
value of the tangible and separately measurable intangible net assets acquired.
The cumulative amount of goodwill at December 31, 1997 was $75.0 million and at
December 31, 1998 was $182.5 million. As a percentage of total assets and
stockholders' equity, goodwill, net of accumulated amortization, represented
25.5% and 88.1%, respectively, at December 31, 1997, and 31.3% and 126.4%,
respectively, at December 31, 1998. Generally accepted accounting principles
require that goodwill and all other intangible assets be amortized over the
period benefited. We have determined that the period benefited by the goodwill
will be no less than 40 years. Accordingly, we are amortizing goodwill over a
40 year period. Earnings reported in periods immediately following an
acquisition would be overstated if Sonic attributed a 40 year benefit to an
intangible asset that should have had a shorter benefit period. In later years,
Sonic would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the price paid
for the businesses acquired. Earnings in later years also could be
significantly affected if management then determined that the remaining balance
of goodwill was impaired. We periodically compare the carrying value of
goodwill with the anticipated undiscounted future cash flows from operations of
the businesses we have acquired in order to evaluate the recoverability of
goodwill. We have concluded that the anticipated future cash flows associated
with intangible assets recognized in our acquisitions will continue
indefinitely, and these is no pervasive evidence that any material portion will
dissipate over a period shorter than 40 years. We will incur additional
goodwill in future acquisitions.
EFFECTS OF INFLATION
Due to the relatively low levels of inflation in 1996, 1997 and 1998,
inflation did not have a significant effect on Sonic's results of operations
for those periods.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This Standard redefines how operating
segments are determined and requires disclosure of certain financial and
descriptive information about a company's operating segments. This Statement
became effective for Sonic's fiscal year ending December 31, 1998. The
implementation of FAS 131 did not have a significant impact on Sonic's
financial statements or related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instrument
and Hedging Activities." This Standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activities. The Statement will become
effective for Sonic beginning January 1, 2000. We have elected earlier
application of all of the provisions of this Statement beginning October 1,
1998. The implementation of the provisions of this Statement did not have an
impact on Sonic's financial statements for the year ended December 31, 1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
INTEREST RATE RISK. Sonic's only financial instruments with market risk
exposure are variable rate floor plan notes payable, Revolving Facility
borrowings and other variable rate notes and mortgages. As of December 31,
1998, the total outstanding balance of such instruments was approximately
$243.5 million. A change of one percent in the interest rate would have caused
a change in interest expense for the year ended December 31, 1998 of
approximately $2.1 million. In addition, a decrease or increase in interest
rates would cause a respective increase or decrease in the present value of
Sonic's fixed rate senior subordinated notes, which have a carrying value of
$120.7 million at December 31, 1998.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements which appears on page F-1 herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, present principal occupation or employment and the material
occupations, positions, offices or employments for the past five years of each
Sonic director, director-nominee, and executive officer are set forth below.
O. Bruton Smith, 72, has been the Chairman, Chief Executive Officer and a
director of Sonic since its organization in 1997, and he currently is a
director and executive officer of each of Sonic's dealerships. Mr. Smith has
worked in the retail automobile industry since 1966. Mr. Smith's initial term
as a director of Sonic will expire at the 2000 annual stockholders meeting. Mr.
Smith is also the chairman and chief executive officer, a director and
controlling stockholder of Speedway Motorsports, Inc. ("SMI"). SMI is a public
company traded on the NYSE. Among other things, it owns and operates the
following NASCAR racetracks: Atlanta Motor Speedway, Bristol Motor Speedway,
Lowe's Motor Speedway, Las Vegas Motor Speedway, Sears Point Raceway and Texas
Motor Speedway. He is also the executive officer and a director of each of
SMI's operating subsidiaries. Additionally, Mr. Smith serves as chairman of the
board of trustees of Mar Mar Realty Trust, a privately held real estate
investment trust ("MMRT"), and owns and operates Sonic Financial Corporation
among other private businesses. Under his employment agreement with Sonic, Mr.
Smith is required to devote approximately 50% of his business time to Sonic's
business.
Bryan Scott Smith, 31, has been the President and Chief Operating Officer
of Sonic since April 1997 and a Sonic director since its organization in 1997.
Mr. Smith also serves as a director and executive officer of many of Sonic's
subsidiaries. Mr. Smith, who is the son of Bruton Smith, has been an executive
officer of Town and Country Ford since 1993, and was a minority owner of both
Town and Country Ford and Fort Mill Ford before Sonic's acquisition of those
dealerships in 1997. Mr. Smith became the General Manager of Town & Country
Ford in November 1992 where he remained until his appointment to President and
Chief Operating Officer of Sonic in April 1997. Mr. Smith's term as a director
of Sonic will expire at the 2001 annual stockholders meeting.
Dennis D. Higginbotham, 47, has been the President of Retail Operations of
Sonic since September 1998 and a Sonic director since his appointment in
December 1998. Before joining Sonic, Mr. Higginbotham owned and was the
president of, Higginbotham Chevrolet-Oldsmobile (from 1976), Halifax
Ford-Mercury (from 1987) and Higginbotham Automobiles (from 1995), each of
which Sonic acquired in September 1998. Mr. Higginbotham has worked in the
automobile industry since 1965. Mr. Higginbotham is standing for election as a
director of Sonic at the 1999 annual meeting of stockholders.
Theodore M. Wright, 36, has been the Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary of Sonic since April 1997, and a
Sonic director since June 1997. Mr. Wright also serves as a director and
executive officer of many of Sonic's subsidiaries. Before joining Sonic, Mr.
Wright was a Senior Manager and in charge of the Columbia, South Carolina
office of Deloitte & Touche LLP. Before joining the Columbia office, Mr. Wright
was a Senior Manager in Deloitte & Touche LLP's National Office Accounting
Research and SEC Services Departments from 1994 to 1995. From 1992 to 1994, Mr.
Wright was an audit manager with Deloitte & Touche LLP. Mr. Wright is standing
for election as a director of Sonic at the 1999 annual meeting of stockholders.
William R. Brooks, 49, has been a director of Sonic since its formation.
Mr. Brooks also served as Sonic's initial Treasurer, Vice President and
Secretary from its organization in February 1997 to April 1997 when Mr. Wright
was appointed to those positions. Since December 1994, Mr. Brooks has been the
vice president, treasurer, chief financial officer and a director of SMI. Mr.
Brooks also serves as an executive officer and a director for various operating
subsidiaries of SMI. Before the formation of SMI in December 1994, Mr. Brooks
was the vice president of the Lowe's Motor Speedway (formerly the Charlotte
Motor Speedway) and a vice president and a director of Atlanta Motor Speedway.
Mr. Brooks joined Sonic Financial Corporation, an entity controlled by Bruton
Smith, from Price Waterhouse in 1983. At Sonic Financial Corporation, he was
promoted from manager to controller in 1985 and again to chief financial
officer in 1989. Mr. Brooks' term as a Sonic director will expire at the 2000
annual stockholders meeting.
William P. Benton, 75, became a director of Sonic in December 1997. Since
January 1997, Mr. Benton has been the executive director of Ogilvy & Mather, a
world-wide advertising agency. Mr. Benton has been a director of SMI since
February 1995 and a director of Allied Holdings, Inc. since February 1998. He
is also a consultant to the chairman and chief executive officer of TI Group.
Before his appointment at Ogilvy & Mather, Mr. Benton served as vice chairman
of Wells, Rich, Greene/BDDP, Inc., an advertising agency with offices in New
York and Detroit. Mr. Benton retired from Ford Motor Company as its vice
president of marketing worldwide in 1984 after a 37-year career with that
company. Mr. Benton's term as a Sonic director will expire at the 2001 annual
stockholders meeting.
25
<PAGE>
William I. Belk, 49, became a director of Sonic in March 1998. Mr. Belk is
currently the vice president and a director for Monroe Hardware Company, a
director for Piedmont Ventures, Inc., and treasurer and a director for Old Well
Water, Inc. For more than the previous five years, Mr. Belk previously held the
position of chairman and director for certain Belk stores (a privately held
retail department store chain). Mr. Belk's term as a Sonic director will expire
at the 2001 annual stockholders meeting.
Sonic's Board of Directors is divided into three classes, each of which,
after a transitional period, will serve for three years, with one class being
elected at Sonic's annual stockholders meeting each year. Messrs. Bruton Smith
and Brooks belong to the class of directors whose term expires in 2000, Messrs.
Wright and Higginbotham belong to the class whose term expires in 1999, and
Messrs. Scott Smith, Benton and Belk belong to the class whose term expires in
2001. The executive officers are elected annually by, and serve at the
discretion of, Sonic's Board of Directors.
COMMITTEES OF THE BOARD
There are two standing committees of the Sonic Board of Directors, the
Audit Committee and the Compensation Committee. The Audit Committee was
appointed on March 20, 1998 and consists of Messrs. Benton, Belk and Brooks.
The Compensation Committee was appointed on October 3, 1998 and consists of
Messrs. Bruton Smith, Benton and Belk. Set forth below is a summary of the
principal functions of each committee. There was one meeting held by the Audit
Committee and one meeting held by the Compensation Committee in 1998.
AUDIT COMMITTEE. The Audit Committee, which held one meeting in 1998,
recommends the appointment of Sonic's independent auditors, determines the
scope of the annual audit to be made, reviews the conclusions of the auditors
and reports the findings and recommendations thereof to the Board, reviews
Sonic's auditors, the adequacy of Sonic's system of internal control and
procedures and the role of management in connection therewith, reviews
transactions between Sonic and its officers, directors and principal
stockholders, and performs such other functions and exercises such other powers
as the Board from time to time may determine.
COMPENSATION COMMITTEE. The Compensation Committee, which held one meeting
in 1998, administers certain compensation and employee benefit plans of Sonic,
annually reviews and determines executive officer compensation, including
annual salaries, bonus performance goals, bonus plan allocations, stock option
grants and other benefits, direct and indirect, of all executive officers and
other senior officers of Sonic. The Compensation Committee administers Sonic's
1997 Stock Option Plan, Employee Stock Purchase Plan and Nonqualified Employee
Stock Purchase Plan, makes recommendations for individual stock option grants
to the full Board of Directors under the plans it administers, and periodically
reviews Sonic's executive compensation programs and takes action to modify
programs that yield payments or benefits not closely related to Sonic or
executive performance. The policy of the Compensation Committee's program for
executive officers is to link pay to business strategy and performance to
attract, retain and reward key executives while also providing performance
incentives and awarding equity-based compensation to align the long-term
interests of executive officers with those of Sonic's stockholders. The
Compensation Committee's objective is to offer salaries and incentive
performance pay opportunities that are competitive in the marketplace.
Sonic currently has no standing nominating committee.
During 1998, there were 3 meetings of the Board of Directors of Sonic,
with each director attending each of the meetings.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Sonic's executive officers, directors and persons who own more than ten percent
(10%) of Sonic's Voting Stock to file reports on ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC").
Additionally, SEC regulations require that Sonic identify any individuals for
whom one of the referenced reports was not filed on a timely basis during the
most recent fiscal year or prior fiscal years. To Sonic's knowledge,
based solely on review of reports furnished to it, all Section 16(a) filing
requirements applicable to its executive officers, directors and more than 10%
beneficial owners were complied with, except that (i) Messrs. Bruton Smith,
Scott Smith, Higginbotham, Wright, Belk, Benton and Brooks inadvertently filed
late their Form 5 annual statements of beneficial ownership of securities, and
(ii) Mr. Belk inadvertently filed late his Form 4 statement of changes of
beneficial ownership of securities pertaining to his January 1999 exercise of
options to purchase 20,000 shares of Class A common stock and his January 1999
sale of 15,000 shares of Class A common stock.
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<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The executive officer compensation for Sonic for 1998 was based on
compensation established in each individual's respective employment agreement
with Sonic as discussed herein. Additionally, certain executive officers in
1998 were granted stock options issued under Sonic's 1997 Stock Option Plan.
Executive officers (including the Chief Executive Officer) were also eligible
in 1998 to participate in various benefit plans similar to those provided to
other employees of Sonic. Such benefit plans are intended to provide a safety
net of coverage against various events, such as death, disability and
retirement.
The employment agreements for the executive officers (including that of
the Chief Executive Officer) were established on the basis of non-qualitative
factors such as positions of responsibility and authority, years of service and
annual performance evaluations. They were targeted to be competitive
principally in relation to other automotive retailing companies (such as those
included in the Peer Group Index in the performance graph elsewhere herein),
although the Board of Directors also considered the base salaries of certain
companies not included in the Peer Group Index because the Board of Directors
considered those to be relatively comparable industries.
Awards of stock options under the 1997 Stock Option Plan are based on a
number of factors in the discretion of the Board of Directors, including
various subjective factors primarily relating to the responsibilities of the
individual officers for and contribution to Sonic's operating results (in
relation to Sonic's other optionees), their expected future contributions and
the levels of stock options currently held by the executive officers
individually and in the aggregate. Stock option awards to executive officers
have been at then-current market prices in order to align a portion of an
executive's net worth with the returns to Sonic's stockholders. For detail
concerning the grant options to the executive officers named in the Summary
Compensation Table below, see "Fiscal Year-End Option Values."
As noted above, Sonic's compensation policy is primarily based upon the
practice of pay-for-performance. Section 162(m) of the Internal Revenue Code
imposes a limitation on the deductibility of nonperformance-based compensation
in excess of $1 million paid to named executive officers. The 1997 Stock Option
Plan was created with the intention that all compensation attributable to stock
option exercises should qualify as deductible performance-based compensation.
The Board of Directors currently believes that, generally, Sonic should be able
to continue to manage its executive compensation program to preserve federal
income tax deductions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Compensation Committee's members annually review and approve the
compensation of Mr. Smith, Sonic's Chief Executive Officer. Mr. Smith's salary
has been established through an employment agreement, as discussed herein. The
Board of Directors believes that Mr. Smith is paid a reasonable salary.
O. Bruton Smith, Chairman
William P. Benton
William I. Belk
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COMPENSATION OF OFFICERS
The following table sets forth compensation paid by or on behalf of Sonic
to the Chief Executive Officer of Sonic and to its other executive officers for
services rendered during Sonic's fiscal years ended December 31, 1996, 1997 and
1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION AWARDS
NUMBER OF
ANNUAL COMPENSATION OTHER SHARES
-------------------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY (1) BONUS (2) COMPENSATION (3) OPTIONS (4) COMPENSATION (5)
- -------------------------------- ------ --------------- --------------- ------------------ -------------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
O. Bruton Smith 1998 $385,772 $350,000 $ (5) 200,000 --
Chairman, Chief Executive 1997 326,704 -- -- (5) -- --
Officer and Director 1996 164,750 -- 33,350 -- --
Bryan Scott Smith 1998 $325,560 $250,000 $ -- (5) 100,000 --
President, Chief Operating 1997 273,767 18,331 -- (5) 199,750 --
Officer and Director 1996 48,000 230,714 -- (5) -- --
Theodore M. Wright 1998 $211,551 $150,000 $ -- (5) 100,620 --
Chief Financial Officer, 1997 (6) (6) -- (5) 76,376 --
Vice President-Finance, 1996 (7) (7) -- -- --
Treasurer and Secretary
Dennis D. Higginbotham 1998 $116,667 $ -- $ -- (5) 150,000 --
President of Retail 1997 (7) (7) -- --
Operations and Director 1996 (7) (7) -- -- --
Nelson E. Bowers, II 1998 $383,333 $150,000 $ -- (5) -- --
Executive Vice President 1997 (6) (6) -- (5) -- --
and Director (8) 1996 (7) (7) -- -- --
</TABLE>
- ---------
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned and paid in the specified year.
(3) Sonic provides Bruton Smith with the use of automobiles for personal use,
the annual cost of which is reflected as Other Annual Compensation.
(4) Sonic's 1997 Stock Option Plan was adopted in October 1997. Therefore, no
options were granted under the 1997 Stock Option Plan to any of Sonic's
executive officers in 1996.
(5) The aggregate amount of perquisites and other personal benefits received
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for such executive officer.
(6) The amount of salary and bonus earned by the named executive officer in
1997 did not exceed $100,000.
(7) The named executive officer was not employed by Sonic during the year
indicated.
(8) Mr. Bowers resigned as Executive Vice President and as a Director of Sonic
in November 1998.
EMPLOYMENT AGREEMENTS
Sonic has employment agreements with Messrs. Bruton Smith, Scott Smith,
Higginbotham and Wright (the "Employment Agreements"), which provide for an
annual base salary and certain other benefits. Pursuant to the Employment
Agreements, the 1999 base salaries of Messrs. Bruton Smith, Scott Smith, Wright
and Higginbotham will be $500,000, $400,000, $300,000 and $400,000,
respectively. The executives will also receive such additional increases as may
be determined by the Compensation Committee. The Employment Agreements, except
that of Mr. Higginbotham, provide for the payment of annual performance-based
bonuses equal to a percentage of the executive's base salary, upon achievement
by Sonic of certain performance objectives, based on Sonic's pre-tax income, to
be established by the Compensation Committee. The Employment Agreement for Mr.
Higginbotham provides for the payment of bonuses as may be determined and
ratified from time to time by the Compensation Committee. Under the terms of
their respective Employment Agreements, Sonic will employ Messrs. Bruton Smith,
Scott Smith and Wright through November 2000. Under the terms of his Employment
Agreement, Sonic will employ Mr. Higginbotham through September 2001 or until
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his Employment Agreement is terminated by Sonic or by him. Messrs. Scott Smith
and Wright also received in October 1997, pursuant to their Employment
Agreements, options pursuant to Sonic's 1997 Stock Option Plan, for 199,750
shares and 76,376 shares of Class A common stock, respectively, exercisable at
$6.00 per share, vesting in three equal annual installments beginning October
1998 and expiring in October 2007. Mr. Higginbotham's Employment Agreement
provides that he will receive options to purchase Class A common stock in an
amount and on terms consistent with the grants of options for similar employees
of Sonic. In October 1998, Mr. Higginbotham was granted options to purchase
150,000 shares of Class A common stock at an exercise price of $9.19 per share
under the 1997 Stock Option Plan.
Each of the Employment Agreements contain similar noncompetition
provisions. These provisions, during the term of the Employment Agreement, (i)
prohibit the disclosure or use of confidential Sonic information, and (ii)
prohibit competition with Sonic for Sonic's employees and its customers,
interference with Sonic's relationships with its vendors, and employment with
any competitor of Sonic in specified territories. The provisions referred to in
(ii) above shall also apply for a period of two years following the expiration
or termination of an Employment Agreement. With respect to Messrs. Bruton Smith,
Scott Smith and Wright, the geographic restrictions apply in any Standard
Metropolitan Statistical Area ("SMSA") or county in which Sonic has a place of
business at the time their employment ends. With respect to Mr. Higginbotham,
the territorial restrictions apply only in the SMSAs for Atlanta, Charlotte,
Chattanooga, Columbus, Daytona Beach, Houston, Montgomery, Nashville and
Tampa-St. Petersburg-Clearwater.
OPTION GRANTS IN 1998
OPTION/SAR GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------------- AT
ASSUMED ANNUAL RATES OF
PERCENT OF STOCK
NUMBER OF TOTAL PRICE APPRECIATION FOR
SECURITIES OPTIONS/ OPTION
UNDERLYING SARS GRANTED EXERCISE OR TERM
OPTION/SARS TO EMPLOYEES BASE PRICE EXPIRATION ----------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- ------------- ---------------- ------------ ------------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
O. Bruton Smith ................ 200,000 14.6% $ 9.19 October, 2008 $1,155,908 $2,929,299
Bryan Scott Smith .............. 100,000 7.3% 9.19 October, 2008 577,954 1,464,649
Theodore M. Wright ............. 100,620 7.3% (1) (1) 581,537 1,473,730
Dennis D. Higginbotham ......... 150,000 10.9% 9.19 October, 2008 866,931 2,196,974
</TABLE>
(1) The exercise price and expiration date for options to purchase 100,000
shares of Class A common stock under the 1997 Stock Option Plan is $9.19
and October 2008, respectively, and the exercise price and expiration date
for options to purchase 620 shares of Class A common stock under Sonic's
Employee Stock Purchase Plan was $4.10 and December 1998, respectively.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning outstanding options
to purchase Class A common stock held by executive officers of Sonic as of
December 31, 1998:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
SHARES UNEXERCISED IN-THE-MONEY
ACQUIRED VALUE OPTIONS/SARS AT OPTIONS/SARS AT
ON EXERCISE (#)(1) REALIZED ($) FY-END (#)(1) FY-END ($)(2)
-------------------- -------------- ----------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
O. Bruton Smith -- $ -- -- 200,000 $ -- $1,612,000
Bryan Scott Smith -- -- 66,583 233,167 749,063 2,304,125
Theodore M. Wright 620 8,153 25,459 150,917 286,410 1,378,820
Dennis D. Higginbotham -- -- -- 150,000 -- 1,209,000
</TABLE>
29
<PAGE>
- ---------
(1) Sonic effected a 2-for-1 split of its Class A common stock on January 25,
1999. Pursuant to the terms of the 1997 Stock Option Plan, this stock
split resulted in an adjustment to the number of options and exercise
price for options outstanding prior to the effective date of such stock
split. The figures represented above reflect the effect of such
adjustment.
(2) Grant date value based on market price at date of grant.
STOCK OPTION PLANS
Sonic currently has in place the 1997 Stock Option Plan with respect to
Class A common stock in order to attract and retain key personnel. The 1997
Stock Option Plan, as adopted in October 1997 and thereafter amended, provides
for options to purchase up to an aggregate of 2,250,000 shares of Class A common
stock that may be granted to key employees of Sonic and its subsidiaries and to
officers, directors, consultants and other individuals providing services to
Sonic. In 1998, Sonic granted options to purchase 1,373,000 shares of Class A
common stock to employees. Messrs. Bruton Smith, Scott Smith, Wright and
Higginbotham were granted aggregate non-statutory stock options (NSO's) and
Incentive Stock Options (ISO's) for 200,000, 100,000, 100,000 and 150,000
shares, respectively, at an exercise price of $18.38 per share.
In October 1997, the Board of Directors and stockholders of Sonic adopted
the Sonic Automotive, Inc. Employee Stock Purchase Plan (the "Employee Plan").
The Employee Plan provides employees of Sonic and its subsidiaries with the
opportunity to purchase Class A common stock. Under the terms of the Employee
Plan, on January 1 of each year all eligible employees electing to participate
are granted an option to purchase shares of Class A common stock. Sonic's
Compensation Committee annually determines the number of shares of Class A
common stock available for purchase under each option. The purchase price at
which Class A common stock will be purchased through the Employee Plan will be
85% of the lesser of (i) the fair market value of the Class A common stock on
the applicable grant date and (ii) the fair market value of the Class A common
stock on the applicable exercise date. The grant dates are January 1 of each
year plus any other interim dates designated by the Compensation Committee. The
exercise dates are the last trading days on the New York Stock Exchange for
March, June, September and December, plus any other interim dates designated by
the Compensation Committee. Options will expire under the Employee Plan on the
last exercise date of the calendar year in which granted. Options to purchase
298,740 shares of Class A common stock under the Employee Plan were issued in
1998, and 180,730 shares of Class A common stock were purchased as of December
31, 1998.
On March 20, 1998, the Board of Directors approved an amendment to the
Employee Plan increasing the number of options to purchase Class A common stock
authorized for issuance under the Employee Plan from 300,000 to 600,000.
Sonic's stockholders approved the increase of shares authorized for issuance
under the Employee Plan at the 1998 annual meeting of stockholders.
On March 20, 1998, the Board of Directors adopted the Sonic Automotive,
Inc. Formula Stock Option Plan for Independent Directors (the "Directors Plan")
for the benefit of Sonic's outside directors. Sonic's stockholders approved the
Directors Plan at the 1998 annual meeting of stockholders. The Directors Plan
authorizes the issuance of options to purchase up to an aggregate of 600,000
shares of Class A common stock. Under the Directors Plan, each outside director
is awarded on or before March 31st of each year an option to purchase 20,000
shares at an exercise price equal to the fair market value of the Class A
common stock at the date of the award. Options granted under the Directors Plan
become exercisable in six months, and expire ten years, after their date of
grant.
In December 1998, the Board of Directors of Sonic adopted the Sonic
Automotive, Inc. Nonqualified Employee Stock Purchase Plan (the "Nonqualified
ESPP"). The purpose of the Nonqualified ESPP is to provide options to purchase
Class A common stock to employees of Sonic's subsidiaries that are not eligible
to participate in the Employee Plan; employees of Sonic who are eligible to
participate in the Employee Plan are not eligible to participate in the
Nonqualified ESPP. Under the terms of the Nonqualified ESPP, on January 1 of
each year all employees eligible to participate in the Nonqualified ESPP and who
elect to participate in the Nonqualified ESPP will be granted an option to
purchase shares of Class A common stock. Sonic's Compensation Committee will
annually determine the number of Class A common stock available for purchase
under each option.
The purchase price at which Class A common stock will be purchased through
the Nonqualified ESPP will be 85% of the lesser of (i) the fair market value of
the Class A common stock on the applicable grant date and (ii) the fair market
value of the Class A common stock on the appplicable exercise date. The grant
dates are January 1 of each year plus any other interim dates designated by the
Compensation Committee. The exercise dates are the last trading days on the New
30
<PAGE>
York Stock Exchange for March, June, September and December, plus any other
interim dates designated by the Compensation Committee. Options will expire on
the last exercise date of the calendar year in which granted. In adopting the
Nonqualified ESPP in December 1998, the Board of Directors authorized options
to be granted under the Nonqualified ESPP for 300,000 shares of Class A common
stock, which options may be issued effective January 1, 1999.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
From Sonic's organization in February 1997 through March 20, 1998, all
matters concerning executive officer compensation were addressed by the entire
Board of Directors. On March 20, 1998, the Board of Directors established the
Compensation Committee and elected Messrs. Bruton Smith, Benton and Belk to
serve as the initial members of the Compensation Committee. Bruton Smith serves
as the Chief Executive Officer of Sonic and serves as an officer for a
substantial majority of Sonic's subsidiaries. Scott Smith serves as Sonic's
President and Chief Operating Officer and serves as an officer for each of
Sonic's subsidiaries. Mr. Wright serves as Sonic's Chief Financial Officer,
Vice President-Finance, Treasurer and Secretary and serves as an officer for a
substantial majority of Sonic's subsidiaries. Mr. Brooks served from February
to April 1997 as Sonic's Treasurer, Vice President and Secretary.
Bruton Smith is the only executive officer to have served on the
Compensation Committee of another entity during 1998. He served as Chairman,
Chief Executive Officer, a Director and a member of the Compensation Committee
of Speedway Motorsports, Inc. ("SMI"). Mr. Brooks is also an executive officer
of SMI.
Bruton Smith received aggregate salary, bonus and other compensation of
$1,545,000 during 1998 from SMI.
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of Sonic will be
compensated for their services under the Directors Plan. Sonic will also
reimburse all directors for their expenses incurred in connection with their
activities as directors of Sonic. Directors who are also employees of Sonic
receive no compensation for serving on the Board of Directors.
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<PAGE>
STOCKHOLDER PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder
return on Sonic's Class A common stock against the cumulative total return of
each of the Standard and Poor's 500 Stock Index and a Peer Group Index for the
time period commencing November 11, 1997 and ending December 31, 1998. The
companies used in the Peer Group Index include Republic Industries, Group 1
Automotive, United Auto Group, Car Max and Lithia Motors, which are all
publicly traded companies known by Sonic to be involved in the automobile
industry. The graph assumes that $100 was invested on November 11, 1997 in each
of Sonic's Class A common stock, the Standard & Poor's 500 Stock Index and the
Peer Group Index companies and that all dividends were reinvested.
[STOCKHOLDER PERFORMANCE GRAPH APPEARS HERE]
11/11/97 12/31/97 12/31/98
-------- -------- --------
SONIC AUTOMOTIVE............. 100.00 79.79 286.01
PEER GROUP INDEX............. 100.00 79.46 52.89
S&P.......................... 100.00 106.43 136.84
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
OWNERSHIP OF CAPITAL SECURITIES
The following table sets forth certain information regarding the
beneficial ownership of Sonic's Class A common stock, Class B common stock and
Preferred Stock (collectively, the "Voting Stock") as of March 30, 1999, by (i)
each stockholder who is known to Sonic to own beneficially five percent or more
of each class of the outstanding Voting Stock, (ii) each director and nominee to
the Board of Directors of Sonic, (iii) each executive officer of Sonic
(including the Chief Executive Officer), and (iv) all directors and executive
officers of Sonic as a group. Holders of Class A common stock are entitled to
one vote per share on all matters submitted to a vote of the stockholders of
Sonic. Holders of Class B common stock are entitled to ten votes per share on
all matters submitted to a vote of the stockholders, except that the Class B
common stock is entitled to only one vote per share with respect to any
transaction proposed or approved by the Board of Directors of Sonic or proposed
by all the holders of the Class B common stock or as to which any holder of
Class B common stock (the "Smith Group") or any affiliate thereof has a material
financial interest other than as a then existing stockholder of Sonic
constituting a (a) "going private" transaction (as defined herein),(b)
disposition of substantially all of Sonic's assets, (c) transfer resulting in a
change in the nature of Sonic's business, or (d) merger or consolidation in
which current holders of common stock would own less than 50% of the common
stock following such transaction. In the event of any transfer outside of the
Smith Group or the Smith Group holds less than 15% of the total number of shares
of common stock outstanding, such transferred shares or all shares,
respectively, of Class B common stock will automatically convert into an equal
number of shares of Class A common stock. Holders of Preferred Stock are
entitled to one vote per each share of Class A common stock into which such
shares of Preferred Stock are convertible into as of the record date of the
annual meeting or any special meeting of the stockholders of Sonic on all
matters submitted to a vote of the stockholders of
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<PAGE>
Sonic. Except as otherwise indicated below, each of the persons named in the
table has sole voting and investment power with respect to the securities
beneficially owned by him or it as set forth opposite his or its name subject
to community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
SHARES OF PERCENTAGE OF SHARES OF
CLASS A OUTSTANDING CLASS B
COMMON CLASS A COMMON
STOCK COMMON STOCK
BENEFICIAL OWNER OWNED STOCK OWNED
- ---------------------------------------- ---------------------- --------------- ------------
<S> <C> <C> <C>
O. Bruton Smith (2)(3) ................. 225,500(4) 1.8% 10,952,500
Sonic Financial Corporation (2) ........ -- -- 8,881,250
Bryan Scott Smith (2) .................. 166,584(4)(5) 1.4% 956,250
Dennis D. Higginbotham (6) ............. 962,088(7) 7.9% --
Theodore M. Wright ..................... 126,079(4)(8) 1.0% --
William R. Brooks ...................... 20,000(9) * --
William P. Benton ...................... 20,000(9) * --
William I. Belk ........................ 5,000 * --
Citicorp (10)(11) ...................... 1,000,000 8.2% --
Citibank, N.A. (11)(12) ................ 1,000,000 8.2% --
Wellington Management Company,
LLP (13)(14) .......................... 994,000 8.2% --
Wellington Trust Company, N.A.
(14)(15) .............................. 616,600 5.1% --
Dan E. Hatfield (16) ................... -- -- --
Bud C. Hatfield (16) ................... -- -- --
Frank McGough (17) ..................... -- -- --
William M. Whitmire (18) ............... -- -- --
Thomas P. Williams, Sr. (19) ........... -- -- --
All directors and executive officers
as a group (7 persons) ................ 1,525,151 12.5% 11,908,750
<CAPTION>
PERCENTAGE OF NUMBER OF PERCENTAGE
OUTSTANDING SHARES OF PERCENTAGE OF OF ALL
CLASS B PREFERRED OUTSTANDING OUTSTANDING
COMMON STOCK PREFERRED VOTING
BENEFICIAL OWNER STOCK OWNED STOCK STOCK (1)
- ---------------------------------------- --------------- ----------- --------------- ------------
<S> <C> <C> <C> <C>
O. Bruton Smith (2)(3) ................. 88.3% -- -- 45.1%
Sonic Financial Corporation (2) ........ 71.6% -- -- 36.1%
Bryan Scott Smith (2) .................. 7.7% -- -- 4.5%
Dennis D. Higginbotham (6) ............. -- -- -- 3.9%
Theodore M. Wright ..................... -- -- -- *
William R. Brooks ...................... -- -- -- *
William P. Benton ...................... -- -- -- *
William I. Belk ........................ -- -- -- *
Citicorp (10)(11) ...................... -- -- -- 4.1%
Citibank, N.A. (11)(12) ................ -- -- -- 4.1%
Wellington Management Company,
LLP (13)(14) .......................... -- -- -- 4.0%
Wellington Trust Company, N.A.
(14)(15) .............................. -- -- -- 2.5%
Dan E. Hatfield (16) ................... -- 3,750 6.7% *
Bud C. Hatfield (16) ................... -- 8,971 15.9% *
Frank McGough (17) ..................... -- 4,194.3 7.5% *
William M. Whitmire (18) ............... -- 15,013 26.7% *
Thomas P. Williams, Sr. (19) ........... -- 13,938 24.8% *
All directors and executive officers
as a group (7 persons) ................ 96.0% -- -- 54.2%
</TABLE>
- ---------
* Less than one percent
(1) The percentage of total voting power of Sonic is as follows: O. Bruton
Smith, 78.4%, Sonic Financial Corporation, 63.6%, Bryan Scott Smith, 7.0%,
and less than 1% for all other stockholders shown.
(2) The address of such person or group is 5401 East Independence Boulevard,
Charlotte, North Carolina 28212.
(3) The Schedule 13D filed by the beneficial owner indicates that the shares of
Class B common stock shown as owned by such person or group include all of
the shares shown as owned by Sonic Financial Corporation elsewhere in the
table. Bruton Smith owns the substantial majority Sonic Financial
Corporation's outstanding capital stock.
(4) In October 1998, Messrs. Bruton Smith, Scott Smith and Wright
received grants of options to purchase 200,000, 100,000 and
100,000 shares of Class A common stock, respectively, pursuant to Sonic's
1997 Stock Option Plan. All of such options will become exercisable in
April 1999. The number of shares of Class A common stock listed as owned
by each such person above includes these respective grants of options.
(5) Includes one-third of 199,750 shares that underlie options to purchase
shares of Class A common stock granted by Sonic pursuant to the 1997 Stock
Option Plan in October 1997, which became exercisable in three equal
annual installments beginning in October 1998.
(6) The address of such person is 104 South Riverside Dr., New Smyrna Beach,
Florida 32168.
(7) Does not include options to purchase 150,000 shares of Class A
common stock granted to Mr. Higginbotham under the 1997 Stock Option
Plan, which options become exercisable in three equal annual installments
beginning in October 1999.
(8) Includes one-third of 76,376 shares that underlie options to purchase
shares of Class A common stock granted by Sonic pursuant to the 1997 Stock
Option Plan in October 1997, which became exercisable in three equal
annual installments beginning in October 1998.
(9) Represents 20,000 shares that underlie options to purchase shares of Class
A common stock granted by Sonic pursuant to the Directors Plan, which
became exercisable in December 1998.
(10) The Schedule 13D filed by the beneficial owner indicates that the shares of
Class A common stock shown as owned by such entity or group include all
the shares shown as owned by Citibank, N.A. elsewhere in the table.
Citicorp owns all of the outstanding capital stock of Citibank, N.A.
(11) The address of such entity is 399 Park Avenue, New York, New York 10043.
(12) The Schedule 13D filed by the beneficial owner indicates that Citibank,
N.A. has sole voting power as to 144,000 shares of the 1,000,000 shares
shown with no voting power as to the remainder and has shared dispositive
power over all 1,000,000 shares.
33
<PAGE>
(13) The Schedule 13D filed by the beneficial owner indicates that Wellington
Management Company has shared voting power as to 447,400 shares of the
994,000 shares shown with no voting power as to the remainder and has
shared dispositive power over all 994,000 shares.
(14) The address of such entity is 75 State Street, Boston, Massachusetts
02109.
(15) The Schedule 13D filed by the beneficial owner indicates that Wellington
Trust Company, N.A. has shared voting power as to 169,200 shares of the
616,600 shares shown with no voting power as to the remainder and has
shared dispositive power over all 616,600 shares.
(16) The address of such person is 1500 Automall Drive, Columbus, Ohio 43228.
(17) The address of such person is 711 Eastern Blvd., Montgomery, Alabama
36117.
(18) The address of such person is 4412 Paces Battle, Atlanta, GA 30327.
(19) The address of such person is 401 South 20th Street, Birmingham, AL 35233.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill Ford,
Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic signed a
Registration Rights Agreement dated as of June 30, 1997 with Sonic Financial
Corporation ("SFC"), Bruton Smith, Scott Smith and William S. Egan
(collectively, the "Class B Registration Rights Holders"). SFC currently owns
8,881,250 shares of Class B common stock; Bruton Smith, 2,071,250 shares; Scott
Smith, 956,250 shares; and Egan Group, LLC, an assignee of Mr. Egan (the "Egan
Group"), 491,250 shares, all of which are covered by the Registration Rights
Agreement. The Egan Group also owns 100,000 shares of Class A common stock to
which the Registration Rights Agreement applies. If, among other things
provided in Sonic's charter, offers and sales of shares Class B common stock
are registered with the Commission, then such shares will automatically convert
into a like number of shares of Class A common stock.
The Class B Registration Rights Holders have certain limited piggyback
registration rights under the Registration Rights Agreement. These rights
permit them to have their shares of Sonic's common stock included in any Sonic
registration statement registering Class A common stock, except for
registrations on Form S-4, relating to exchange offers and certain other
transactions, and Form S-8, relating to employee stock compensation plans. The
Registration Rights Agreement expires in November 2007. SFC is controlled by
Bruton Smith. The Class B Registration Rights Holders have agreed to waive
their registration rights in this offering.
THE SMITH SUBORDINATED LOAN
In December 1997, Mr. Smith was required by Ford Motor Credit to lend the
$5.5 million to Sonic on a subordinated basis to increase Sonic's
capitalization (the "Subordinated Smith Loan"). Ford Motor Credit required the
Subordinated Smith Loan as a condition to increasing the Revolving Facility
borrowing limit because the net offering proceeds from Sonic's November 1997
initial public offering were significantly less than expected by Sonic and Ford
Motor Credit. The Subordinated Smith Loan bears interest at NationsBank's (now
Bank of America's) announced prime rate plus 0.5% and matures on November 30,
2000. All amounts owed by Sonic to Mr. Smith under the Subordinated Smith Loan
are to be paid after all amounts owed by Sonic under the Ford Credit Facilities
and Sonic's senior subordinated notes are paid. For further discussion of these
lending arrangements.
TRANSACTIONS WITH MMRT
In 1998, Sonic entered into a Strategic Alliance Agreement and Agreement
for the Mutual Referral of Acquisition Opportunities (the "Strategic Alliance
Agreement") with MMRT. Bruton Smith serves as the chairman of MMRT's board of
trustees. Under the Alliance Agreement, Sonic agreed to refer to MMRT real
estate acquisition opportunities arising with Sonic's dealership acquisitions.
In exchange, MMRT agreed to refer to Sonic dealership acquisition opportunities
and to provide certain real estate development and maintenance services to
Sonic. MMRT will also arrange for property inspections and environmental
reports for prospective dealership properties at Sonic's cost.
In addition, the Alliance Agreement provides for a form of lease to be
used when MMRT leases to Sonic real estate MMRT acquires in the future. Under
terms substantially similar to those of this form lease, Sonic leases or will
lease
34
<PAGE>
certain properties from MMR Holdings, LLC ("MMR Holdings"), which is a limited
liability company currently owned by Bruton Smith and SFC that Sonic expects to
be acquired by MMRT.
Sonic entered into the Alliance Agreement with MMRT rather than with an
unaffiliated third party for purposes consistent with Sonic's acquisition
strategy. Sonic is familiar with MMRT's growth and operating strategy and
believes that MMRT is well-positioned to identify and refer attractive
dealership acquisition opportunities for Sonic in the course of MMRT's
acquisitions of real property. In addition, Sonic's relationship with MMRT will
assist Sonic in negotiating transactions with sellers of dealerships that Sonic
has identified for acquisition. Many dealership sellers who own their
dealership's real property wish to sell the dealership real property as well as
dealership businesses. Inclusion of real estate in a transaction may allow
Sonic to negotiate an acquisition on more favorable terms. Finally, MMRT will
provide development assistance to Sonic which will enable Sonic to avoid
additional costs associated with hiring employees with real estate development
expertise. For these reasons, Sonic feels that MMRT's growth and operating
strategies are closely-aligned with Sonic's dealership acquisition strategy and
that the Alliance Agreement will provide significant future benefits to Sonic.
For acquisitions identified by Sonic, the Alliance Agreement is intended
to operate in two different contexts, depending on whether the dealership
seller owns the dealership real property or leases the dealership real property
from an unaffiliated third party. For acquisitions where the dealership seller
owns the dealership real property, Sonic will negotiate acquisition of the real
property from the seller on an arms'-length basis and will assign its
negotiated purchase rights to MMRT. MMRT will then acquire the real property
from the seller. Sonic and MMRT will subsequently enter into a lease agreement
regarding the dealership real property using the lease form attached to the
Alliance Agreement to satisfy all non-economic terms of the lease agreement.
The economic terms of the lease will be negotiated between Sonic and MMRT and
will depend on several factors, including:
o the projected earnings capacity of the dealership,
o the quality, age and condition of the dealership structure(s),
o the location of the dealership property, and
o the rent paid for comparable commercial properties.
As required by Sonic's Charter, the terms of any lease agreement with MMRT
involving total payments of more than $500,000 will be subject to the approval
of Sonic's Board of Directors and of Sonic's independent directors to ensure
that such terms are no less favorable to Sonic than would be available to Sonic
in a transaction with an unrelated third party. When necessary, Sonic will also
obtain independent appraisals to determine the fairness of lease terms to
Sonic.
For acquisitions where the dealership real property is owned by an
unaffiliated third party and is leased to the dealership seller, MMRT will
negotiate with the unaffiliated third party to acquire the dealership real
property. If MMRT is successful in acquiring the dealership real property and
Sonic completes its acquisition of the dealership business, then Sonic and MMRT
will enter into a lease agreement regarding the dealership real property using
the Alliance Agreement's lease form and will determine the economic terms of
the lease according to the principles described in the paragraph above.
Sonic has sold to MMR Holdings the Town and Country Toyota real estate for
approximately $5.7 million and the Fort Mill Ford real estate for approximately
$4.6 million. The sales price for each of these parcels of real property was
determined in negotiations between Sonic and MMRT based on the projected
earnings capacity of the dealership, from which a monthly lease payment was
calculated. Using this rent calculation, Sonic and MMRT agreed to a
capitalization rate for the lease payments in order to determine a purchase
price for the properties themselves. This capitalization rate was based on
several factors, including:
o the quality, age and condition of the dealership structure(s),
o the location of the dealership property,
o the value of the properties for alternative uses,
o the availability of similar properties in the area, and
o recent sales prices for comparable commercial properties in the area.
An additional factor in determining Sonic's sales price for each of the
properties were independent appraisals obtained by Sonic for the Town and
Country Toyota property in December 1997 and Fort Mill Ford property in
February 1996. These
35
<PAGE>
appraisals, after giving effect to the passage of time, indicate that the sales
price payable to Sonic by MMRT for each of the properties exceeds the appraised
fair value of such properties determined in the independent appraisals.
Bruton Smith determined the sales price for each of these two properties,
and such determination was approved by Sonic's Board of Directors and Sonic's
independent directors. In giving their approval for these sales, Sonic's
directors evaluated the earning capacities of the dealerships and the
capitalization rates for the related leases through an analysis of the factors
stated above as well as the previously mentioned independent appraisals.
CERTAIN DEALERSHIP LEASES
Certain properties leased by Sonic's dealerships are, or since the
beginning of the last fiscal year were, owned by Sonic's officers or directors
or their affiliates. These leases contain terms comparable to, or more
favorable to Sonic than, terms that would be obtained from unaffiliated third
parties. Many of these properties as well as others are now owned or are under
contract to be acquired by MMR Holdings, which Sonic expects will become a
subsidiary of MMRT.
Sonic leases or will lease 36 properties for 27 of its dealerships,
described in the following table, from MMR Holdings. Sonic's directors have
approved these "triple net leases," which require Sonic to pay all costs of
operating the properties, as well as all taxes, utilities, insurance, repairs,
maintenance and other property related expenses. These leases generally provide
Sonic with options to renew the lease for two additional five year terms after
the expiration of the initial lease term. The rental rates indicated below
reflect minimum or "base" annual rents payable by Sonic in the first year of
the applicable leases. Such rental rates generally are subject to increases
either at renewal or every five years based on factors such as increases in the
consumer price index or an evaluation of fair market rents.
<TABLE>
<CAPTION>
INITIAL INITIAL LEASE
PROPERTY LOCATION BASE RENT TERM EXPIRATION
- -------------------------------------------------------- ---------------------- ---------------------- ----------------
<S> <C> <C> <C>
Higginbotham Acura-Mercedes .......................... Daytona Beach, FL $ 221,288 2008
Halifax Ford-Mercury ................................. New Smyrna Beach, FL 536,675(1) 2008
Halifax Ford Used Cars ............................... Edgewater, FL 72,875 2008
Higginbotham Chevy-Olds .............................. New Smyrna Beach, FL 775,131(2) 2009
Infiniti of Charlotte ................................ Charlotte, NC 432,000 2008
Town & Country Ford (Parcel #1) ...................... Charlotte, NC 409,200(3) 2009(3)
Town & Country Ford (Parcel #2) ...................... Charlotte, NC 108,513(4) 2008
Town & Country Toyota ................................ Charlotte, NC 600,000 2008
Lake Norman Chrysler-Plymouth-Jeep ................... Cornelius, NC 480,000 2007
Lake Norman Chrysler-Plymouth-Jeep (Parcel #2) ....... Cornelius, NC 110,250 2008
Lake Norman Dodge .................................... Cornelius, NC 480,000(1) 2007
Westside Dodge ....................................... Columbus, OH 600,000 2009
Toyota West .......................................... Columbus, OH 480,000 2009
Hatfield Hyundai ..................................... Columbus, OH 480,000 2009
Hatfield Lincoln-Mercury ............................. Columbus, OH 300,000 2009
VW & Jeep-Eagle West ................................. Columbus, OH 300,000 2009
Westside Chrysler-Plymouth ........................... Columbus, OH 300,000 2009
Fort Mill Ford ....................................... Fort Mill, SC 480,000 2008
Century BMW .......................................... Greenville, SC 420,000(5) 2008
Heritage Lincoln-Mercury ............................. Greenville, SC 313,898(5) 2008
Century BMW .......................................... Spartanburg, SC 112,805(5) 2008
Infiniti of Chattanooga .............................. Chattanooga, TN 344,224(1)(6) 2007
BMW/Volvo of Chattanooga ............................. Chattanooga, TN 279,840(1)(6) 2007
KIA/Volkswagon of Chattanooga ........................ Chattanooga, TN 132,840(6) 2007
Town & Country Ford of Cleveland ..................... Cleveland, TN 281,424(1)(6) 2007
Cleveland Honda ...................................... Cleveland, TN 154,296(6) 2007
Volkswagen of Nashville .............................. Nashville, TN 147,000 2008
Ron Craft Chrysler Plymouth Jeep ..................... Baytown, TX 210,000 2008
Lone Star Ford ....................................... Houston, TX 360,000(7) 2009(7)
-------------
Total Initial Base Rent Payable to MMR Holdings ..... $ 9,922,259
=============
</TABLE>
- ---------
(1) Initial base rent indicated is the total rent payable on more than one
property parcel utilized by the dealership.
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<PAGE>
(2) The Higginbotham Chevy-Olds dealership is presently under construction and
is expected to be completed and available for leasing in 1999. MMR
Holdings will acquire this property after the completion of construction.
(3) The rent on Town & Country Ford (Parcel #1) is currently below market
rates, as supported by independent appraisal. This lease will terminate by
December 31, 1999. As a condition to MMRT's ultimate acquisition of this
property, Sonic and MMRT have signed a new lease taking effect on January
1, 2000, providing for fair market annual rent of $1,140,000 and expiring
on December 31, 2009.
Town & Country Ford (Parcel #2) was owned by STC Properties ("STC"), which
was a joint venture in which Town & Country Ford maintained a 5% undivided
interest and SFC owned the remaining 95%. In October 1998, MMR Holdings
acquired this property by issuing its membership interests to SFC and paying
$425,000 to Town & Country Ford. STC leased this property in 1998 to Sonic
at the annual rent indicated.
(4) Until its acquisition by MMR Holdings in October 1998, Town & Country Ford
(Parcel #2) was owned by Bruton Smith and, in 1998, was leased to Sonic at
the annual base rent indicated.
(5) In July 1998, Chartown, a general partnership controlled by Bruton Smith
("Chartown"), acquired the real property on which this dealership
operated. Chartown then leased the property to the Sonic subsidiary that
acquired the assets of the dealership at the annual rental rate indicated.
In December 1998, MMR Holdings acquired this property from Chartown
subject to the existing lease.
(6) This dealership previously leased its property from Nelson Bowers, Sonic's
former Executive Vice President and a former director, or his affiliates.
In November 1998, MMR Holdings acquired this property subject to the
existing lease. Sonic negotiated this lease in connection with acquisition
of the dealership from Nelson Bowers in 1997 and paid 1998 rent to Mr.
Bowers or his affiliates at the indicated rate.
(7) The rent on Lone Star Ford is currently below market rates, as supported by
independent appraisal. This lease will terminate by December 31, 1999. As
a condition to MMRT's ultimate acquisition of this property, Sonic and
MMRT have signed a new lease taking effect on January 1, 2000, providing
for fair market annual rent of $1,140,000 and expiring on December 31,
2009. The Lone Star Ford property was owned by Viking Investments
Associates, a Texas association controlled by Bruton Smith ("Viking"). In
October 1998, MMR Holdings acquired the Lone Star Ford property. Viking
leased this property in 1998 to Sonic at the annual rent indicated.
CHARTOWN TRANSACTIONS
Chartown is a general partnership engaged in real estate development and
management. Before Sonic's reorganization before its initial public offering,
Town & Country Ford maintained a 49% partnership interest in Chartown with the
remaining 51% held by SMDA Properties, LLC, a North Carolina limited liability
company ("SMDA"). Bruton Smith owns an 80% direct membership interest in SMDA
with the remaining 20% owned indirectly through SFC. In addition, SFC also held
a demand promissory note for approximately $1.6 million issued by Chartown (the
"Chartown Note"), which was uncollectible due to insufficient funds. As part of
Sonic's reorganization, the Chartown Note was canceled and Town & Country Ford
transferred its partnership interest in Chartown to SFC for nominal
consideration. SFC then agreed to indemnify Town & Country Ford for any and all
obligations and liabilities, whether known or unknown, relating to Chartown and
Town & Country Ford's ownership of Chartown.
THE BOWERS VOLVO NOTE
In connection with Volvo's approval of Sonic's acquisition of a Volvo
franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned
its approval upon Nelson Bowers acquiring and maintaining a 20% interest in
Sonic's Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers
financed all of the purchase price for this 20% interest by issuing a
promissory note (the "Bowers Volvo Note") in favor of Sonic Automotive of
Nevada, Inc., the wholly owned subsidiary of Sonic that controls a majority
interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers'
interest in Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S.
Treasury Department in effect on November 17, 1997. Accrued interest is payable
annually. The operating agreement of Chattanooga Volvo provides that profits
and distributions are to be allocated first to Mr. Bowers to the extent of
interest to be paid on the Bowers Volvo Note and next to the other members of
Chattanooga Volvo according to their percentages of ownership. No other profits
or any losses of Chattanooga Volvo will be allocated to Mr.
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<PAGE>
Bowers under this arrangement. Volvo has removed its requirement that Mr.
Bowers maintain his interest in Chattanooga Volvo. Sonic and Mr. Bowers are in
the process of redeeming his interest in Chattanooga Volvo and satisfying the
Bowers Volvo Note.
OTHER TRANSACTIONS
o Town & Country Ford and Lone Star Ford had each made several non-interest
bearing advances to SFC, a company controlled by Bruton Smith. In
preparation for Sonic's 1997 reorganization, a demand promissory note by
SFC evidencing $2.1 million of these advances was canceled in June 1997 in
exchange for the redemption of certain shares of the capital stock of Town
& Country Ford held by SFC. In addition, a demand promissory note by SFC
evidencing of $0.5 million of these advances was canceled in June 1997
pursuant to a dividend.
o Sonic had amounts receivable from affiliates of $1.0 million and $1.5
million at December 31, 1997 and 1998, respectively. Of this amount,
$622,000 relates to advances made by Sonic to SFC at December 31, 1997 and
$1.5 million relates to advances made by Sonic to SFC and MMRT at December
31, 1998. The remaining $425,000 at December 31, 1997 primarily relates to
receivables from executives of Sonic who were former owners of certain
dealerships acquired. These receivables resulted from differences in the
negotiated and actual net book value of the dealerships at the date of
acquisitions. The amounts receivable from affiliates are non-interest
bearing and are classified as current based on the expected repayment
dates.
o As part of the purchase price in connection with Sonic's acquisition of
the Bowers Automotive Group in November 1997, Sonic issued its promissory
note in the principal amount of $4.0 million in favor of Nelson Bowers
(the "Bowers Acquisition Note"). The Bowers Acquisition Note is payable in
28 equal quarterly installments and bears interest at the prime rate less
0.5%. The balance outstanding under this note at December 31, 1998 was
$3.4 million.
o Town and Country Toyota has an amount payable to Bruton Smith, which
payable totals approximately $0.7 million as of December 31, 1998. This
loan bears interest at 8.75% per annum.
o Certain subsidiaries of Sonic (such subsidiaries together with Sonic and
SFC are referred to as the "Sonic Group") filed consolidated federal
income tax returns with SFC for several years before our reorganization.
These joint filings were for 1996 and for the period ending on June 30,
1997. Under applicable federal tax law, each corporation included in SFC's
consolidated return is jointly and severally liable for any resultant tax.
Under a tax allocation agreement dated as of June 30, 1997, however, Sonic
agreed to pay to SFC, in the event that additional federal income tax is
determined to be due, an amount equal to Sonic's separate federal income
tax liability computed for all periods in which any member of the Sonic
Group has been a member of SFC's consolidated group less amounts
previously recorded by Sonic. Also pursuant to such agreement, SFC agreed
to indemnify Sonic for any additional amount determined to be due from
SFC's consolidated group in excess of the federal income tax liability of
the Sonic Group for such periods. The tax allocation agreement establishes
procedures with respect to tax adjustments, tax claims, tax refunds, tax
credits and other tax attributes relating to periods ending prior to the
time that the Sonic Group shall leave SFC's consolidated group.
o Sonic acquired Town & Country Ford, Lone Star Ford, Town & Country
Toyota, Fort Mill Ford and Frontier Oldsmobile-Cadillac in its 1997
reorganization pursuant to four separate stock subscription agreements.
These subscription agreements allowed the acquisition of 100% of the
capital stock or membership interests, as the case may be, of each of the
five dealerships from Sonic Financial, Bruton Smith, the Egan Group (an
assignee of Mr. Egan) and Bryan Scott Smith in exchange for certain
amounts of Sonic's Class B common stock.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
The exhibits and other documents filed as a part of this Annual Report on
Form 10-K, including those exhibits which are incorporated by reference herein,
are:
(a)(1) Financial Statements:
See the Index to Financial Statements which appears on page F-1 hereof.
(2) Financial Statement Schedules: No financial statement schedules are
required to be filed as part of this Annual Report on Form 10-K.
(3) Exhibits:
Exhibits required in connection with this Annual Report on Form 10-K are
listed below. Certain of such exhibits, indicated by an asterisk, are hereby
incorporated by reference to other documents on file with the Securities and
Exchange Commission with which they are physically filed, to be a part hereof
as of their respective dates.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ------------------------------------------------------------------------------------------------------------
<S> <C>
3.1* Amended and Restated Certificate of Incorporation of Sonic (incorporated by reference to Exhibit 3.1 to the
Registration Statement on Form S-1 (Registration No. 333-33295) of Sonic (the "Form S-1")).
3.2* Certificate of Designation, Preferences and Rights of Class A Convertible Preferred Stock (incorporated by
reference to Exhibit 4.1 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998).
3.3* Bylaws of Sonic (incorporated by reference to Exhibit 3.2 to the Form S-1).
4.1* Form of 11% Senior Subordinated Note due 2008, Series B (incorporated by reference to Exhibit 4.3 to the
Registration Statement on Form S-4 (Registration Nos. 333-64397 and 333-64397-001 through
333-64397-044) of Sonic (the "Form S-4")).
4.2* Indenture dated as of July 1, 1998 between Sonic, as issuer, the subsidiaries of Sonic named therein, as
guarantors, and U.S. Bank Trust National Association, as trustee, relating to the 11% Senior Subordinated
Notes due 2008 (incorporated by reference to Exhibit 4.2 to the Form S-4).
4.3* Registration Rights Agreement dated as of June 30, 1997 among Sonic, O. Bruton Smith, Bryan Scott Smith,
William S. Egan and Sonic Financial Corporation (incorporated by reference to Exhibit 4.2 to the Form S-1).
10.1* Employment Agreement between Sonic and O. Bruton Smith (incorporated by reference to Exhibit 10.29 to
the Form S-1).
10.2* Employment Agreement between Sonic and Bryan Scott Smith (incorporated by reference to Exhibit 10.30 to
the Form S-1).
10.3* Employment Agreement between Sonic and Theodore M. Wright (incorporated by reference to Exhibit 10.31
to the Form S-1).
10.4* Employment Agreement between Sonic and Nelson E. Bowers, II (incorporated by reference to Exhibit 10.32
to the Form S-1).
10.5* Employment Agreement between Sonic and Dennis D. Higginbotham (incorporated by reference to Exhibit
10.90 to the Form S-4).
10.6* Tax Allocation Agreement dated as of June 30, 1997 between Sonic and Sonic Financial Corporation
(incorporated by reference to Exhibit 10.33 to the Form S-1).
10.7* Assignment of Joint Venture Interest in Chartown dated as of June 30, 1997 among Town and Country Ford,
Inc., SMDA LLC and Sonic Financial Corporation (incorporated by reference to Exhibit 10.28 to the Form
S-1).
10.8* Sonic Automotive, Inc. 1997 Stock Option Plan (incorporated by reference to Exhibit 10.34 to the Form S-1).
10.9* Sonic Automotive, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.35 to the
Form S-1).
10.9a* Sonic Automotive, Inc. Employee Stock Purchase Plan Amended and Restated as of December 3, 1998
(incorporated by reference to Sonic's Registration Statement on Form S-8 (Registration No. 333-69907)).
10.10* Sonic Automotive, Inc. Formula Stock Option Plan for Independent Directors (incorporated by reference to
Exhibit 10.69 to Sonic's Amended Annual Report on Form 10-K/A for the year ended December 31, 1997
(the "1997 Form 10-K/A")).
10.11* Sonic Automotive, Inc. Nonqualified Employee Stock Purchase Plan (incorporated by reference to Sonic's
Registration Statement on Form S-8 (Registration No. 333-69899)).
10.12* Subscription Agreement dated as of June 30, 1997 between O. Bruton Smith and Sonic (incorporated by
reference to Exhibit 10.36 to the Form S-1).
10.13* Subscription Agreement dated as of June 30, 1997 between Sonic Financial Corporation and Sonic
(incorporated by reference to Exhibit 10.37 to the Form S-1).
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- -----------------------------------------------------------------------------------------------------------------
<S> <C>
10.14* Subscription Agreement dated as of June 30, 1997 between Bryan Scott Smith and Sonic (incorporated by
reference to Exhibit 10.38 to the Form S-1).
10.15* Subscription Agreement dated as of June 30, 1997 between William S. Egan and Sonic (incorporated by
reference to Exhibit 10.39 to the Form S-1).
10.16* Credit Agreement dated October 15, 1997 by and between Sonic and Ford Motor Credit Company
(incorporated by reference to Exhibit 10.46 to the Form S-1).
10.17* Amended and Restated Credit Agreement dated as of December 15, 1997 (the "Credit Agreement") between
Sonic, as borrower, and Ford Motor Credit Company, as lender (incorporated by reference to Exhibit 10.70 to
the 1997 Form 10-K/A).
10.18* Amended and Restated Promissory Note dated December 15, 1997 in the amount of $75 million by Sonic, as
borrower, in favor of Ford Motor Credit Company, as lender, under the Credit Agreement (incorporated by
reference to Exhibit 10.71 to the 1997 Form 10-K/A).
10.19* Subordinated Promissory Note dated December 1, 1997 (the "Smith Subordinated Note") in the amount of
$5.5 million by Sonic, as borrower, in favor of O. Bruton Smith, as lender (incorporated by reference to
Exhibit 10.72 to the 1997 Form 10-K/A).
10.20* Subordination Agreement dated as of December 15, 1997 between O. Bruton Smith and Ford Motor Credit
Company and acknowledged by Sonic re: the Smith Subordinated Note (incorporated by reference to Exhibit
10.73 to the 1997 Form 10-K/A)
10.21* Subordination Agreement dated as of July 31, 1998 between O. Bruton Smith and U.S. Bank Trust National
Association, as trustee under the Indenture relating to the 11% Senior Subordinated Notes re: the Smith
Subordinated Note (incorporated by reference to Exhibit 10.89 to the Form S-4).
10.22 Amendment to the Credit Agreement dated March 2, 1999 .
10.23 Second Amended and Restated Promissory Note dated March 2, 1999 in the amount of $100 million by
Sonic, as borrower, in favor of Ford Motor Credit Company, as lender, under the Credit Agreement, as
amended.
10.24* Strategic Alliance Agreement and Agreement for the Mutual Referral of Acquisition Opportunities dated
July 9, 1998 between Sonic and Mar Mar Realty Trust (incorporated by reference to Exhibit 99.7 to Sonic's
Current Report on Form 8-K dated July 24, 1998).
10.25* Supplemental Agreement between Sonic and Ford Motor Company (incorporated by reference to Exhibit
10.48 to the Form S-1).
10.26* Agreement between Toyota Motors Sales USA and Sonic (incorporated by reference to Exhibit 10.49 to the
Form S-1).
10.27* Asset Purchase Agreement dated as of May 27, 1997 by and among Sonic, Lake Norman Dodge, Inc., Lake
Norman Chrysler-Plymouth-Jeep-Eagle LLC, Quinton M. Gandy and Phil M. Gandy, Jr. (confidential portions
omitted and filed separately with the SEC) (incorporated by reference to Exhibit 10.40 to the Form S-1).
10.28* Asset Purchase Agreement dated as of June 24, 1997 by and among Sonic, Kia of Chattanooga, LLC,
European Motors of Nashville, LLC, European Motors, LLC, Jaguar of Chattanooga LLC, Cleveland
Chrysler-Plymouth-Jeep-Eagle LLC, Nelson Bowers Dodge, LLC, Cleveland Village Imports, Inc., Saturn of
Chattanooga, Inc., Nelson Bowers Ford, L.P., Nelson E. Bowers II, Jeffrey C. Rachor, and the other
shareholders named herein (confidential portions omitted and filed separately with the SEC) (incorporated by
reference to Exhibit 10.41 to the Form S-1).
10.29* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Bowers Acquisition (incorporated by
reference to Exhibit 10.41a to the Form S-1).
10.30* Stock Purchase Agreement dated as of July 29, 1997 between Sonic and Ken Marks, Jr., O.K. Marks, Sr. and
Michael J. Marks (confidential portions omitted and filed separately with the SEC) (incorporated by reference
to Exhibit 10.42 to the Form S-1).
10.31* Asset Purchase Agreement dated as of August 1997 by and among Sonic, Dyer & Dyer, Inc. and Richard
Dyer (confidential portions omitted and filed separately with the SEC) (incorporated by reference to Exhibit
10.43 to the Form S-1).
10.32* Amendment to Asset Purchase Agreement dated October 16, 1997 re: Dyer Acquisition (incorporated by
reference to Exhibit 10.43a to the Form S-1).
10.33* Asset Purchase Agreement dated as of February 4, 1998 between Sonic, as buyer, Hatfield Jeep Eagle, Inc.,
Hatfield Lincoln Mercury, Inc, Trader Bud's Westside Dodge, Inc., Toyota West, Inc. and Hatfield Hyundai,
Inc., as sellers, and Bud C. Hatfield, Dan E. Hatfield and Dan E. Hatfield, as Trustee of The Bud C. Hatfield,
Sr. Special Irrevocable Trust, as shareholders of the sellers (the "Hatfield Purchase Agreement") (incorporated
by reference to Exhibit 10.3 to Sonic's Quarterly Report on Form 10-Q for the quarter ended March 31,
1998).
10.33a* Amendment No. 1 and Supplement to the Hatfield Purchase Agreement (incorporated by reference to Exhibit
99.6 to Sonic's Current Report on Form 8-K dated July 9, 1998 (the "July 9, 1998 Form 8-K")).
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------- ----------------------------------------------------------------------------------------------------------
<S> <C>
10.33b* Amendment No. 2 and Supplement to the Hatfield Purchase Agreement (incorporated by reference to Exhibit
99.3 to Sonic's Current Report on Form 8-K dated July 24, 1998).
10.34* Asset Purchase Agreement dated as of July 7, 1998 by and among Sonic, HMC Finance Corporation, Inc.,
Halifax Ford-Mercury, Inc., Higginbotham Automobiles, Inc., Higginbotham Chevrolet-Oldsmobile, Inc.
Sunrise Auto World, Inc. and Dennis D. Higginbotham (the "Higginbotham Purchase Agreement")
(incorporated by reference to Exhibit 99.14 to the July 9, 1998 Form 8-K).
10.34a* Amendment No. 1 and Supplement to the Higginbotham Purchase Agreement dated as of September 16, 1998
(incorporated by reference to Exhibit 10.85a to the Form S-4).
10.35 Amended and Restated Asset Purchase Agreement dated as of March 16, 1999 by and among Sonic, Tom
Williams Buick, Inc., Williams Cadillac, Inc., Tom Williams Motors, Inc., Tom Williams Auto, Inc., Thomas
P. Williams, Sr., Charles Clark Williams and Thomas P. Williams, Jr.
10.35a Agreement and Plan of Merger dated as of March 16, 1999 by and among Sonic, Williams Cadillac
Company, Inc., Thomas P. Williams, Sr., Charles Clark Williams, Thomas P. Williams, Jr. and Catherine D.
Ward.
10.36 Asset Purchase Agreement by and among Sonic, Global Imports, Inc. and William Morris Whitmire (the
"Global Purchase Agreement").
10.36a Amendment No. 1 and Supplement to the Global Purchase Agreement dated as of February 18, 1999.
10.37 Asset Purchase Agreement dated February 26, 1999 by and among Sonic, Lute Riley Motors, Inc. and L.S.
Riley.
21.1 Subsidiaries of the Company.
23.1 Consent of Deloitte & Touche LLP.
27 Financial Data Schedule
</TABLE>
- ---------
* Filed previously
(b) Reports on Form 8-K
No Current Reports on Form 8-K were filed during the quarter ended
December 31, 1998.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
SONIC AUTOMOTIVE, INC.
BY /S/ O. BRUTON SMITH
------------------------------------
O. BRUTON SMITH
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
Date: March 31, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on its behalf by the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- --------------------------------------------- ---------------
<S> <C> <C>
/s/ O. BRUTON SMITH Chief Executive Officer (principal March 31, 1999
- ------------------------------------ executive officer) and Chairman
O. BRUTON SMITH
/s/ B. SCOTT SMITH President, Chief Operating Officer and March 31, 1999
- ------------------------------------ Director
B. SCOTT SMITH
/s/ DENNIS D. HIGGINBOTHAM President of Retail Operations and Director March 31, 1999
- ------------------------------------
DENNIS D. HIGGINBOTHAM
/s/ THEODORE M. WRIGHT Chief Financial Office, Vice President- March 31, 1999
- ------------------------------------ Finance, Treasurer, Secretary (Principal
THEODORE M. WRIGHT Financial and Accounting Officer) and
Director
/s/ WILLIAM R. BROOKS Director March 31, 1999
- ------------------------------------
WILLIAM R. BROOKS
/s/ WILLIAM P. BENTON Director March 31, 1999
- ------------------------------------
WILLIAM P. BENTON
/s/ WILLIAM I. BELK Director March 31, 1999
- ------------------------------------
WILLIAM I. BELK
</TABLE>
42
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
INDEPENDENT AUDITORS' REPORT .............................................................. F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets at December 31, 1997 and 1998 ................................ F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1997 and 1998.... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996,
1997 and 1998........................................................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and
1998.................................................................................... F-6
Notes to Consolidated Financial Statements ............................................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
SONIC AUTOMOTIVE, INC.
Charlotte, North Carolina
We have audited the accompanying consolidated balance sheets of Sonic
Automotive, Inc. and Subsidiaries (the "Company") as of December 31, 1997 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of the Company
as of December 31, 1997 and 1998, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
February 16, 1999
F-2
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1997 1998
---------- ----------
<S> <C> <C>
ASSETS (Note 5)
CURRENT ASSETS:
Cash and cash equivalents (Note 1) ..................................................... $ 18,304 $ 51,834
Receivables (net of allowance for doubtful accounts of $523 and $700 at December 31,
1997 and 1998, respectively) .......................................................... 19,784 39,902
Inventories (Notes 1 and 3) ............................................................ 156,514 264,971
Deferred income taxes (Note 6) ......................................................... 405 1,702
Due from affiliates (Note 7) ........................................................... 1,047 1,471
Other current assets (Note 2) .......................................................... 1,318 4,961
-------- --------
Total current assets .................................................................. 197,372 364,841
PROPERTY AND EQUIPMENT, NET (Notes 4 and 5) ............................................. 19,081 26,250
GOODWILL, NET (Note 1) .................................................................. 74,362 180,081
OTHER ASSETS ............................................................................ 635 4,931
-------- --------
TOTAL ASSETS ............................................................................ $291,450 $576,103
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable -- floor plan (Note 3) ................................................... $133,236 $228,158
Trade accounts payable ................................................................. 6,612 14,994
Accrued interest ....................................................................... 1,071 7,058
Other accrued liabilities (Note 6) ..................................................... 10,748 27,763
Payable to affiliates (Note 7) ......................................................... 445 628
Payable for acquisitions (Note 2) ...................................................... -- 2,385
Current maturities of long-term debt (Note 5) .......................................... 584 4,700
-------- --------
Total current liabilities ............................................................. 152,696 285,686
LONG-TERM DEBT (Note 5) ................................................................. 38,640 131,337
PAYABLE FOR ACQUISITIONS (Note 2) ....................................................... 275
PAYABLE TO THE COMPANY'S CHAIRMAN (Note 7) .............................................. 5,500 5,500
PAYABLE TO AFFILIATES (Note 7) .......................................................... 4,394 3,625
DEFERRED INCOME TAXES (Note 6) .......................................................... 1,079 4,066
INCOME TAX PAYABLE (Note 6) ............................................................. 4,776 3,185
COMMITMENTS AND CONTINGENCIES (Notes 7 and 10)
STOCKHOLDERS' EQUITY (Notes 1, 8 and 9):
Preferred Stock, $.10 par, 3.0 million shares authorized; 300,000 shares designated as
Class A Convertible Preferred Stock, liquidation preference $1,000 per share, of which
22,179 shares are issued and outstanding at December 31, 1998 ......................... -- 20,431
Class A Common Stock, $.01 par, 50.0 million shares authorized;
5,000,000 shares issued and outstanding at December 31, 1997 and 11,959,274 shares
issued and outstanding at December 31, 1998 ........................................... 100 120
Class B Common Stock, $.01 par (convertible into Class A Common Stock), 15.0 million
shares authorized; 12,500,000 shares issued and outstanding at December 31, 1997 and
12,400,000 shares issued and outstanding at December 31, 1998 ......................... 125 124
Paid-in capital ........................................................................ 67,933 87,011
Retained earnings ...................................................................... 16,186 34,743
Accumulated other comprehensive income ................................................. 21 --
-------- --------
Total stockholders' equity ............................................................ 84,365 142,429
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY .............................................. $291,450 $576,103
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
1996 1997 1998
----------- ------------- ---------------
<S> <C> <C> <C>
REVENUES:
Vehicle sales ........................................... $327,674 $ 467,858 $ 1,407,030
Parts, service and collision repair ..................... 42,075 57,537 162,660
Finance and insurance (Note 1) .......................... 7,118 10,606 34,011
-------- --------- -----------
Total revenues ........................................ 376,867 536,001 1,603,701
COST OF SALES (Note 1) ................................... 332,122 473,003 1,396,259
-------- --------- -----------
GROSS PROFIT ............................................. 44,745 62,998 207,442
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ................................................ 32,602 46,770 150,130
DEPRECIATION AND AMORTIZATION ............................ 1,076 1,322 4,607
-------- --------- -----------
OPERATING INCOME ......................................... 11,067 14,906 52,705
OTHER INCOME AND EXPENSE:
Interest expense, floor plan (Note 3) ................... 5,968 8,007 14,096
Interest expense, other ................................. 433 1,199 9,395
Other income ............................................ 355 298 426
-------- --------- -----------
Total other expense ................................... 6,046 8,908 23,065
-------- --------- -----------
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST ......... 5,021 5,998 29,640
PROVISION FOR INCOME TAXES (Note 6) ...................... 1,924 2,249 11,083
-------- --------- -----------
INCOME BEFORE MINORITY INTEREST .......................... 3,097 3,749 18,557
MINORITY INTEREST IN EARNINGS OF SUBSIDIARY (Note 1) ..... 114 47 --
-------- --------- -----------
NET INCOME ............................................... $ 2,983 $ 3,702 $ 18,557
======== ========= ===========
BASIC NET INCOME PER SHARE (Note 8) ...................... $ 0.27 $ 0.81
========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............ 13,898 22,852
========= ===========
DILUTED NET INCOME PER SHARE (Note 8) .................... $ 0.27 $ 0.74
========= ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING ............ 13,898 24,970
========= ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS AND SHARES IN THOUSANDS)
<TABLE>
<CAPTION>
PREFERRED CLASS A CLASS B
STOCK COMMON STOCK COMMON STOCK
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ----------- -------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 ................. -- -- -- -- 12,500 $125
Capital contributions ............. -- -- -- -- -- --
Comprehensive income:
Net income ....................... -- -- -- -- -- --
Net unrealized loss on
marketable equity
securities net of tax
benefit of $35,488 .............. -- -- -- -- -- --
--- -- -- -- ------ ----
Total comprehensive
income .........................
BALANCE AT
DECEMBER 31, 1996 ................. -- -- -- -- 12,500 125
Capital contribution (Note 1) -- -- -- -- -- --
Public offering of common
stock (Note 8) ................... -- -- 10,000 100 -- --
Stock redemption (Note 7) ......... -- -- -- -- -- --
Dividend (Note 7) ................. -- -- -- -- -- --
Comprehensive income:
Net income ....................... -- -- -- -- -- --
Net unrealized gain on
marketable equity
securities net of tax of
$73,864.......................... -- -- -- -- -- --
--- -- ------ --- ------ ----
Total comprehensive
income .........................
BALANCE AT
DECEMBER 31, 1997 ................. -- -- 10,000 100 12,500 125
Issuance of Preferred Stock
(Note 2) ......................... 31 29,342 -- -- -- --
Issuance of Common Stock .......... 975 10
Shares awarded under stock
compensation plans ............... 252 3 --
Issuance of warrants
(Note 8) ......................... --
Conversion of preferred stock
(Note 8) ......................... (9) (8,911) 632 6 -- --
Conversion of Class B
Common stock ..................... -- -- 100 1 (100) (1)
Comprehensive income:
Net income ....................... -- -- -- -- -- --
Net unrealized loss on
marketable equity
securities ...................... -- -- -- -- -- --
---- ------ ------ --- ------ -----
Total comprehensive
income .........................
BALANCE AT
DECEMBER 31, 1998 ................. 22 $ 20,431 11,959 $120 12,400 $124
==== ======== ====== ==== ====== =====
<CAPTION>
ACCUMULATED
OTHER TOTAL
PAID-IN RETAINED COMPREHENSIVE STOCKHOLDERS'
CAPITAL EARNINGS INCOME (LOSS) EQUITY
----------- ---------- --------------- --------------
<S> <C> <C> <C> <C>
BALANCE AT
DECEMBER 31, 1995 ................. $ 6,207 $10,010 $ (35) $ 16,307
Capital contributions ............. 7,064 -- -- 7,064
Comprehensive income:
Net income ....................... -- 2,983 -- 2,983
Net unrealized loss on
marketable equity
securities net of tax
benefit of $35,488 .............. -- -- (59) (59)
-------- ------- ----- --------
Total comprehensive
income ......................... 2,924
--------
BALANCE AT
DECEMBER 31, 1996 ................. 13,271 12,993 (94) 26,295
Capital contribution (Note 1) 3,208 -- -- 3,208
Public offering of common
stock (Note 8) ................... 53,577 -- -- 53,677
Stock redemption (Note 7) ......... (2,123) -- -- (2,123)
Dividend (Note 7) ................. -- (509) -- (509)
Comprehensive income:
Net income ....................... -- 3,702 -- 3,702
Net unrealized gain on
marketable equity
securities net of tax of
$73,864.......................... -- -- 115 115
-------- ------- ----- --------
Total comprehensive
income ......................... 3,817
--------
BALANCE AT
DECEMBER 31, 1997 ................. 67,933 16,186 21 84,365
Issuance of Preferred Stock
(Note 2) ......................... -- -- -- 29,342
Issuance of Common Stock .......... 8,283 8,293
Shares awarded under stock
compensation plans ............... 1,162 1,165
Issuance of warrants
(Note 8) ......................... 728 728
Conversion of preferred stock
(Note 8) ......................... 8,905 -- -- --
Conversion of Class B
Common stock ..................... -- -- -- --
Comprehensive income:
Net income ....................... -- 18,557 -- 18,557
Net unrealized loss on
marketable equity
securities ...................... -- -- (21) (21)
-------- ------- ----- --------
Total comprehensive
income ......................... 18,536
--------
BALANCE AT
DECEMBER 31, 1998 ................. $ 87,011 $34,743 $ -- $142,429
======== ======= ===== ========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------
1996
-------------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................ $ 2,983
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ....................................................... 1,076
Minority interest ................................................................... 114
Loss on disposal of property and equipment .......................................... 80
(Gain) loss on sale of marketable equity securities ................................. (355)
Change in deferred income taxes ..................................................... (241)
Changes in assets and liabilities that relate to operations:
Receivables ........................................................................ (2,421)
Inventories ........................................................................ (14,013)
Other assets ....................................................................... (80)
Accounts payable and other current liabilities ..................................... 1,439
Income tax payable ................................................................. 524
-----------
Total adjustments ................................................................. (13,877)
-----------
Net cash provided by (used in) operating activities ................................. (10,894)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired .......................................... (5,127)
Purchases of property and equipment ................................................... (1,907)
Proceeds from sales of property and equipment ......................................... 4
Purchase of marketable equity securities .............................................. (207)
Proceeds from sales of marketable equity securities ................................... 515
-----------
Net cash used in investing activities ............................................... (6,722)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions ................................................................. 7,064
Proceeds from notes payable -- floor plan ............................................. 306,584
Payments from notes payable -- floor plan ............................................. (293,599)
Proceeds from long-term debt .......................................................... 599
Payments of long-term debt ............................................................ (576)
Public offering of common stock ....................................................... --
Issuance of shares under stock compensation plans ..................................... --
Receipts from (advances to) affiliate companies ....................................... (4,771)
Advances from the Company's Chairman (Note 7) ......................................... --
-----------
Net cash provided by financing activities ........................................... 15,301
-----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... (2,315)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 8,994
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 6,679
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest .............................................................................. $ 6,489
Income taxes .......................................................................... $ 2,042
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Purchase of minority interest in connection with the reorganization (Note 1) .......... --
Cancellation of notes payable from affiliates in connection with the reorganization
(Note 7).............................................................................. --
Cancellation of notes payable from affiliates pursuant to dividend (Note 7) ........... --
Preferred Stock issued pursuant to acquisitions ....................................... --
Conversion of preferred stock ......................................................... --
Common Stock issued to an affiliate pursuant to an acquisition ........................
Payable for acquisitions (Note 2) ..................................................... --
Issuance of warrants (Notes 2 and 8) .................................................. --
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1997 1998
------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ............................................................................ $ 3,702 $ 18,557
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization ....................................................... 1,322 4,607
Minority interest ................................................................... 47 --
Loss on disposal of property and equipment .......................................... 110 278
(Gain) loss on sale of marketable equity securities ................................. (298) 21
Change in deferred income taxes ..................................................... (27) 2,164
Changes in assets and liabilities that relate to operations:
Receivables ........................................................................ (594) (11,018)
Inventories ........................................................................ 1,430 12,030
Other assets ....................................................................... (788) (4,190)
Accounts payable and other current liabilities ..................................... 1,694 11,026
Income tax payable ................................................................. (504) (3,682)
----------- -------------
Total adjustments ................................................................. 2,392 11,236
----------- -------------
Net cash provided by (used in) operating activities ................................. 6,094 29,793
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of businesses, net of cash acquired .......................................... (85,650) (72,205)
Purchases of property and equipment ................................................... (2,007) (4,335)
Proceeds from sales of property and equipment ......................................... 43 1,655
Purchase of marketable equity securities .............................................. -- --
Proceeds from sales of marketable equity securities ................................... 784
-----------
Net cash used in investing activities ............................................... (86,830) (74,885)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital contributions ................................................................. --
Proceeds from notes payable -- floor plan ............................................. 459,678 1,149,497
Payments from notes payable -- floor plan ............................................. (458,046) (1,166,303)
Proceeds from long-term debt .......................................................... 45,892 179,851
Payments of long-term debt ............................................................ (13,353) (84,594)
Public offering of common stock ....................................................... 53,677 --
Issuance of shares under stock compensation plans ..................................... -- 1,165
Receipts from (advances to) affiliate companies ....................................... (987) (994)
Advances from the Company's Chairman (Note 7) ......................................... 5,500 --
----------- -------------
Net cash provided by financing activities ........................................... 92,361 78,622
----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................................... 11,625 33,530
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ......................................... 6,679 18,304
----------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD ............................................... $ 18,304 $ 51,834
=========== =============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
-- Cash paid during the period for:
Interest .............................................................................. $ 8,761 $ 17,504
Income taxes .......................................................................... $ 1,392 $ 10,919
SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING ACTIVITIES:
Purchase of minority interest in connection with the reorganization (Note 1) .......... $ 3,208 --
Cancellation of notes payable from affiliates in connection with the reorganization
(Note 7).............................................................................. $ 2,123 --
Cancellation of notes payable from affiliates pursuant to dividend (Note 7) ........... $ 509 --
Preferred Stock issued pursuant to acquisitions ....................................... -- $ 29,342
Conversion of preferred stock ......................................................... -- $ 8,911
Common Stock issued to an affiliate pursuant to an acquisition ........................ $ 8,250
Payable for acquisitions (Note 2) ..................................................... -- $ 2,685
Issuance of warrants (Notes 2 and 8) .................................................. -- $ 728
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS -- Sonic Automotive, Inc ("Sonic") is one of the
top five automotive retailers in the United States, operating 38 new car
dealerships and 14 collision repair centers in 10 metropolitan areas of the
Midwestern, Southeastern, and Southwestern United States as of December 31,
1998. Sonic sells new and used cars and light trucks, sells replacement parts,
provides vehicle maintenance, warranty, paint and repair services, and arranges
related financing and insurance for its automotive customers. As of December
31, 1998, Sonic sold a total 23 foreign and domestic brands of new vehicles.
Sonic was incorporated in the State of Delaware in February 1997. Pursuant
to a reorganization on June 30, 1997 (the "Reorganization"), five dealerships
which were affiliated through the common ownership and control of Mr. O. Bruton
Smith, Sonic's Chairman and Chief Executive Officer, became the first
wholly-owned subsidiaries of the Company through the exchange of their common
stock or membership interests for 12.5 million shares of Sonic's Class B common
stock, par value $.01 per share. The Reoganization was accounted for at
historical cost in a manner similar to a pooling-of-interests as the entities
were under common management and control. The financial statements for the
periods through the effective date of the Reorganization represent the combined
data for these five dealerships.
On November 12, 1997, Sonic completed an initial public offering of 10.0
million shares of its Class A common stock, par value $.01 per share which is
currently traded on the New York Stock Exchange under the symbol SAH.
During 1997 and 1998, Sonic completed the acquisitions of 19 dealerships
(see Note 2). Each of these acquisitions has been accounted for using the
purchase method of accounting, and the accompanying financial statements
include the results of operations of the dealerships acquired from their
respective dates of acquisition.
PRINCIPLES OF CONSOLIDATION -- All material intercompany transactions have
been eliminated in the consolidated financial statements.
REVENUE RECOGNITION -- Sonic records revenue when vehicles are delivered
to customers, and when vehicle service work is performed.
Sonic arranges financing for customers through various financial
institutions and receives a commission from the lender equal to the difference
between the interest rates charged to customers over the predetermined interest
rates set by the financing institution. Sonic also receives commissions from
the sale of credit life, accident, health and disability insurance and extended
service contracts to customers. Sonic may be assessed a chargeback fee in the
event of early cancellation of a loan, insurance contract, or service contract
by the customer. Finance and insurance commission revenue is recorded net of
estimated chargebacks at the time the related contract is placed with the
financial institution.
Commissions expense related to finance and insurance commission revenue is
charged to cost of sales upon recognition of such revenue, net of estimated
chargebacks. Commission expense charged to cost of sales was approximately $1.1
million, $1.8 million and $6.0 million for the years ended December 31, 1996,
1997, and 1998, respectively.
DEALER AGREEMENTS -- Sonic purchases substantially all of its new vehicles
from manufacturers at the prevailing prices charged by the manufacturer to its
franchised dealers. Sonic's sales could be unfavorably impacted by the
manufacturer's unwillingness or inability to supply the dealership with an
adequate supply of new vehicle inventory.
Each dealership operates under a dealer agreement with the manufacturer
which generally restricts the location, management and ownership of the
respective dealership. The ability of Sonic to acquire additional franchises
from a particular manufacturer may be limited due to certain restrictions
imposed by manufacturers. Additionally, Sonic's ability to enter into other
significant acquisitions may be restricted and the acquisition of Sonic's stock
by third parties may be limited by the terms of the franchise agreements.
F-7
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
CASH AND CASH EQUIVALENTS -- Sonic considers contracts in transit and all
highly liquid debt instruments with an initial maturity of three months or less
to be cash equivalents. Contracts in transit represent cash in transit to Sonic
from finance companies related to vehicle purchases, and was $12.1 million and
$36.6 million at December 31, 1997 and 1998, respectively.
INVENTORIES -- Inventories of new and used vehicles, including
demonstrators, are stated at the lower of specific cost or market. Inventories
of parts and accessories are accounted for using the "first-in, first-out"
method of inventory accounting ("FIFO") and are stated at the lower of FIFO
cost or market.
PROPERTY AND EQUIPMENT -- Property and equipment are stated at cost.
Depreciation is computed using straight-line methods over the estimated useful
lives of the assets. The range of estimated useful lives is as follows:
<TABLE>
<CAPTION>
USEFUL LIVES
-------------
<S> <C>
Building and improvements .............. 5-40
Office equipment and fixtures .......... 5-15
Parts and service equipment ............ 15
Company vehicles ....................... 5
</TABLE>
GOODWILL -- Goodwill represents the excess purchase price over the
estimated fair value of the tangible and separately measurable intangible net
assets acquired. The cumulative amount of goodwill at December 31, 1997 was
$75.0 million and at December 31, 1998 was $182.5 million. As a percentage of
total assets and stockholders' equity, goodwill, net of accumulated
amortization, represented 25.5% and 88.1%, respectively, at December 31, 1997,
and 31.3% and 126.4%, respectively, at December 31, 1998. Generally accepted
accounting principles require that goodwill and all other intangible assets be
amortized over the period benefited. Sonic has determined that the period
benefited by the goodwill will be no less than 40 years. Accordingly Sonic is
amortizing goodwill over a 40 year period. Earnings reported in periods
immediately following an acquisition would be overstated if Sonic attributed a
40 year benefit to an intangible asset that should have had a shorter benefit
period. In later years, Sonic would be burdened by a continuing charge against
earnings without the associated benefit to income valued by management in
arriving at the price paid for the businesses acquired. Earnings in later years
also could be significantly affected if management then determined that the
remaining balance of goodwill was impaired. Sonic periodically compares the
carrying value of goodwill with the anticipated undiscounted future cash flows
from operations of the businesses acquired in order to evaluate the
recoverability of goodwill. Sonic has concluded that the anticipated future
cash flows associated with intangible assets recognized in its acquisitions
will continue indefinitely, and there is no pervasive evidence that any
material portion will dissipate over a period shorter than 40 years. Sonic will
incur additional goodwill in future acquisitions.
INCOME TAXES -- Income taxes are provided for the tax effects of
transactions reported in the financial statements and consist of taxes
currently due plus deferred taxes related primarily to the capitalization of
additional inventory costs for income tax purposes, the recording of
chargebacks and repossession losses on the direct write-off method for income
tax purposes, the direct write-off of uncollectible accounts for income tax
purposes, and the accelerated depreciation method used for income tax purposes.
The deferred tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or deductible
when the assets and liabilities are recovered or settled. In addition, deferred
tax assets are recognized for state operating losses that are available to
offset future taxable income.
STOCK-BASED COMPENSATION -- Sonic measures the compensation cost of its
stock-based compensation plans under the provisions of Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," as
permitted under Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation." Under the provisions of APB No. 25,
compensation cost is measured based on the intrinsic value of the equity
instrument awarded.
CONCENTRATIONS OF CREDIT RISK -- Financial instruments which potentially
subject Sonic to concentrations of credit risk consist principally of cash on
deposit with financial institutions. At times, amounts invested with financial
institutions may exceed FDIC insurance limits. Concentrations of credit risk
with respect to receivables are limited primarily to
F-8
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES -- (Continued)
automobile manufacturers and financial institutions. Credit risk arising from
trade receivables from commercial customers is reduced by the large number of
customers comprising the trade receivables balances.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- As of December 31, 1997 and 1998
the fair values of Sonic's financial instruments including receivables, due
from affiliates, notes payable-floor plan, trade accounts payable, payables to
affiliated companies and Sonic's Chairman and long-term debt excluding Sonic's
senior subordinated notes, approximate their carrying values due either to
length of maturity or existence of variable interest rates that approximate
prevailing market rates. The carrying value of Sonic's senior subordinated
notes as of December 31, 1998 was a reasonable approximation of its fair value.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ADVERTISING -- Sonic expenses advertising costs in the period incurred.
Advertising expense amounted to $5.0 million, $7.0 million and $17.4 million
for the years ended December 31, 1996, 1997 and 1998, respectively.
MINORITY INTEREST -- Prior to the Reorganization, Sonic owned only a 69%
interest in Town and Country Toyota. In connection with the Reorganization,
Sonic purchased the remaining 31% minority interest in Town and Country Toyota,
Inc. for $3.2 million in a transaction accounted for using the purchase method
of accounting. On a pro forma basis for the years ended December 31, 1996 and
1997, revenue would have been unchanged and net income and net income per share
would not be materially different had the acquisition of this minority interest
occurred on January 1, 1996 and January 1, 1997, respectively.
IMPACT OF NEW ACCOUNTING STANDARDS -- In June 1997, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information."
This Standard redefines how operating segments are determined and requires
disclosure of certain financial and descriptive information about a company's
operating segments. This Statement became effective for Sonic's fiscal year
ending December 31, 1998. The implementation of FAS 131 did not have an impact
on Sonic's financial statements or related disclosures.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instrument
and Hedging Activities." This Standard establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and hedging activites. The Statement will become
effective for Sonic beginning January 1, 2000. Sonic has elected earlier
application of all of the provisions of this Statement beginning October 1,
1998. The implementation of the provisions of this Statement did not have an
impact on Sonic's financial statements for the year ended December 31, 1998.
RECLASSIFICATION -- Certain prior year amounts have been reclassified to
conform with current year presentation.
2. BUSINESS ACQUISITIONS
PENDING ACQUISITIONS (UNAUDITED)
The Company has signed definitive agreements to acquire 12 dealerships for
a minimum of approximately $54.9 million in cash, 11,425 shares of Class A
Convertible Preferred Stock, Series II, and 10,525 shares of Class A
Convertible Preferred Stock, Series III having a liquidation value of $1,000
per share. The aggregate purchase price is subject to adjustment based on the
actual net book value of the assets acquired. The cash portion of the purchase
price will be paid with a combination of borrowings under the Company's $100
million acquisition line of credit with Ford Motor Credit Company (the
"Revolving Facility") and with cash generated from the Company's existing
operations. The Company may be required to pay additional amounts based on
future pre-tax earnings of certain of these acquired dealerships. These
acquisitions are expected to be consummated in the second and third quarters of
1999.
F-9
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS ACQUISITIONS -- (Continued)
ACQUISITIONS COMPLETED SUBSEQUENT TO DECEMBER 31, 1998 (THROUGH MARCH 29, 1999)
(UNAUDITED)
Subsequent to December 31, 1998, Sonic acquired 8 dealerships for
approximately $50.9 million in cash, and the issuance of 34,100 shares of
Sonic's Class A Convertible preferred stock, Series III, par value $.10 per
share having a liquidation preference of $1,000 per share. The cash portion of
the purchase price was financed with a combination of cash borrowed under the
Revolving Facility and cash generated from Sonic's existing operations. The
acquisitions were accounted for using the purchase method of accounting. Sonic
may be required to pay additional amounts based on future pre-tax earnings of
certain of the dealerships acquired. Any additional amounts paid will be
accounted for as goodwill.
In connection with the subsequent acquisition of a Honda dealership in
Chattanooga, Tennessee, the Company sold substantially all of the assets of its
Honda dealership in Cleveland, Tennessee in March, 1999 for approximately $3.6
million. There was no material gain or loss as a result of the sale.
ACQUISITIONS COMPLETED DURING THE YEAR ENDED DECEMBER 31, 1998
During 1998, Sonic acquired 19 dealerships for an aggregate purchase price
of approximately $134.0 million. The aggregate purchase price was paid with
approximately $96.2 million in cash, with 970,588 shares of Class A common
stock having an estimated fair value at the time of issuance of approximately
$8.3 million, with 30,733.8 shares of Preferred Stock (14,406.3 shares of Class
A convertible preferred stock, Series I (the "Series I Preferred Stock"),
10,054.5 shares of Series II Preferred Stock, and 6,273 shares of Class A
convertible preferred stock, Series III (the "Series III Preferred Stock"))
having an estimated fair value at the time of issuance of approximately $29.3
million and with warrants to purchase an aggregate of 154,000 shares of Class A
common stock having an approximate fair value of $0.5 million. The cash portion
of the aggregate purchase price was financed with a combination of cash
obtained from the net proceeds of Sonic's private offering on July 31, 1998 of
$125 million in aggregate principal amount of its 11% senior subordinated notes,
cash obtained from the Revolving Facility, and cash generated from Sonic's
existing operations. Payables for acquisitions as of December 31, 1998 on the
accompanying consolidated balance sheet includes $1.7 million of the cash
portion of the aggregate purchase price which was paid subsequent to
December 31, 1998.
The difference between the aggregate purchase price of $134.0 million and
amounts paid of $134.3 represents the net of (i) $1.3 million due from a former
owner as a result of a shortage in the actual net book value of assets acquired
compared to the minimum net book value required in the purchase agreement, (ii)
$0.4 million due to a former owner as a result of an excess in the actual net
book value of assets acquired over the minimum net book value required in the
purchase agreement, and (iii) $0.6 million due to a former owner on the first
and second anniversaries of the acquisition date. The $1.3 million due from a
former owner has been included in other current assets on the accompanying
balance sheet. The $0.4 million and $0.6 million due to former owners have been
included in payable for acquisitions on the accompanying balance sheet.
In accordance with terms of certain of the purchase agreements, Sonic may
be required to pay additional consideration contingent upon future earnings of
certain of the dealerships acquired. As of December 31, 1998, Sonic had
recorded approximately $8.0 million relating to such consideration, which has
been accounted for as goodwill. Any additional amounts which may be payable in
the future will also be accounted for as goodwill.
All of the acquisitions completed in 1998 have been accounted for using
the purchase method of accounting, and the results of operations of such
acquisitions have been included in the accompanying consolidated financial
statements from their respective acquisition dates. The purhcase price of these
acquisitions has been allocated to the assets and liabilities acquired based on
their estimated fair market value at acquisition date as shown in the table
below. The purchase price and corresponding goodwill may ultimately be
different than amounts recorded depending on the actual fair value of the
tangible net assets acquired.
F-10
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS ACQUISITIONS -- (Continued)
<TABLE>
<S> <C>
Working capital ...................... $ 30,341
Property and equipment ............... 5,690
Goodwill ............................. 101,323
Non-current liabilities assumed ...... (3,365)
--------
Total purchase price ................. $133,989
========
</TABLE>
ACQUISITIONS COMPLETED DURING YEAR ENDED DECEMBER 31, 1997
During 1997, Sonic acquired 13 dealerships for an aggregate purchase price
of approximately $98.8 million. The aggregate purchase price was paid with
approximately $94.8 million in cash and with a $4.0 million promissory note
bearing interest at prime less 0.5% and payable in 28 equal quarterly
installments to a former owner of certain of the acquired dealerships. The cash
portion of the aggregate purchase price was financed with a combination of cash
obtained from the net proceeds of Sonic's initial public offering, cash
obtained from the Revolving Facility, and cash generated from Sonic's existing
operations. In addition, Sonic issued to the seller of one of the acquired
dealerships warrants to purchase an aggregate of 88,782 shares of Class A
common stock having an approximate fair value of $0.3 million.
All of the acquisitions completed in 1997 have been accounted for using
the purchase method of accounting, and the results of operations of such
acquisitions have been included in the accompanying consolidated financial
statements from their respective dates of acquisition. The purchase price of
these acquisitions has been allocated to the assets and liabilities acquired
based on their estimated fair market value at acquisition date as follows:
<TABLE>
<S> <C>
Working capital ...................... $ 28,247
Property and equipment ............... 3,969
Goodwill ............................. 69,528
Non-current liabilities assumed ...... (2,940)
--------
Total purchase price ................. $ 98,804
========
</TABLE>
ACQUISITIONS COMPLETED DURING THE YEAR ENDED DECEMBER 31, 1996
On February 1, 1996, Sonic acquired Fort Mill Ford for a total purchase
price of $5.7 million. The acquisition has been accounted for using the
purchase method of accounting and the results of operations of Fort Mill Ford
have been included in the accompanying consolidated financial statements from
the date of acquisition. The purchase price has been allocated to the assets
and liabilities acquired based on their estimated fair market value at the
acquisition date as follows:
<TABLE>
<S> <C>
Working capital ...................... $ 822
Property and equipment ............... 3,022
Goodwill ............................. 4,364
Non-current liabilities assumed ...... (2,467)
--------
Total purchase price ................. $ 5,741
========
</TABLE>
PRO FORMA RESULTS OF OPERATIONS
The following unaudited pro forma financial information presents a summary
of consolidated results of operations as if the above acquisition transactions
had occurred as of the beginning of the period in which the acquisitions were
completed, and at the beginning of the immediately preceeding period, after
giving effect to certain adjustments, including amortization of goodwill,
interest expense on acquisition debt and related income tax effects. The pro
forma financial information does not give effect to adjustments relating to net
reductions in floorplan interest expense resulting from re-negotiated floorplan
financing agreements or to reductions in salaries and fringe benefits of former
owners or officers of acquired dealerships who have not been retained by Sonic
or whose salaries have been reduced pursuant to employment agreements with
Sonic. The pro forma results have been prepared for comparative purposes only
and are not necessarily
F-11
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS ACQUISITIONS -- (Continued)
indicative of the results of operations that would have occurred had the
acquisitions been completed at the beginning of the periods presented. These
results are also not necessarily indicative of the results of future
operations.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1998
--------------- ---------------
<S> <C> <C>
Total revenues ....................... $ 1,855,254 $ 1,996,222
Gross profit ......................... $ 225,374 $ 255,721
Net income ........................... $ 8,198 $ 18,878
Diluted net income per share ......... $ 0.43 $ 0.73
</TABLE>
3. INVENTORIES AND RELATED NOTES PAYABLE -- FLOOR PLAN
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
New vehicles .................. $118,751 $190,139
Used vehicles ................. 27,990 47,033
Parts and accessories ......... 9,085 16,012
Other ......................... 688 11,787
-------- --------
Total ......................... $156,514 $264,971
======== ========
</TABLE>
The inventory balance is generally reduced by manufacturer's purchase
discounts, and such reduction is not reflected in the related floor plan
liability.
All new and certain used vehicles are pledged to collateralize floor plan
notes payable to financial institutions in the amount of $133.2 million and
$228.2 million at December 31, 1997 and 1998, respectively. The floor plan
notes bear interest payable monthly on the outstanding balance. Prior to
November 15, 1998, the effective interest rate was prime less 0.9%, subject to
certain incentives and other adjustments. Effective November 15, 1998, the
interest rate was reduced to an effective rate of prime less 1.1% subject to
certain incentives and other adjustments (6.65% at December 31, 1998). Total
floor plan interest expense amounted to $6.0 million, $8.0 million and $14.1
million in 1996, 1997 and 1998, respectively. Sonic's floor plan financing
arrangements include an available line of credit for the purchase of used
vehicle inventory. As of December 31, 1998, there was approximately $18.5
million available under Sonic's used vehicle credit line, of which
approximately $17.4 million was unused. Floor plan notes payable are due when
the related vehicle is sold. As such, these floor plan notes payable are shown
as a current liability in the accompanying consolidated balance sheets.
4. PROPERTY AND EQUIPMENT
Property and equipment is comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
Land .................................. $ 4,330 $ 4,330
Building and improvements ............. 11,904 14,085
Office equipment and fixtures ......... 4,102 6,739
Parts and service equipment ........... 4,229 6,495
Company vehicles ...................... 727 1,300
Construction in progress .............. -- 645
-------- --------
Total, at cost ........................ 25,292 33,594
Less accumulated depreciation ......... (6,211) (7,344)
-------- --------
Property and equipment, net ........... $ 19,081 $ 26,250
======== ========
</TABLE>
F-12
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1997 1998
----------- -----------
<S> <C> <C>
$125.0 million Senior Subordinated Notes bearing interest at 11%, maturing August 1,
2008, net of unamortized discount of $4.3 million....................................... $ -- $120,726
Amounts outstanding under $100 million revolving credit facility with Ford Motor Credit
bearing interest at 2.75% above the 1 month commercial finance paper rate (7.55% at
December 31, 1998) and maturing in March 2001, collateralized by all assets of the
Company ................................................................................ 25,070 8,887
Amounts outstanding under $20.0 million line of credit from NationsBank bearing interest
at 7.75% and maturing February 15, 1998 ................................................ 8,200 --
Mortgage notes payable .................................................................. 4,322 4,091
Other notes payable ..................................................................... 1,632 2,333
------- --------
39,224 136,037
Less current maturities ................................................................. (584) (4,700)
------- --------
Long-term debt .......................................................................... $38,640 $131,337
======= ========
</TABLE>
Future maturities of debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
Year ending December 31,
1999 ................... $ 4,700
2000 ................... 9,464
2001 ................... 530
2002 ................... 347
2003 ................... 135
Thereafter ............. 120,861
--------
Total .................. $136,037
========
</TABLE>
In connection with the sale of real estate at Town and Country Toyota and
Fort Mill Ford in January 1999, the Company repaid all amounts outstanding
under the related mortgages. As a result, the aggregate balance of these
mortgages of $4.1 million as of December 31, 1998 has been included in current
maturities of long-term debt.
SENIOR SUBORDINATED NOTES
On July 31, 1998, Sonic completed its private placement of its 11% senior
subordinated notes in the aggregate principal amount of $125,000,000. The
senior subordinated notes are unsecured, mature on August 1, 2008, and are
redeemable at Sonic's option after August 1, 2003. Interest payments are due
semi-annually on February 1 and August 1, commencing February 1, 1999. The
senior subordinated notes are subordinated to all present and future senior
indebtedness of Sonic, including the Revolving Facility. Redemption prices
during 12 month periods beginning August 1 are 105.500% in 2003, 103.667% in
2004, 101.833% in 2005 and 100% thereafter. Net proceeds after commissions and
discounts, including issuance discount of $937,500, amounted to $120,625,000
and were used to finance certain of Sonic's acquisitions and to repay amounts
outstanding under the Revolving Facility. The discount on the senior
subordinated notes is being amortized over the term of the notes using the
effective interest method. On December 7, 1998, Sonic completed an exchange
offer to exchange the senior subordinated notes for identical senior
subordinated notes registered under the Securities Act of 1933.
The indenture governing the senior subordinated notes contains certain
specified restrictive and required financial covenants. Sonic has agreed not to
pledge its assets to any third party except under certain limited
circumstances. Sonic also has agreed to certain other limitations or
prohibitions concerning the incurrence of other indebtedness, capital stock,
guaranties, asset sales, investments, cash dividends to shareholders,
distributions and redemptions.
F-13
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT -- (Continued)
THE REVOLVING FACILITY
In 1997, Sonic obtained the Revolving Facility with a $75.0 million
borrowing limit from Ford Motor Credit. Effective November 15, 1998, the
aggregate amount available for borrowing under the Revolving Facility was
increased from $75.0 million to $100.0 million. Prior to November 14, 1998,
amounts outstanding under the Revolving Facility bore interest at a fluctuating
per annum rate equal to the "prime" or "base" rate announced by a majority (or
if there was no majority, the median rate announced by three) of the following
banks: The Chase Manhattan Bank, NationsBank, N.A., Citibank, N.A., Bank of
America National Trust and Savings Association and Morgan Guaranty Trust
Company of New York (the "Revolving Facility Prime Rate"). The Revolving
Facility Prime Rate as of November 15, 1998 was 7.75%. Subsequent to November
15, 1998, amounts outstanding under the Revolving Facility bear interest at a
fluctuating per annum rate equal to 2.75% above the 1 month commercial finance
paper rate as reported by the Federal Reserve Board (7.55% at December 31,
1998).
The Revolving Facility will mature in March 2001, unless Sonic requests
that such term be extended, at the option of Ford Motor Credit, for a number of
additional one year terms to be negotiated by the parties. No assurance can be
given that such extensions will be granted. On July 31, 1998, all amounts
previously outstanding under the Revolving Facility were repaid with a portion
of the net proceeds of the sale of senior subordinated notes. The outstanding
balance of $8.9 million at December 31, 1998 represents amounts borrowed to
finance certain of Sonic's acquisitions completed in 1998. Additional amounts
to be drawn under the Revolving Facility are to be used for the acquisition of
additional dealerships and to provide general working capital needs of Sonic
not to exceed $10 million.
Sonic agreed under the Revolving Facility not to pledge any of its assets
to any third party (with the exception of currently encumbered real estate and
assets of Sonic's dealership subsidiaries that are subject to previous pledges
or liens). In addition, the Revolving Facility contains certain negative
covenants, including covenants restricting or prohibiting the payment of
dividends, capital expenditures and material dispositions of assets as well as
other customary covenants. Additional negative covenants include specified
ratios of
o total debt to tangible base capital (as defined in the Revolving
Facility),
o current assets to current liabilities,
o earnings before interest, taxes, depreciation and amortization (EBITDA)
and rent less capital expenditures to fixed charges,
o EBITDA to interest expense,
o EBITDA to total debt and
o the current lending commitment under the Revolving Facility to scaled
assets (as defined in the Revolving Facility).
In addition, the loss of voting control over Sonic by Bruton Smith, Scott
Smith, President and Chief Operating Officer, and their spouses or immediate
family members or the failure by Sonic, with certain exceptions, to own all the
outstanding equity, membership or partnership interests in its dealership
subsidiaries will constitute an event of default under the Revolving Facility.
Sonic did not meet the specified total debt to tangible equity ratios required
by the Revolving Facility at March 31, 1998 and at June 30, 1998 and obtained a
waiver with regard to such requirement from Ford Motor Credit. In connection
with Sonic's offering of its senior subordinated notes, Sonic and Ford Motor
Credit amended the Revolving Facility to provide that the senior subordinated
notes (which are subordinated to the Revolving Facility) will be treated as
equity capital for purposes of this ratio. Accordingly, Sonic was in compliance
with this and all other restrictive covenants as of December 31, 1998.
THE SIX-MONTH FACILITY
On August 28, 1997, Sonic obtained from NationsBank, N.A. a short-term
line of credit in an aggregate principal amount of up to $20 million ( the
"Six-Month Facility"). Under the terms of the Six-Month Facility, amounts
outstanding bore interest at 7.75% and matured on February 15, 1998. Proceeds
from the Six-Month Facility were used to
F-14
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LONG-TERM DEBT -- (Continued)
consummate the acquisitions of Lake Norman Dodge and Affiliates and Williams
Motors, Inc. Amounts outstanding at December 31, 1997 have been classified as
long-term as such amounts have been subsequently refinanced with funds obtained
from the Revolving Facility.
6. INCOME TAXES
The provision for income taxes consists of the following components:
<TABLE>
<CAPTION>
1996 1997 1998
--------- ------------ -----------
<S> <C> <C> <C>
Current:
Federal ............................. $1,857 $1,890 $ 8,145
State ............................... 308 391 756
------ ------ -------
2,165 2,281 8,901
Deferred .............................. (190) (27) 2,252
Change in valuation allowance ......... (51) (5) (70)
------ -------- -------
Total ................................. $1,924 $2,249 $11,083
====== ======= =======
</TABLE>
The reconciliation of the statutory federal income tax rate with Sonic's
federal and state overall effective income tax rate is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Statutory federal rate .......... 34.00% 34.00% 35.00%
State income taxes .............. 3.60 3.70 1.46
Miscellaneous ................... 0.71 (0.21) 0.93
----- ----- -----
Effective tax rates ............. 38.31% 37.49% 37.39%
===== ===== =====
</TABLE>
Deferred income taxes reflect the net tax effects of the temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for tax purposes. Significant
components of Sonic's deferred tax assets and liabilities as of December 31 are
as follows:
<TABLE>
<CAPTION>
1997 1998
---------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for bad debts ................... $ 81 $ 69
Inventory reserves ........................ 40 631
Net operating loss carryforwards .......... 120 517
Other ..................................... 151 746
------ --------
Total deferred tax assets ................. 392 1,963
Valuation allowance ....................... (70) --
------ --------
Deferred tax assets, net .................. 322 1,963
------ --------
Deferred tax liabilities:
Basis difference in property and equipment (799) (1,276)
Basis difference in goodwill .............. (172) (2,757)
Other ..................................... (25) (294)
------ --------
Total deferred tax liability ............... (996) (4,327)
------ --------
Net deferred tax liability ................. $ (674) $ (2,364)
====== ========
</TABLE>
The net changes in the valuation allowance against deferred tax assets
were a decrease of $5,000 for the year ended December 31, 1997 and a decrease
of $70,000 for the year ended December 31, 1998. The decrease in 1997 was
related primarily to the expiration of state net operating loss carryforwards.
The decrease in 1998 was primarily related to the implementation of tax
strategies which will allow utilization of the state net operating loss
carryforwards prior to expiration. At December 31, 1998, Sonic had state net
operating loss carryforwards of $7.1 million which will expire primarily
between 1999 and 2003.
F-15
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. INCOME TAXES -- (Continued)
Certain of Sonic's dealerships changed their method of accounting for
inventories of new vehicles for income tax purposes from the "last-in,
first-out" method of inventory accounting to the "first-in, first-out" method
of inventory accounting which resulted in an additional income tax liability.
At December 31, 1997 and 1998, this liability was recorded as $7.1 million and
$5.6 million, respectively. The remaining portion of the liability is generally
payable from 1999 to 2002. The current portion of the liability as of December
31, 1998 was $2.4 million and is included in other accrued liabilities.
Certain subsidiaries of Sonic (such subsidiaries together with Sonic and
Sonic Financial Corporation ("SFC") being hereinafter referred to as the "Sonic
Group") have joined with SFC in filing consolidated federal income tax returns
for several years. Under applicable federal tax law, each corporation included
in SFC's consolidated return is jointly and severally liable for any resultant
tax. Under a tax allocation agreement dated as of June 30, 1997, however, Sonic
agreed to pay to SFC, in the event that additional federal income tax is
determined to be due, an amount equal to Sonic's separate federal income tax
liability computed for all periods in which any member of the Sonic Group has
been a member of SFC's consolidated group, less amounts previously recorded by
Sonic. Also pursuant to such agreement, SFC agreed to indemnify Sonic for any
additional amount determined to be due from SFC's consolidated group in excess
of the federal income tax liability of the Sonic Group for such periods. The
tax allocation agreement establishes procedures with respect to tax
adjustments, tax claims, tax refunds, tax credits and other tax attributes
relating to periods ending prior to the time that the Sonic Group shall leave
SFC's consolidated group.
7. RELATED PARTIES
REGISTRATION RIGHTS AGREEMENT
When Sonic acquired Town & Country Ford, Lone Star Ford, Fort Mill Ford,
Town & Country Toyota and Frontier Oldsmobile-Cadillac in 1997, Sonic signed a
Registration Rights Agreement dated as of June 30, 1997 with SFC, Bruton Smith,
Scott Smith and William S. Egan (collectively, the "Class B Registration Rights
Holders"). SFC currently owns 8,881,250 shares of Class B common stock; Bruton
Smith, 2,071,250 shares; Scott Smith, 956,250 shares; and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group"), 491,250 shares, all of which are
covered by the Registration Rights Agreement. The Egan Group also owns 32,000
shares of Class A common stock to which the Registration Rights Agreement
applies. If, among other things provided in Sonic's charter, offers and sales
of shares Class B common stock are registered with the Securities and Exchange
Commission, then such shares will automatically convert into a like number of
shares of Class A common stock.
The Class B Registration Rights Holders have certain limited piggyback
registration rights under the Registration Rights Agreement. These rights
permit them to have their shares of Sonic's common stock included in any Sonic
registration statement registering Class A common stock, except for
registrations on Form S-4, relating to exchange offers and certain other
transactions, and Form S-8, relating to employee stock compensation plans. The
Registration Rights Agreement expires in November 2007. SFC is controlled by
Bruton Smith.
THE SMITH GUARANTIES, PLEDGES, ADVANCE AND SUBORDINATED LOAN
In December 1997, Mr. Smith was required by Ford Motor Credit to lend $5.5
million (the "Subordinated Smith Loan") to Sonic to increase Sonic's
capitalization. Ford Motor Credit required the Subordinated Smith Loan as a
condition to increasing the Revolving Facility borrowing limit because the net
offering proceeds from Sonic's November 1997 initial public offering were
significantly less than expected by Sonic and Ford Motor Credit. The
Subordinated Smith Loan bears interest at NationsBank's announced prime rate
plus 0.5% and matures on November 30, 2000. All amounts owed by Sonic to Mr.
Smith under the Subordinated Smith Loan are to be paid after all amounts owed
by Sonic under the Revolving Facility, Sonic's floor plan financing facility
with Ford Motor Credit and Sonic's senior subordinated notes are paid.
F-16
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTIES -- (Continued)
CHARTOWN TRANSACTIONS
Chartown is a general partnership engaged in real estate development and
management. Before Sonic's reorganization before its initial public offering,
Town & Country Ford maintained a 49% partnership interest in Chartown with the
remaining 51% held by SMDA Properties, LLC, a North Carolina limited liability
company ("SMDA"). Mr. Smith owns an 80% direct membership interest in SMDA with
the remaining 20% owned indirectly through SFC. In addition, SFC also held a
demand promissory note for approximately $1.6 million issued by Chartown (the
"Chartown Note"), which was uncollectible due to insufficient funds. As part of
Sonic's reorganization, the Chartown Note was canceled and Town & Country Ford
transferred its partnership interest in Chartown to SFC for nominal
consideration. In connection with that transfer, SFC then agreed to indemnify
Town & Country Ford for any and all obligations and liabilities, whether known
or unknown, relating to Chartown and Town & Country Ford's ownership of
Chartown.
THE BOWERS VOLVO NOTE
In connection with Volvo's approval of Sonic's acquisition of a Volvo
franchise from Nelson Bowers in 1997, Volvo, among other things, conditioned
its approval upon Nelson Bowers acquiring and maintaining a 20% interest in
Sonic's Chattanooga Volvo subsidiary operating the Volvo franchise. Mr. Bowers
financed all of the purchase price for this 20% interest by issuing a
promissory note (the "Bowers Volvo Note") in favor of Sonic Automotive of
Nevada, Inc., the wholly-owned subsidiary of Sonic that controls a majority
interest in Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers'
interest in Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S.
Treasury Department in effect on November 17, 1997. Accrued interest is payable
annually. The operating agreement of Chattanooga Volvo provides that profits
and distributions are to be allocated first to Mr. Bowers to the extent of
interest to be paid on the Bowers Volvo Note and next to the other members of
Chattanooga Volvo according to their percentages of ownership. No other profits
or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Volvo has removed its requirement that Mr. Bowers maintain his
interest in Chattanooga Volvo. Sonic and Mr. Bowers are in the process of
redeeming his interest in Chattanooga Volvo and satisfying the Bowers Volvo
Note.
TRANSACTIONS WITH MMRT
In 1998, Sonic entered into a Strategic Alliance Agreement (the "Alliance
Agreement") with Mar Mar Realty Trust, a real estate investment trust ("MMRT").
Bruton Smith serves as the chairman of MMRT's board of trustees. Under the
Alliance Agreement, Sonic agreed to refer to MMRT real estate acquisition
opportunities arising with Sonic's dealership acquisitions. In exchange, MMRT
agreed to refer to Sonic dealership acquisition opportunities and to provide
certain real estate development and maintenance services to Sonic. MMRT will
also arrange for property inspections and environmental reports for prospective
dealership properties at Sonic's cost.
In addition, the Alliance Agreement provides for a form of lease to be
used when MMRT leases to Sonic real estate MMRT acquires in the future. Under
terms substantially similar to those of this form lease, Sonic leases or will
lease certain properties from MMR Holdings, LLC ("MMR Holdings"), which is a
limited liability company currently owned by Bruton Smith and SFC that Sonic
expects to be acquired by MMRT.
For acquisitions where the dealership real property is owned by an
unaffiliated third party and is leased to the dealership seller, MMRT will
negotiate with the unaffiliated third party to acquire the dealership real
property. If MMRT is successful in acquiring the dealership real property and
Sonic completes its acquisition of the dealership business, then Sonic and MMRT
will enter into a lease agreement regarding the dealership real property using
the Alliance Agreement's lease form.
Subsequent to year end, Sonic has sold to MMR Holdings the Town and
Country Toyota real estate for approximately $5.7 million and the Fort Mill
Ford real estate for approximately $4.6 million and entered into an agreement
with MMRT to lease back the real estate over a term of 10 years. The gain on
the sale has been deferred and will be amortized against the rent expense over
the term of the lease.
F-17
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTIES -- (Continued)
CERTAIN DEALERSHIP LEASES
Certain properties leased by Sonic's dealerships are, or since the
beginning of the last fiscal year were, owned by Sonic's officers or directors
or their affiliates. These leases contain terms comparable to, or more
favorable to Sonic than, terms that would be obtained from unaffiliated third
parties. Many of these properties as well as others are now owned or are under
contract to be acquired by MMR Holdings, which Sonic expects will become a
subsidiary of MMRT.
Sonic presently leases 36 properties for 27 of its dealerships from MMR
Holdings 34 of which were entered into in 1998. Sonic's directors have approved
these "triple net leases," which require Sonic to pay all costs of operating
the properties, as well as all taxes, utilities, insurance, repairs,
maintenance and other property related expenses. These leases generally provide
Sonic with options to renew the lease for two additional five year terms after
the expiration of the initial lease term. The rental rates indicated in Note 10
reflect minimum or "base" annual rents payable by Sonic in the first year of
the applicable leases. Such rental rates generally are subject to increases
either at renewal or every five years based on factors such as increases in the
consumer price index or an evaluation of fair market rents.
OTHER RELATED PARTY TRANSACTIONS
o Town & Country Ford and Lone Star Ford had each made several non-interest
bearing advances to SFC, a company controlled by Bruton Smith. In
preparation for Sonic's 1997 reorganization, a demand promissory note by SFC
evidencing $2.1 million of these advances was canceled in June 1997 in
exchange tor the redemption of certain shares of the capital stock of Town &
Country Ford held by SFC. In addition, a demand promissory note by SFC
evidencing of $0.5 million of these advances was canceled in June 1997
pursuant to a dividend.
o Sonic had amounts receivable from affiliates of $1.0 million and $1.5
million at December 31, 1997 and 1998, respectively. Of this amount,
$622,000 relates to advances made by Sonic to SFC at December 31, 1997 and
$1.5 million relates to advances made by Sonic to SFC and MMRT at December
31, 1998. The remaining $425,000 at December 31, 1997 primarily relates to
receivables from executives of Sonic who were former owners of certain
dealerships acquired. These receivables resulted from differences in the
negotiated and actual net book value of the dealerships at the date of
acquisitions. The amounts receivable from affiliates are non-interest
bearing and are classified as current based on the expected repayment dates.
o As part of the purchase price in connection with Sonic's acquisition of the
Bowers Automotive Group in November 1997, Sonic issued its promissory note
in the principal amount of $4.0 million in favor of Nelson Bowers (the
"Bowers Acquisition Note"). The Bowers Acquisition Note is payable in 28
equal quarterly installments and bears interest at the prime rate less 0.5%.
The balance outstanding under this Note was $4.0 million at December 31,
1997, the current portion of which was $445,000. The balance outstanding
under this Note at December 31, 1998 was $3.4 million, the current portion
of which was $572,000.
o Town and Country Toyota has an amount payable to Bruton Smith, which payable
totals approximately $0.8 million as of December 31, 1997 and $0.7 million
as of December 31, 1998. This loan bears interest at 8.75% per annum and is
classified as non-current based on the expected repayment dates.
o Certain subsidiaries of Sonic (such subsidiaries together with Sonic and SFC
are referred to as the "Sonic Group") filed consolidated federal income tax
returns with SFC for several years before our reorganization. These joint
filings were for 1996 and for the period ending on June 30, 1997. Under
applicable federal tax law, each corporation included in SFC's consolidated
return is jointly and severally liable for any resultant tax. Under a tax
allocation agreement dated as of June 30, 1997, however, Sonic agreed to pay
to SFC, in the event that additional federal income tax is determined to be
due, an amount equal to Sonic's separate federal income tax liability
computed for all periods in which any member of the Sonic Group has been a
member of SFC's consolidated group less amounts previously recorded by
Sonic. Also pursuant to such agreement, SFC agreed to indemnify Sonic for
any additional amount determined to be due from SFC's consolidated group in
excess of the federal income tax liability of the Sonic Group for such
periods. The tax allocation agreement establishes procedures with respect to
tax adjustments, tax claims, tax refunds, tax credits and other tax
attributes relating to periods ending prior to the time that the Sonic Group
shall leave SFC's consolidated group.
F-18
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. RELATED PARTIES -- (Continued)
o Sonic acquired Town & Country Ford, Lone Star Ford, Town & Country Toyota,
Fort Mill Ford and Frontier Oldsmobile-Cadillac in its 1997 reorganization
pursuant to four separate stock subscription agreements. These subscription
agreements allowed the acquisition of 100% of the capital stock or
membership interests, as the case may be, of each of the five dealerships
from Sonic Financial, Bruton Smith, the Egan Group (an assignee of Mr. Egan)
and Bryan Scott Smith in exchange for certain amounts of Sonic's Class B
Common Stock.
8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE DATA
PREFERRED STOCK -- In 1997, Sonic authorized 3 million shares of "blank
check" preferred stock with such designations, rights and preferences as may be
determined from time to time by the Board of Directors. No preferred shares
were issued and outstanding as of December 31, 1997.
In March 1998, the Board of Directors designated 300,000 shares of
preferred stock as Class A convertible preferred stock, par value $0.10 per
share, the "Preferred Stock", which was divided into 100,000 shares of Series I
Preferred Stock, 100,000 shares of Series II Preferred Stock, and 100,000
shares of Series III Preferred Stock.
The Preferred Stock has a liquidation preference of $1,000 per share. Each
share of Preferred Stock is convertible, at the option of the holder, into that
number of shares of Class A common stock as is determined by dividing $1,000 by
the average closing price for the Class A common stock on the NYSE for the 20
days preceding the date of determination of the shares of Preferred Stock (the
"Market Price"). Conversion of Series II Preferred Stock is subject to certain
adjustments which have the effect of limiting increases and decreases in the
value of the Class A common stock receivable upon conversion by 10% of the
original value of the shares of Series II Preferred Stock. Conversion of Series
III Preferred Stock is subject to certain adjustments which have the effect of
limiting increases in the value of Class A common stock receivable upon
conversion by 10% of the original value of the shares of Series III Preferred
Stock.
The Preferred Stock is redeemable at Sonic's option at any time after the
date of issuance. The redemption price of the Series I Preferred Stock is
$1,000 per share. The redemption price for the Series II Preferred Stock and
Series III Preferred Stock is as follows: (i) prior to the second anniversary
of the date of issuance, the redemption price is the greater of $1,000 per
share or the aggregate Market Price of the Class A common stock into which it
could be converted at the time of redemption, and (ii) after the second
anniversary of the date of issuance, the redemption price is the aggregate
Market Price of the Class A common stock into which it could be converted at
the time of redemption.
Each share of Preferred Stock entitles its holder to a number of votes
equal to that number of shares of Class A common stock into which it could be
converted as of the record date for the vote. Holders of preferred stock are
entitled to participate in dividends payable on the Class A common stock on an
"as-if-converted" basis. The Preferred Stock has no preferential dividends.
During 1998, Sonic issued 14,406.3 shares of Series I Preferred Stock,
10,545.5 shares of Series II Preferred Stock and 6,273 shares of Series III
Preferred Stock. These shares were recorded at their estimated fair value on
the date of issuance. In December 1998, 6,241.5 shares of Series II Preferred
Stock and 2,313 shares of Series III Preferred Stock having an estimated fair
value of approximately $8.9 million were converted into 632,244 shares of Class
A common stock. As of December 31, 1998 there were 14,406.3 shares of Series I
Preferred Stock, 3,813 shares of Series II Preferred Stock and 3,960 shares of
Series III Preferred Stock issued and outstanding.
CLASS B COMMON STOCK -- Each share of Class B common stock is convertible
into one share of Class A common stock either upon the voluntary conversion of
the Class B common stock at the option of the holder, or automatically upon the
occurrence of certain events, as provided in Sonic's charter. Holders of Class
B common stock are entitled to ten votes per share, except in certain
circumstances.
STOCK SPLIT -- All share and per share amounts included in the
accompanying consolidated financial statements for all periods presented have
been adjusted to reflect a 2 for 1 stock split of the Class A common stock and
Class B common stock effective January 25, 1999.
PUBLIC OFFERING OF COMMON STOCK -- Sonic completed an initial public
offering of 10.0 million shares of its Class A common stock on November 12,
1997 at a price of $6 per share. Net proceeds of the initial public offering of
F-19
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CAPITAL STRUCTURE, PUBLIC OFFERING OF COMMON STOCK, AND PER SHARE
DATA -- (Continued)
approximately $53.7 million were used to finance acquisitions (see Note 2) and
to repay amounts borrowed under lines of credit related to the acquisitions.
Class A common stock entitles its holder to one vote per share.
WARRANTS -- In connection with Sonic's acquisitions, Sonic has issued
warrants to purchase 242,782 shares of Class A common stock at exercise prices
ranging from $6.00 per share to $11.27 per share. The warrants expire on
various dates from January 15, 2003 to November 30, 2003. Sonic has recorded
the issuance of such warrrants at their estimated fair value on the date of
issuance.
PER SHARE DATA -- The calculation of diluted net income per share
considers the potential dilutive effect of options and shares under Sonic's
stock compensation plans, Class A common stock purchase warrants, and Class A
convertible preferred stock. The following table illustrates the dilutive
effect of such items on EPS:
<TABLE>
<CAPTION>
FOR THE TWELVE MONTHS ENDED FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997 DECEMBER 31, 1998
----------------------------- ------------------------------
PER-SHARE PER-SHARE
INCOME SHARES AMOUNT INCOME SHARES AMOUNT
-------- -------- ----------- ---------- -------- ----------
(DOLLARS AND SHARES IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
BASIC EPS .......................... $3,702 13,898 $ 0.27 $18,557 22,852 $ 0.81
====== ======
EFFECT OF DILUTIVE SECURITIES
Stock compensation plans ........... -- -- -- 630
Warrants ........................... -- -- -- 32
Convertible Preferred Stock ........ -- -- -- 1,456
------ ------ ------- ------
DILUTED EPS ........................ $3,702 13,898 $ 0.27 $18,557 24,970 $ 0.74
====== ====== ====== ======= ====== ======
</TABLE>
Options to purchase 1,176,000 shares of Class A common stock at $6.00 per
share were outstanding in November and December of 1997, but were not included
in the computation of diluted EPS because the options were anti-dilutive.
9. EMPLOYEE BENEFIT PLANS
Substantially all of the employees of Sonic are eligible to participate in
a 401(k) plan. Contributions by Sonic to the plan were not significant in any
period presented.
STOCK OPTION PLANS
Sonic currently has two option plans. In October 1997, the Board of
Directors adopted the Sonic Automotive, Inc. 1997 Stock Option Plan (the "Stock
Option Plan") in order to attract and retain key personnel. Under the Stock
Option Plan, options to purchase up to an aggregate of 2.25 million shares of
Class A common stock may be granted to key employees of Sonic and its
subsidiaries and to officers, directors, consultants and other individuals
providing services to Sonic. The options generally are granted at the fair
market value of Sonic's Class A common stock at the date of grant, vest over a
three year period, are exercisable upon vesting and expire ten years from the
date of grant.
In March 1998, the Board of Directors adopted the Sonic Automotive, Inc.
Formula Stock Option Plan for Independent Directors (the "Directors Plan") for
the benefit of Sonic's outside directors, subject to shareholder approval. The
Directors Plan was approved by the stockholders of Sonic at its annual meeting
of stockholders on December 3, 1998. The plan authorized options to purchase up
to an aggregate of 600,000 shares of Class A common stock. Under the plan, each
outside director shall be awarded on or before March 31st of each year an
option to purchase 20,000 shares at an exercise price equal to the fair market
value of the Class A common stock at the date of the award. Options granted
under the Directors Plan become exercisable six months, and expire ten years,
after their date of grant.
F-20
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLANS -- (Continued)
A summary of the status of Sonic's stock option plans as of December 31,
1997 and 1998 and changes during the years ended on those dates is presented
below.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
---------------------------------------- -----------------------------------------
EXERCISE WEIGHTED- EXERCISE WEIGHTED-
NUMBER OF PRICE AVERAGE NUMBER OF PRICE AVERAGE
OPTIONS PER SHARE EXERCISE PRICE OPTIONS PER SHARE EXERCISE PRICE
----------- ----------- ---------------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year -- $ -- $ -- 1,176 $ 6.00 $ 6.00
Granted-priced at fair value 1,176 6.00 6.00 1,433 7.25-9.19 8.61
Exercised -- -- -- (72) 6.00 6.00
----- ------ ----- ----- ------------ --------
Outstanding at end of year 1,176 $ 6.00 $ 6.00 2,537 $ 6.00-9.19 $ 7.48
===== ======= ====== ===== ============ ========
</TABLE>
Of the options outstanding as of December 31, 1998, 486,000 are currently
exercisable and have a weighted average exercise price of $3.53 per share. The
weighted average remaining contractual life of the options outstanding at
December 31, 1998 is 7.78 years. The weighted average fair value of options
granted was $2.89 per share in 1997 and $4.63 per share in 1998.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:
expected volatility of 50% in 1997 and 61% in 1998; risk-free interest rate of
5.6% in 1997 and 4.6% in 1998; and expected lives of 5 years in 1997 and 1998.
The model reflects that no dividends were declared in 1997 and 1998 and assumes
that no dividends will be declared in the future.
EMPLOYEE STOCK PURCHASE PLAN
In October 1997, the Board of Directors and stockholders of Sonic adopted
the Sonic Automotive, Inc. Employee Stock Purchase Plan (the "ESPP"). Under the
terms of the ESPP, on January 1 of each year all eligible employees electing to
participate will be granted an option to purchase shares of Class A common
stock. Sonic's Compensation Committee will annually determine the number of
shares of Class A common stock available for purchase under each option. The
purchase price at which Class A common stock will be purchased through the ESPP
will be 85% of the lesser of (i) the fair market value of the Class A common
stock on the applicable grant date and (ii) the fair market value of the Class
A common stock on the applicable exercise date. The grant dates are January 1
of each year plus any other interim dates designated by the Compensation
Committee. The exercise dates are the last trading days on the New York Stock
Exchange for March, June, September and December, plus any other interim dates
designated by the Compensation Committee. Options will expire on the last
exercise date of the calendar year in which granted.
On March 20, 1998, the Board of Directors, pursuant to Sonic's ESPP,
increased the authorized shares from 300,000 to 600,000 and issued options
exercisable for 300,000 shares of Class A common stock granting 620 shares per
participant participating in the ESPP. This increase in the number of options
issuable under the ESPP was approved by the stockholders of Sonic at its annual
meeting of stockholders on December 3, 1998. Under the ESPP, Sonic issued
180,730 shares to employees in 1998 at a purchase price of $4.10 per share. The
weighted average fair value of shares granted under the ESPP was $1.97 per
share in 1998.
The fair value of the employees' purchase rights are estimated on the date
of grant using the Black-Scholes option pricing model with the following
assumptions: expected volatility of 61%; risk-free interest rate of 4.6%; and
an expected life of one year. The model reflects that no dividends were
declared in 1997 and 1998 and assumes that no dividends will be declared in the
future.
Sonic has adopted the disclosure-only provisions of SFAS No. 123. No
compensation cost has been recognized for Sonic's stock-based compensation
plans. Had compensation cost for the stock-based compensation plans been
determined based on their fair value as prescribed by SFAS No. 123, Sonic's pro
forma net income and diluted net income per share would have been $3.6 million
and $0.26, respectively for 1997 and $16.8 million and $0.67, respectively for
1998.
F-21
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. EMPLOYEE BENEFIT PLANS -- (Continued)
NONQUALIFIED EMPLOYEE STOCK PURCHASE PLAN
In December 1998, the Board of Directors of Sonic adopted the Sonic
Automotive, Inc. Nonqualified Employee Stock Purchase Plan (the "Nonqualified
ESPP"). The purpose of the Nonqualified ESPP is to provide options to purchase
Class A common stock to employees of Sonic's subsidiaries that are not eligible
to participate in the ESPP; employees of Sonic who are eligible to participate
in the ESPP are not eligible to participate in the Nonqualified ESPP. Under the
terms of the Nonqualified ESPP, on January 1 of each year all employees
eligible to participate in the Nonqualified ESPP and who elect to participate
in the Nonqualified ESPP will be granted an option to purchase shares of Class
A common stock. Sonic's Compensation Committee will annually determine the
number of shares of Class A common stock available for purchase under each
option.
The purchase price at which Class A common stock will be purchased through
the Nonqualified ESPP will be 85% of the lesser of (i) the fair market value of
the Class A common stock on the applicable grant date and (ii) the fair market
value of the Class A common stock on the applicable exercise date. The grant
dates are January 1 of each year plus any other interim dates designated by the
Compensation Committee. The exercise dates are the last trading days on the New
York Stock Exchange for March, June, September and December, plus any other
interim dates designated by the Compensation Committee. Options will expire on
the last exercise date of the calendar year in which granted. In adopting the
Nonqualified ESPP in December 1998, the Board of Directors authorized options
to be granted under the Nonqualified ESPP for 300,000 shares of Class A common
stock. These options may be issued effective January 1, 1999.
10. COMMITMENTS AND CONTINGENCIES
FACILITY LEASES
Certain properties leased by Sonic's dealerships are, or since the
beginning of the last fiscal year were, owned by Sonic's officers or directors
or their affiliates. These leases contain terms comparable to, or more
favorable to Sonic than, terms that would be obtained from unaffiliated third
parties. Many of these properties as well as others are not owned or are under
contract to be acquired by MMR Holdings, which Sonic expects will become a
subsidiary of MMRT. Minimum future rental payments required under noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
RELATED PARTIES THIRD PARTIES TOTAL
Year ending December 31, ----------------- --------------- ----------
<S> <C> <C> <C>
1999 ..................... $ 13,660 $ 2,820 $ 16,480
2000 ..................... 13,595 2,479 16,074
2001 ..................... 13,257 2,456 15,713
2002 ..................... 13,147 2,123 15,270
2003 ..................... 13,091 1,997 15,088
Thereafter ............... 60,963 7,645 68,608
-------- ------- --------
Total .................... $127,713 $19,520 $147,233
======== ======= ========
</TABLE>
Total rent expense for the years ended December 31, 1996, 1997, and 1998
was approximately, $870,000, $2.4 million and $10.5 million, respectively. Of
these amounts, $870,000, $1.3 million and $7.5 million, respectively, were paid
to related parties.
OTHER CONTINGENCIES (UNAUDITED)
On March 1, 1999, Frank McGough filed a civil action in the Circuit Court
of Montgomery County, Alabama against Sonic, its subsidiary, Capitol Chevrolet
and Imports, Inc. and certain other defendants, which is Civil Action No. CV-
1999-707R. This suit arises in connection with Sonic's acquisition of Capitol
Chevrolet and Imports from Mr. McGough. In the suit, Mr. McGough alleges that
he is entitled to a larger post-closing payment of funds held in escrow than
Sonic has shown on the closing balance sheet prepared in connection with the
acquisition, that the closing balance sheet was delivered late, that the
closing balance sheet was improperly prepared, and that certain
respresentations were made to him concerning the post-closing release of funds
from escrow and the closing balance sheet. The complaint alleges causes of
action for (1) declaratory judgment concerning the closing balance sheet and
release of funds from escrow; and (2)
F-22
<PAGE>
SONIC AUTOMOTIVE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. COMMITMENTS AND CONTINGENCIES -- (Continued)
rescission of Sonic's acquisition through merger of Capitol Chevrolet and
Imports. Sonic believes that this suit is without merit and intends to
vigorously defend this action.
Sonic is involved in various other legal proceedings. Management believes
based on advice of counsel that the outcome of such proceedings will not have a
materially adverse effect on Sonic's financial position or future results of
operations and cash flows.
11. SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the Company's results of operations as
presented in the Consolidated Statements of Income by quarter for 1997 and
1998. Amounts below reflect reclassifications of previously reported amounts to
conform with current year presentation and exclude net income per share for
those periods prior to the completion of the initial public offering.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Year Ended December 31, 1997:
Total revenues ........................... $ 98,785 $ 114,101 $ 127,356 $ 195,759
Gross profit ............................. $ 10,842 $ 12,790 $ 14,755 $ 24,611
Operating income ......................... $ 2,286 $ 3,417 $ 3,469 $ 5,734
Income before taxes and minority interest. $ 926 $ 1,577 $ 1,526 $ 1,969
Net income ............................... $ 541 $ 999 $ 911 $ 1,251
Diluted net income per share ............. $ 0.07 $ 0.07
Year Ended December 31, 1998:
Total revenues ........................... $ 263,979 $ 386,132 $ 504,110 $ 449,480
Gross profit ............................. $ 34,158 $ 48,264 $ 63,974 $ 61,046
Operating income ......................... $ 7,426 $ 12,779 $ 15,646 $ 16,854
Income before taxes ...................... $ 3,474 $ 7,430 $ 8,876 $ 9,860
Net income ............................... $ 2,136 $ 4,668 $ 5,426 $ 6,327
Diluted net income per share ............. $ 0.09 $ 0.20 $ 0.21 $ 0.24
</TABLE>
12. SUBSEQUENT EVENTS (UNAUDITED)
On February 4, 1999, Sonic filed a preliminary registration statement for
the issuance of approximately 7.0 million shares of Class A common stock. Sonic
expects to complete this public offering in the second quarter of 1999.
F-23
Exhibit 10.22
AMENDMENT TO AMENDED AND RESTATED
CREDIT AGREEMENT
THIS AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT (this
"Amendment"), dated March 2, 1999, is entered into between SONIC AUTOMOTIVE,
INC., a Delaware corporation ("Borrower"), whose address is 5401 East
Independence Boulevard, P.O. Box 18747, Charlotte, North Carolina 28218, and
FORD MOTOR CREDIT COMPANY, a Delaware corporation ("Lender"), whose address is
6302 Fairview Road, Suite 500, Charlotte, North Carolina 28210.
WHEREAS, pursuant to the terms of a certain Credit Agreement dated as of
October 15, 1997, as amended by that certain Credit Agreement Amendment dated
November 12, 1997, as amended by that certain Amended and Restated Credit
Agreement dated as of December 15, 1997, as amended by that certain Letter
Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated
September 21, 1998, as further amended by that certain Letter Agreement dated
October 15, 1998 (collectively, the "Agreement") Lender extended to Borrower a
revolving credit facility in an amount not to exceed $75,000,000.00 (the
"Original Loan Facility"); and
WHEREAS, the Original Loan Facility is evidenced by a certain Promissory
Note dated as of October 15, 1997, made by Borrower to the order of Lender in
the original principal amount of $26,000,000.00, as amended by that certain
Amended and Restated Promissory Note dated December 15, 1997, made by Borrower
to the order of Lender in the original principal amount of $75,000,000.00 (the
"Original Note"); and
WHEREAS, Borrower has requested that Lender amend certain provisions of
the Original Loan Facility and increase in the principal balance of the Original
Note to $100,000,000.00 to purchase dealership assets, pursuant to the terms of
a certain Amended and Restated Promissory Note in the principal amount of
$100,000,000.00 dated as of even date herewith and made by Borrower to the order
of Lender (the "Amended Note" and with the Original Note collectively referred
to as the "Note"); and
WHEREAS, Lender is willing to amend and increase the Original Loan
Facility if and only if (a) Borrower executes this Amendment and the Amended
Note, (b) Sonic Automotive of Nevada, Inc., a Nevada corporation, Sonic
Automotive of Georgia, Inc., a Georgia corporation, Sonic Automotive of
Tennessee, Inc., a Tennessee corporation, and Sonic Peachtree Industrial Blvd.,
L.P., a Georgia limited partnership, each execute a guaranty guaranteeing the
obligations of the Borrower and each Dealership Guarantor under the Original
Loan Facility, as increased, and the Wholesale Lines and (c) Sonic of Texas,
Inc., a Texas corporation, and each of the Dealership Guarantors execute a
guaranty and reaffirmation of guaranty reaffirming their guaranty of the
obligations of the Borrower and each other Dealership Guarantor under the
Original Loan Facility, as increased and the Wholesale Lines;
NOW THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound hereby, Borrower and Lender
agree as follows:
1. Incorporation by Reference and Defined Terms. The parties hereby
incorporate the foregoing recitals in this Amendment as though fully set forth
herein, agreeing that such
-1-
<PAGE>
recitals are material, true and correct. Except as modified herein, all
capitalized terms shall have the meanings set forth in the Agreement and the
Note.
2. Loan Facility. The term "Loan Facility" shall mean the Original Loan
Facility, as amended by this Amendment.
3. Amendment of Agreement. The Agreement is hereby amended to provide as
follows:
(a) The definition of "Applicable Prime Rate" set forth in
Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is
hereby deleted in its entirety and the following shall be substituted therefor:
"APPLICABLE COMMERCIAL PAPER RATE" means as of any Payment Date,
the Commercial Paper Rate plus two and seventy-five hundredths percent
(2.75%) per annum."
(b) The definition of "Average Applicable Interest Rate" set
forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms
is hereby deleted in its entirety.
(c) The definition of "Commitment" set forth in Article I,
Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted
in its entirety and the following shall be substituted therefor:
"COMMITMENT" means $100,000,000.00 minus the amount of any
Decision Reserve, if any, in effect from time to time."
(d) The definition of "Commitment Letter" set forth in Article I,
Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted
in its entirety and the following shall be substituted therefor:
"COMMITMENT LETTER" means that certain Commitment Letter dated
October 3, 1997 between the Borrower and the Lender, as amended by the
Letter Agreement dated October 20, 1997, as further modified by the
Commitment Letter dated December 17, 1998."
(e) The definition of "Contribution Agreement" set forth in
Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is
hereby deleted in its entirety and the following shall be substituted therefor:
"CONTRIBUTION AGREEMENT" means that certain Amended and Restated
Contribution Agreement, dated as of October 20, 1997, as amended by the
Second Amended and Restated Contribution Agreement, dated as of December
15, 1997, as amended by the Third Amended and Restated Contribution
Agreement, dated as of March 24, 1998, as amended and restated by the
Fourth Amended and Restated Contribution Agreement, dated as of December
1, 1998, as amended and restated by the Fifth Amended and Restated
Contribution Agreement dated March 2, 1999, as such agreement may be
further amended, restated or otherwise modified and in effect from
-2-
<PAGE>
time to time."
(f) The definition of "Current Liabilities" set forth in Article
I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby
deleted in its entirety and the following shall be substituted therefor:
"CURRENT LIABILITIES" means, at a particular date, all amount
which would, in conformity with Agreement Accounting Principles, be
included under current liabilities on a balance sheet as at such date."
(g) The definition of "Extension Notice" set forth in Article I,
Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted
in its entirety.
(h) The definition of "Note" as set forth in Article I, Section
1.1 of the Agreement, entitled, Certain Defined Terms is hereby deleted in its
entirety and the following shall be substituted therefor:
"NOTE" means that Promissory Note dated October 15, 1997 duly
executed by the Borrower and payable to the order of the Lender in the
original principal amount of $26,000,000.00, as amended and restated by
that certain Amended and Restated Promissory Note dated December 15,
1997 duly executed by the Borrower and payable to the order of Lender in
the principal amount of $75,000,000.00, as further amended and restated
by that certain Second Amended and Restated Promissory Note dated March
2, 1999 duly executed by the Borrower and payable to the order of lender
in the original principal amount of $100,000,000.00, including any
amendment, restatement, modification, renewal or replacement of such
Note."
(i) The definition of "Prime Rate" as set forth in Article I,
Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby deleted
in its entirety and the following shall be substituted therefor:
"COMMERCIAL PAPER RATE" means a fluctuating per annum rate of
interest equal to the interest rate for commercial paper with a 30-day
term, as specified under the column entitled "Week Ending" for "1-Month
Finance Paper Placed Directly" as set forth in the Federal Reserve
Statistical Release No. H.15 (519) issued by the Federal Reserve Board
on the last Monday of a calendar month. In the event such Release is
discontinued or modified to eliminate the reporting of a 30-day
commercial paper rate, then Lender will substitute, in its sole
discretion, a comparable report or release of the 30-day commercial
paper rate published by a comparable source."
(j) The definition of "Quarterly Payment Date" as set forth in
Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is
hereby deleted in its entirety.
-3-
<PAGE>
(k) Subsection (E) of the definition of "Scaled Assets" as set
forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms
is hereby deleted in its entirety and the following shall be substituted
therefor:
"(E) an amount equal to 80% of that portion of the Sonic Group's
Inventory which constitutes used vehicles, less the amount of any
outstanding Floor Plan Indebtedness of any member of the Sonic Group
incurred in connection with such used vehicles, and"
(l) The definition of "Scaled Assets Adjustment Amount" as set
forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms
is hereby deleted in its entirety.
(m) The definition of "Subsidiary Holding Companies" as set forth
in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is
hereby deleted in its entirety and the following shall be substituted therefor:
"SUBSIDIARY HOLDING COMPANIES" means each of Sonic Automotive of
Tennessee, Inc., a corporation organized under the laws of the State of
Tennessee, Sonic Automotive of Nevada, Inc., a corporation organized
under the laws of the State of Nevada, Sonic Automotive of Georgia,
Inc., a corporation organized under the laws of the State of Georgia,
and Sonic of Texas, Inc., a corporation organized under the laws of the
State of Texas, in each case together with its successors and assigns.
(n) The definition of "Subsidiary Holding Company Pledges" as set
forth in Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms
is hereby deleted in its entirety and the following shall be substituted
therefor:
"SUBSIDIARY HOLDING COMPANY PLEDGES" means each Pledge Agreement
delivered by the Subsidiary Holding Companies to the Lender pursuant to
which such Persons pledge their ownership interests of certain
corporate, limited liability company and/or limited partnership
Subsidiaries, as such agreements may be amended, restated or otherwise
modified and in effect from time to time."
(o) The definition of "Termination Date" as set forth in Article
I, Section 1.1 of the Agreement, entitled Certain Defined Terms is hereby
deleted in its entirety and the following shall be substituted therefor:
"TERMINATION DATE" means the earlier of (a) March 2, 2001 and (b)
the date of termination of the Commitment pursuant to either of Section
2.3 or Section 7.1 hereof."
(p) The definition of "Total Adjusted Debt" as set forth in
Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms is
hereby deleted in its entirety and the following shall be substituted therefor:
"TOTAL ADJUSTED DEBT" means, for any period, on a consolidated
basis for the Borrower and its Subsidiaries, the amount of Total Debt
less any Floor Plan Indebtedness, less the outstanding principal balance
of the Subordinated Promissory Note, less the outstanding principal
balance of the Debt Offering Notes, and less the amount of any
Additional Subordinate Debt.
-4-
<PAGE>
(q) The definition of "Additional Subordinated Debt" is hereby
added to Article I, Section 1.1 of the Agreement, entitled Certain Defined Terms
to state as follows:
"ADDITIONAL SUBORDINATED DEBT" means indebtedness of the Borrower
which (i) Lender has determined to be sufficiently subordinate to the
payment of the Obligations, (ii) Lender has consented to in writing, and
(iii) Lender has agreed to deduct from the calculation of Total Adjusted
Debt (as defined herein)."
(r) Section 2.4 of the Agreement entitled "Method of Borrowing"
is hereby deleted in its entirety and the following shall be substituted
therefor:
"Method of Borrowing. The Borrower shall give the Lender
irrevocable notice in substantially the form of Exhibit B hereto (a
"Borrowing Notice") not later than 10:00 a.m. (Eastern Standard Time) on
the Business Day preceding the Borrowing Date of each Advance,
specifying: (i) the Borrowing Date (which shall be a Business Day) of
such Advance; (ii) the aggregate amount of such Advance; (iii) the use
of proceeds of such Advance, and (iv) the account or accounts into which
the Advances should be funded. Not later than 2:00 p.m. (Eastern
Standard Time) on each Borrowing Date, the Lender shall make available
its Advance, in funds immediately available to the Borrower at such
account or accounts as shall have been notified to the Lender. Each
Advance shall bear interest from and including the date of the making of
such Advance to (but not including) the date or repayment thereof at the
Applicable Commercial Paper Rate, changing when and as the underlying
Commercial Paper Rate changes, which such interest shall be payable in
accordance with Section 2.9(B)."
(s) Section 2.6 of the Agreement, entitled "Default Rate: Late
Payment Fee" is hereby deleted in its entirety and the following shall be
substituted therefor:
"Default Rate: Late Payment Fee. After the occurrence and during
the continuation of an Event of Default, at the option of the Lender,
the interest rate(s) applicable to the Advances shall be equal to the
Applicable Commercial Paper Rate plus three percent (3.0%) per annum. To
the extent not in excess of the Maximum Rate and in accordance with
applicable law, any amount not paid by the Borrower when due shall
accrue interest at an additional five percent (5.0%) per annum above the
rate applicable thereto until such amounts have been paid in full and
shall be payable on demand by the Lender and at any rate no later than
the next succeeding Payment Date."
(t) Section 2.9 (B)(i) of the Agreement, entitled "Interest
payable on Advances" is hereby deleted in its entirety and the following shall
be substituted therefor:
"Interest Payable on Advances. Interest accrued on each Advance
shall be payable on each Payment Date, commencing with the first such
date to occur after the date hereof and at maturity (whether by
acceleration or otherwise). On each Payment Date from and after November
15, 1998 to maturity, the Borrower shall pay interest at the Applicable
Commercial Paper Rate on each Advance outstanding on such date."
-5-
<PAGE>
(u) Section 2.10 of the Agreement, entitled "Termination Date" is
hereby deleted in its entirety and the following shall be substituted therefor:
"Termination Date. This Agreement shall be effective until the
Termination Date. Notwithstanding the termination of this Agreement on
the Termination Date, until all of the Obligations (other than
contingent indemnity obligations, but including all Floor Plan
Indebtedness) shall have been fully and indefeasibly paid and satisfied
and all financing arrangements between the Borrower and the Lender in
connection with this Agreement shall have been terminated (other than
with respect to Hedging Obligations), all of the rights and remedies
under this Agreement and the other Loan Documents shall survive and the
Lender shall be entitled to retain its security interest in and to all
existing and future Collateral."
(v) Section 5.4(B) of the Agreement, entitled "Total Adjusted
Debt to Tangible Base Capital Ratio" is hereby deleted in its entirety and the
following shall be substituted therefor:
"Total Adjusted Debt to Tangible Base Capital Ratio. The Borrower
shall not, any time, permit the ratio ("ADJUSTED TBC RATIO") of Total
Adjusted Debt of the Sonic Group on a consolidated basis to Tangible
Base Capital of the Sonic Group on a consolidated basis to be greater
than 15:1."
4. Warranties and Representations of Borrower. Borrower represents and
warrants to Lender that Borrower is not in default under the Original Note, the
Agreement or any other loan document delivered to lender in connection
therewith, nor is there a circumstance which, upon the giving of notice or the
passage of time or both, would constitute an default under any provision
thereof. Borrower stipulates and declares to Lender that Borrower has no charge,
claim, demand, plea or set-off upon, for or against the Original Note, the
Agreement or any other loan documents delivered in connection therewith.
5. Rights Granted Lender. All rights granted to Lender under this
Amendment shall be in addition to any rights granted to Lender under the Note,
the Agreement or any other loan document delivered in connection therewith.
6. Amendment. The terms and conditions of the Agreement shall apply
equally to the indebtedness evidenced by the Note, and the covenants of the
Agreement, as amended by this Amendment shall remain in full force and effect
until the Principal Balance of the Note and interest thereon is paid in full and
all of the obligations of Borrower to Lender under the Agreement, as amended,
and the Note are fully performed and observed. Except as otherwise amended in
this Amendment, the terms and conditions of the Agreement shall remain in full
force and effect in accordance with the provisions thereof. The Loan Facility
may be further renewed or extended only upon such terms and conditions and at
such rate of interest as the parties hereby may agree upon in writing.
-6-
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this Amendment
under seal as of the date set forth above intending to be legally bound hereby.
Signed, sealed and delivered in the presence of:
FORD MOTOR CREDIT COMPANY,
a Delaware corporation
/s/ Suzanne M. Thill By: /s/ R. K. Henderson (SEAL)
- ---------------------- ------------------------
Name: R.K. Henderson
Title: Branch Operations Manager
SONIC AUTOMOTIVE, INC.,
a Delaware corporation
/s/ Gates Grainger By: /s/ B. Scott Smith (SEAL)
- -------------------- ------------------------
Name: B. Scott Smith
Title: President
-7-
Exhibit 10.23
SECOND AMENDED AND RESTATED PROMISSORY NOTE
(ACQUISITION/REVOLVING LINE OF CREDIT)
(Commercial Paper Rate)
$100,000,000.00 Charlotte, North Carolina
March 2, 1999
FOR VALUE RECEIVED, SONIC AUTOMOTIVE, INC., a Delaware corporation
("Borrower"), whose address is 5401 East Independence Blvd., P.O. Box 18747,
Charlotte, North Carolina 28218, promises to pay to FORD MOTOR CREDIT COMPANY, a
Delaware corporation ("Lender"), or order, at 6302 Fairview Road, Suite 500,
Charlotte, North Carolina 28210, or at such other place as Lender may from time
to time in writing designate, in lawful money of the United States of America,
the principal sum of ONE HUNDRED MILLION AND 00/100 DOLLARS ($100,000,000.00),
or so much as is advanced to Borrower, together with interest, adjusted monthly,
on the principal balance outstanding from time to time (the "Principal
Balance"), in like money, from the date of this Amended and Restated Promissory
Note (this "Note"), to and including the Maturity Day, at the rate of two and
seventy-five hundredths percent (2.75%) per annum above the Commercial Paper
Rate (as defined herein) in effect from time to time (the "Applicable Interest
Rate"). Capitalized terms used herein and not otherwise defined herein shall
have the meaning given to such terms in the Agreement.
For purposes of computing interest during the term of this Note, the
Applicable Interest Rate for each month shall be based on the Commercial Paper
Rate in effect on the last day of the prior month. All changes in the Applicable
Interest Rate shall become effective on the first day of a month following a
change in the Commercial Paper Rate and shall be deemed in effect throughout
such month.
The Principal Balance and interest thereon at the Applicable Interest
Rate shall be due and payable as hereinafter set forth.
This Note amends, restates, replaces and supersedes the Promissory Note
dated as of October 15, 1997 in the original principal amount of $26,000,000.00,
as amended and restated by that certain Amended and Restated Promissory Note
dated December 15, 1997, in the original principal amount of $75,000,000.00 from
Borrower to Lender (the "Original Note"). Any interest accrued on such
promissory note as of the date hereof will be included in the next monthly
payment due hereunder.
The term "Agreement" shall mean the Credit Agreement dated as of October
15, 1997, as amended by that certain Credit Agreement Amendment dated November
12, 1997, as amended and restated by that certain Amended and Restated Credit
Agreement dated as of December 15, 1997, as amended by that certain Letter
Agreement dated July 28, 1998, as amended by that certain Letter Agreement dated
September 21, 1998, as amended by that certain Letter Agreement dated October
15, 1998, as further amended by that certain
<PAGE>
Amendment to Amended and Restated Credit Agreement dated as of even date
herewith.
The term "Commercial Paper Rate" shall mean the interest rate for
"1-Month Finance Paper Placed Directly" under the column entitled "Week Ending"
for the Friday preceding the last Monday of a calendar month as reported in the
Federal Reserve Statistical Release No. H.15 (519) issued by the Federal Reserve
Board. In the event such Release is discontinued or modified to eliminate the
reporting of a 30-day commercial paper rate, then Lender will substitute, in its
sole discretion, a comparable report or release of the 30-day commercial paper
rate published by a comparable source.
The term "Maturity Day" shall mean the earlier of (a) March 2, 2001 and
(b) the date of the termination of the Commitment pursuant to either of Section
2.3 or Section 7.1 of the Agreement.
The term "Security Documents" shall mean the Agreement and any and all
of the documents now or hereafter executed by Borrower and/or others, and by or
in favor of Lender, which wholly or partially guarantee or secure this Note or
are executed in connection with this Note.
From November 15, 1998 through and including the Maturity Date, interest
on the unpaid Principal Balance outstanding shall be due and shall be payable in
consecutive monthly installments at the Applicable Interest Rate on the
fifteenth day of each month. On the Maturity Day, a final installment which
shall include all unpaid amounts of the Principal Balance and interest accrued
and unpaid thereon and any and all other payments due under this Note and the
Security Documents.
Each of such payments shall be applied first to interest at the
Applicable Interest Rate and the balance to reduction of the Principal Balance.
Borrower may prepay the unpaid Principal Balance in whole or from time
to time in part, upon payment of interest accrued on the unpaid Principal
Balance outstanding through the day of prepayment and all other charges, without
premium. Prepayments of the Principal Balance shall be applied to installments
of the Principal Balance remaining unpaid in the inverse order of their maturity
and shall be credited to the Principal Balance as of the date of receipt by
Lender. Provided however, that the Borrower may not so prepay the unpaid
Principal Balance unless it shall have provided at least one Business Day's
notice to the Lender of such prepayment.
Payment of this Note is secured by the Security Documents. All of the
agreements, conditions, covenants, provisions and stipulations contained in the
Security Documents which are to be kept and performed by Borrower are hereby
made a part of this Note to the same extent and with the same force and effect
as if they were fully set forth herein, and Borrower covenants and agrees to
keep and perform them, or cause them to be kept and performed, strictly in
accordance with their terms.
Time is of the essence hereof and if any of the Principal Balance or
interest on this Note or other sum due hereunder is not paid when due, to the
extent not in excess of the Maximum Rate (as such term is defined in the
Agreement) and in accordance with applicable law, any
<PAGE>
amount not paid by the Borrower when due shall accrue interest at an additional
five percent (5.0%) per annum above the Applicable Rate until such amounts have
been paid in full and shall be payable on demand by the Lender and at any rate
not later than the next succeeding monthly payment date. If any Event of Default
shall occur, then Lender, at its option and without further notice, demand or
presentment for payment to Borrower or others, may declare immediately due and
payable the unpaid Principal Balance and interest accrued thereon to the date of
such Event of Default and thereafter at the rate of three percent (3%) per annum
over the Applicable Interest Rate, together with all other sums owed by Borrower
under this Note and the Security Documents.
This Note is the "Note" referred to in, and is entitled to the benefits
of, the Agreement. The Agreement, among other things, (i) provides for the
making of Advances by the Lender to the Borrower from time to time in an
aggregate amount not to exceed at any time outstanding the U.S. Dollar amount
first above mentioned, the indebtedness of the Borrower resulting from each such
advance being evidenced by this Note and (ii) contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for the prepayments of the principal hereof prior to the Maturity Date
upon the terms and conditions therein specified.
Principal and interest are payable in lawful money of the United States
of America to the Lender, so such domestic account as the Lender may designate,
in same day funds. At the time of each Advance, and upon each payment or
prepayment of principal of each Advance, the Lender shall make a notation either
on the schedule attached hereto and made a part hereof, or in such Lender's own
books and records, in each case specifying the amount of such Advance, or the
amount of principal paid or prepaid with respect to such Advance, as the case
may be; PROVIDED that the failure of the Lender to make any such recordation or
notation shall not affect the Obligations of the Borrower hereunder or under the
Agreement.
The remedies of Lender, as provided in this Note and the Security
Documents, shall be cumulative and concurrent and may be pursued singularly,
successively or together, at the sole discretion of Lender, and may be exercised
as often as occasion therefor shall occur; and the failure to exercise any such
right or remedy shall in no event be construed as a waiver or release thereof.
Borrower waives presentment for payment, demand, notice of demand,
notice of nonpayment or dishonor, protest and notice of protest of this Note,
and all other notices in connection with the delivery, acceptance, performance,
default, or enforcement of the payment of this Note.
Lender shall not be deemed, by any act of omission or commission, to
have waived any of its rights or remedies hereunder unless such waiver is in
writing and signed by Lender and, then, only to the extent specifically set
forth in the writing. A waiver with reference to one event shall not be
construed as continuing or as a bar to or waiver of any right or remedy as to a
subsequent event.
This instrument shall be interpreted, and the rights and liabilities of
the parties hereto determined, in accordance with the internal laws (as
distinguished from the conflicts of law provisions) of the State of North
Carolina.
<PAGE>
Whenever used, the singular shall include the plural, the plural shall
include the singular, and the words "Lender" and "Borrower" shall be deemed to
include their respective heirs, administrators, executors, successors and
assigns. The provisions of this Note shall be binding upon and inure to the
benefit of said heirs, administrators, executors, successors and assigns.
Borrower's successors and assigns shall include, without limitation, a receiver,
trustee or debtor in possession of or for Borrower.
In the event any one or more of the provisions hereof shall be invalid,
illegal or unenforceable in any respect, the validity of the remaining
provisions hereof shall be in no way affected, prejudiced or disturbed hereby.
This Note amends and restated in full the Original Note and is issued in
substitution for and not in payment of such prior Original Note and is not
intended to constitute a novation thereof.
IN WITNESS WHEREOF, Borrower, intending to be legally bound hereby, has
duly executed this Note under seal, the day and year first above written.
SONIC AUTOMOTIVE, INC.,
a Delaware corporation
By: /s/ B. Scott Smith (SEAL)
---------------------
Name: B. Scott Smith
Title: President
Exhibit 10.35
- --------------------------------------------------------------------------------
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
BY AND AMONG
SONIC AUTOMOTIVE, INC.,
TOM WILLIAMS BUICK, INC.,
WILLIAMS CADILLAC, INC.,
TOM WILLIAMS MOTORS, INC.,
TOM WILLIAMS AUTO, INC.,
THOMAS P. WILLIAMS, SR.,
CHARLES CLARK WILLIAMS, AND THOMAS P. WILLIAMS, JR.
Dated as of March 16, 1999
1
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
<S> <C>
ARTICLE I
CERTAIN DEFINITIONS..................................................................2
ARTICLE II
SALE AND PURCHASE OF THE ASSETS......................................................4
2.1 SALE AND PURCHASE; PURCHASE PRICE.............................................4
2.2 INITIAL PURCHASE PRICE........................................................4
2.3 CONTINGENT PURCHASE PRICE.....................................................7
2.4 ASSUMPTION OF LIABILITIES.....................................................9
2.5 INDUCEMENT FEE................................................................9
2.6 NON-COMPETITION AGREEMENTS...................................................10
2.7 EMPLOYMENT AGREEMENTS........................................................10
2.8 [INTENTIONALLY LEFT BLANK]...................................................10
ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES.......................................11
3.1 NEW VEHICLES.................................................................11
3.2 DEMONSTRATORS................................................................12
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICES...................12
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS...........................12
3.5 USED VEHICLES................................................................13
ARTICLE IV
PARTS/ACCESSORIES...................................................................13
4.1 THE INVENTORY................................................................13
4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES...........................13
4.3 PARTS; PARTS PURCHASE PRICE..................................................14
4.4 PARTS RETURN PRIVILEGES......................................................14
ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT.......................................................................14
5.1 MISCELLANEOUS INVENTORIES....................................................14
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY............................15
5.3 WORK IN PROGRESS.............................................................15
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.4 FIXTURES AND EQUIPMENT.......................................................15
5.5 MISCELLANEOUS ASSETS.........................................................15
5.6 CERTAIN RECORDS OF THE SELLER................................................16
5.7 WARRANTY OBLIGATIONS OF THE SELLER...........................................16
5.8 ACCOUNTS RECEIVABLE..........................................................16
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER.........................................16
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION.............................16
6.2 NON-VIOLATION; CONSENTS......................................................17
6.3 LITIGATION...................................................................17
6.4 AUTHORIZATION OF PREFERRED STOCK.............................................17
6.5 CAPITALIZATION...............................................................17
6.6 DISCLOSURE MATERIALS.........................................................18
6.7 MISSTATEMENTS AND OMISSIONS..................................................18
6.8 ORIGINAL ASSET PURCHASE AGREEMENT............................................18
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE SELLERS.......................................18
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION.............................19
7.2 NO VIOLATION; CONSENTS.......................................................19
7.3 LITIGATION...................................................................19
7.4 TITLE TO ASSETS; ENCUMBRANCES................................................20
7.5 PERMITS AND APPROVALS........................................................20
7.6 TAXES........................................................................20
7.7 EMPLOYEES....................................................................20
7.8 FINANCIAL STATEMENTS.........................................................20
7.9 BROKERS AND FINDERS..........................................................21
7.10 COMPLIANCE WITH LAWS.........................................................21
7.11 FIXTURES AND EQUIPMENT.......................................................22
7.12 CONTRACTS....................................................................22
7.13 ADEQUACY OF ASSETS...........................................................22
7.15 MISSTATEMENTS AND OMISSIONS..................................................23
7.16 ORIGINAL ASSET PURCHASE AGREEMENT............................................23
ARTICLE VIII
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS.....................................23
8.1 REPRESENTATIONS AND WARRANTIES...............................................23
8.2 COMPLIANCE WITH AGREEMENTS...................................................23
8.3 NO LITIGATION................................................................23
8.4 INVENTORY....................................................................24
</TABLE>
<PAGE>
<TABLE>
<S> <C>
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES.........................................24
8.6 BOARD RESOLUTIONS............................................................24
8.7 NO DAMAGE....................................................................24
8.8 MOTOR VEHICLE LICENSES.......................................................24
8.9 CONSENT AND APPROVALS........................................................24
8.10 CERTIFICATES OF ORIGIN, ETC..................................................24
8.11 TERMINATION OF SELLERS' AGREEMENTS WITH MANUFACTURERS........................25
8.12 BILLS OF SALE, ETC...........................................................25
8.13 MANUFACTURER APPROVAL........................................................25
8.14 OTHER BASIC AGREEMENTS.......................................................25
8.15 OPINION OF COUNSEL...........................................................25
8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS..........................25
8.17 CHANGE OF NAMES..............................................................25
8.18 NO MATERIAL ADVERSE CHANGE...................................................25
8.19 FORMS SATISFACTORY...........................................................25
8.20 HSR ACT......................................................................26
8.21 AUDITED FINANCIAL STATEMENTS OF BUYER........................................26
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS....................................26
9.1 REPRESENTATIONS AND WARRANTIES...............................................26
9.2 COMPLIANCE WITH AGREEMENTS...................................................26
9.3 NO LITIGATION................................................................26
9.4 INVENTORY....................................................................26
9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS....................................26
9.6 INITIAL PURCHASE PRICE.......................................................27
9.7 OTHER BASIC AGREEMENTS.......................................................27
9.8 OPINION OF COUNSEL...........................................................27
9.9 FORMS SATISFACTORY...........................................................27
9.10 EMPLOYMENT AGREEMENTS........................................................27
9.11 HSR ACT......................................................................27
ARTICLE X
COVENANTS AND AGREEMENTS............................................................27
10.1 FURTHER ASSURANCES...........................................................27
10.2 SATISFACTION OF CLOSING CONDITIONS...........................................28
10.3 OPERATION OF THE BUSINESSES..................................................28
10.4 ACCESS.......................................................................28
10.5 ENVIRONMENTAL AUDIT..........................................................28
10.6 INDEMNIFICATION BY SELLERS AND STOCKHOLDERS..................................28
10.7 INDEMNIFICATION BY BUYER.....................................................29
10.8 CERTAIN TAXES................................................................29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
10.9 NO PUBLICITY.................................................................29
10.10 NO NEGOTIATIONS OR DISCUSSIONS...............................................30
10.11 MANUFACTURERS................................................................30
10.12 SELLERS' EMPLOYEES...........................................................30
10.13 HSR ACT COMPLIANCE...........................................................30
10.14 BUYER'S FINANCIAL STATEMENTS.................................................30
10.15 TERMINATION..................................................................30
ARTICLE XI
MISCELLANEOUS.......................................................................32
11.1 ASSIGNMENT...................................................................33
11.2 GOVERNING LAW................................................................33
11.3 ACCOUNTING MATTERS...........................................................33
11.4 FEES AND EXPENSES............................................................33
11.5 AMENDMENT; MERGER CLAUSE.....................................................33
11.6 WAIVER.......................................................................33
11.7 NOTICES......................................................................34
11.8 COUNTERPARTS.................................................................34
11.9 SELLERS' KNOWLEDGE...........................................................35
11.10 ARBITRATION..................................................................35
11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES.........................35
11.12 HEADINGS.....................................................................36
11.13 SEVERABILITY.................................................................36
</TABLE>
<PAGE>
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT is made and entered
into as of this 16th day of March, 1999, by and among SONIC AUTOMOTIVE, INC., a
Delaware corporation (the "BUYER"), TOM WILLIAMS BUICK, INC., an Alabama
corporation ("BUICK"), WILLIAMS CADILLAC, INC., an Alabama corporation
("CADILLAC"), TOM WILLIAMS AUTO, INC., an Alabama corporation d/b/a "Tom
Williams Imports" ("IMPORTS"), TOM WILLIAMS MOTORS, INC., an Alabama
corporation, ("MOTORS", and together with Buick and Imports, collectively, the
"SELLERS" and each, individually, a "SELLER"), and Thomas P. Williams, Sr.,
Charles Clark Williams and Thomas P. Williams, Jr. (collectively, the
"STOCKHOLDERS" and each, individually, a "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into that certain Asset
Purchase Agreement dated as of November 3, 1998 (the "ORIGINAL ASSET PURCHASE
AGREEMENT"); and
WHEREAS, the Original Asset Purchase Agreement, as the same is amended
and restated hereby, is hereafter referred to as this "AGREEMENT"; and
WHEREAS, pursuant to Section 2.2(c) of the Original Asset Purchase
Agreement the "Sellers" thereunder could elect to structure the acquisition of
Cadillac as an acquisition of all of the issued and outstanding shares of
Cadillac's capital stock (the "ELECTION"), such acquisition to be made according
to the rules set forth in such Section 2.2(c) of the Original Asset Purchase
Agreement; and
WHEREAS, by a notice given to the Buyer by the "Sellers" under the
Original Asset Purchase Agreement on January 14, 1999, such "Sellers" have made
the Election and, as a result of the Election, Cadillac shall no longer be a
Seller under this Agreement; and
WHEREAS, contemporaneously herewith, the Buyer, the Stockholders,
Cadillac, and Ms. Catherine D. Ward, are executing an Agreement and Plan of
Merger (the "MERGER AGREEMENT") pursuant to which the Buyer shall acquire all of
the issued and outstanding shares of Cadillac's capital stock from the
Stockholders and Ms. Ward; and
WHEREAS, the parties have reached agreement on certain of the Schedules
to the Original Asset Purchase Agreement and such Schedules are appended to this
Agreement; and
WHEREAS, pursuant to a letter agreement dated as of February 28, 1999
(the "AGREEMENT IN PRINCIPLE"), the parties to the Original Asset Purchase
Agreement have agreed in principle upon the manner in which the Stock Component
(as defined in the Original Asset Purchase Agreement)
<PAGE>
will be both (a) allocated as between the Merger Agreement and this Agreement,
and (b) registered pursuant to applicable securities laws; and
WHEREAS, the parties hereto wish to amend and restate the Original Asset
Purchase Agreement to reflect, among other things, (a) the Election, (b) the
execution of the Merger Agreement, and (c) the agreement set forth in the
Agreement in Principle; and
WHEREAS, the Sellers are the owners of certain assets used in connection
with the Sellers' three automobile dealership businesses (collectively, the
"BUSINESSES" and, individually as to each Seller, as applicable, the
"BUSINESS"); and
WHEREAS, the Sellers desire to sell and the Buyer desires to buy, or to
cause one or more subsidiaries or affiliates of the Buyer to buy, certain assets
pertaining to the Businesses, subject to the terms and conditions of this
Agreement; and
WHEREAS, contemporaneously with the execution of the Original Asset
Purchase Agreement, the Buyer has entered into two Contracts to Purchase and
Sell Property (the "REAL PROPERTY PURCHASE AGREEMENTS"), one with TOM-JO, L.L.C.
and one with WILLIAMS REALTY VENTURES, L.L.C. (respectively, the "OWNERS"),
whereby the Buyer has agreed to buy, and the Owners have agreed to sell, the
land, buildings and improvements located at the Real Property where the Buick
Business is conducted; and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by
each of the Real Property Purchase Agreements and the Merger Agreement
(collectively, the "OTHER BASIC AGREEMENTS");
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
"ASSETS" shall mean: the New Vehicles (as defined in Section 3.1
hereof); the Demonstrators (as defined in Section 3.2 hereof); the Used Vehicles
(as defined in Section 3.5 hereof); the Parts (as defined in Section 4.3
hereof); the Miscellaneous Inventories (as defined in Section 5.1 hereof); the
Work in Progress (as defined in Section 5.3 hereof); the Fixtures and Equipment
(as defined in Section 5.4 hereof); the Miscellaneous Assets (as defined in
Section 5.5 hereof); and all the goodwill of the Businesses.
"CLOSING DATE" shall mean the date, not later than the Closing
Date Deadline (as hereinafter defined), of the closing of the purchase and sale
of the Assets (the "CLOSING") which shall
2
<PAGE>
be a date designated by the Buyer not sooner than January 1, 1999 and not later
than fifteen (15) days after the approvals set forth in Sections 8.13 hereof
have been obtained, or such other date as is mutually agreed upon by the parties
hereto. The Closing shall be held at the offices of Williams & Ledbetter, 2140
Eleventh Avenue South, Birmingham, Alabama at 9:00 a.m. on the Closing Date.
"CLOSING DATE DEADLINE" shall mean March 2, 1999 (unless
otherwise mutually agreed in writing by the parties hereto).
"INVENTORY DATE" shall mean the date of completion of the
Inventory (as defined in Section 4.1 hereof), which shall be not more than three
(3) days prior to the Closing Date, or such other date prior to the Closing as
is mutually agreed by the Sellers' Agent and the Buyer; provided, however, with
respect to Used Vehicles, the Inventory Date shall be a date approximately two
(2) weeks prior to the Closing Date, as mutually agreed by the parties.
"LIABILITIES" shall mean: (i) all continuing obligations of the
Sellers, arising in the ordinary course of business after the Closing Date and
not as a result of any breach or default, under (A) those contracts and leases
of real and personal property of the Sellers set forth in Part I of Schedule 2.4
attached hereto, and (B) all other contracts and leases of the Sellers that are
entered into in connection with the Businesses in the ordinary course thereof
after the date hereof, but only if the Buyer has, in its discretion, agreed to
assume such other contracts and leases pursuant to the Assumption Agreements (as
defined in Section 2.4 below); and (ii) the Inducement Fee as provided for in
Section 2.5 hereof.
"MANUFACTURERS" shall mean: (i) Audi of America Inc., (ii) BMW of
North America Inc., (iii) General Motors Corporation, (iv) Land Rover North
America Inc., (v) Lexus Division of Toyota Motor Sales (U.S.A.), and (vi)
Porsche Cars North America Inc.
"REAL PROPERTY" shall mean the land, buildings and improvements
where the respective Businesses are currently operated, including, without
limitation, the land, buildings and improvements to be sold pursuant to the Real
Property Purchase Agreements.
"RETAINED LIABILITIES" shall have the meaning assigned to it in
Section 2.4 hereof.
"SELLERS" shall mean Buick, Imports and Motors.
"SELLERS' AGENT" shall mean Thomas P. Williams, Sr., as agent for
the Sellers hereunder.
3
<PAGE>
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1 SALE AND PURCHASE; PURCHASE PRICE.
(a) Upon the terms and subject to the conditions hereinafter set
forth, at the Closing, the Sellers will sell, transfer and convey the Assets to
the Buyer and the Buyer will purchase the Assets from the Sellers for the
consideration set forth in this Agreement. The sale, transfer and conveyance of
the Assets will be made by execution and delivery at the Closing of bills of
sale in substantially the form of Exhibit A hereto (the "BILLS OF SALE") and
such other instruments of assignment, transfer and conveyance as the Buyer shall
reasonably request. Except to the extent specifically included within the
Assets, the Sellers will not sell, and the Buyer will not purchase, any other
tangible or intangible assets of the Sellers.
(b) The aggregate purchase price to be paid for the Assets (the
"PURCHASE PRICE") shall consist of the Initial Purchase Price (as defined in
Section 2.2 below) and the Contingent Purchase Price (as defined in Section 2.3
below).
2.2 INITIAL PURCHASE PRICE.
(a) The purchase price to be paid for the Assets at the Closing
(the "INITIAL PURCHASE PRICE") shall consist of Twenty Five Million Four Hundred
and Eighty-Six Thousand Dollars ($25,486,000), as the purchase price for the
Businesses and intangible assets included in the Assets (the "BUSINESS AND
INTANGIBLE ASSETS PURCHASE PRICE"), which shall be allocated among the Sellers
in accordance with Part I of Schedule 2.2 hereto, plus the sum of: (i) the New
Vehicle Purchase Price (as defined in Section 3.1 hereof); (ii) the Demonstrator
Purchase Price (as defined in Section 3.2 hereof); (iii) the Used Vehicle
Purchase Price, (as defined in Section 3.5 hereof); (iv) the Parts Purchase
Price (as defined in Section 4.3 hereof); (v) the Miscellaneous Inventories
Purchase Price (as defined in Section 5.1 hereof); (vi) the Work in Progress
Purchase Price (as defined in Section 5.3 hereof); and (vii) the F&E Purchase
Price (as defined in Section 5.4 hereof). Each of the components of the Initial
Purchase Price, other than the Business and Intangible Assets Purchase Price,
shall be allocated among the Sellers in accordance with their respective Assets
upon which such components are based, as reflected in a revised Part I of
Schedule 2.2 hereto, to be completed by the Buyer and the Sellers at least three
(3) days prior to the Closing Date. The parties acknowledge that the New Vehicle
Purchase Price, the Parts Purchase Price and the Miscellaneous Inventories
Purchase Price will be based upon information contained in Schedule 3.1 and the
Inventory (as defined in Section 4.1), both of which are to be delivered prior
to the Closing Date. The parties also acknowledge that adjustments to those
categories of Assets will have to be made to reflect ordinary course increases
or decreases in those assets between the time of delivery of such Schedules and
the Inventory and the Closing Date, and that the related components of the
Purchase Price will have to be adjusted to reflect any such adjustments to those
Assets. All of the foregoing adjustments (with appropriate payments by the
parties) will be made as promptly as possible after the Closing. Each party will
use the Purchase Price and Liabilities allocations described in Part II
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of Schedule 2.2 hereto in all reporting to, and tax returns filed with, the
Internal Revenue Service and other state and local taxing authorities.
(b) At the Closing, the Buyer shall, subject to the provisions of
Section 2.2(c) below, pay the Initial Purchase Price as follows:
(i) The Buyer shall deliver to Sellers' Agent cash, by
a certified check or by wire transfer to an account or accounts designated by
Sellers' Agent one day prior to Closing, in an amount equal to the sum of: (A)
65% of the Business and Intangible Assets Purchase Price; (B) 100% of the New
Vehicle Purchase Price; (C) 100% of the Demonstrator Purchase Price; (D) 65% of
the Used Vehicle Purchase Price; (E) 65% of the Parts Purchase Price; (F) 65% of
the Miscellaneous Inventory Purchase Price; (G) 65% of the Work in Progress
Purchase Price; and (H) 65% of the F&E Purchase Price. Such cash shall be paid
to the Sellers in the respective amounts set forth opposite their names on Part
III of Schedule 2.2 hereto, to be delivered to the Buyer by the Sellers' Agent
at least three (3) days prior to the Closing Date.
(ii) (A) In payment of the balance of the Initial Purchase
Price (the "STOCK COMPONENT"), the Buyer shall issue and deliver to the Sellers,
in the respective amounts set forth opposite their names on Part III of Schedule
2.2 hereto, that number of whole shares of the Buyer's Class A Convertible
Preferred Stock, Series III (the "PREFERRED STOCK"), obtained by dividing the
Stock Component by $1,000. No fractional shares of Preferred Stock shall be
issued; any such fraction of a share of Preferred Stock shall be paid in cash at
the rate of $1,000 per whole share of Preferred Stock. The Preferred Stock shall
have such rights and preferences as are set forth in the Statement of Rights and
Preferences of Preferred Stock attached hereto as Exhibit B (the "STATEMENT OF
RIGHTS AND PREFERENCES").
(B) (I) The Buyer will use its best
reasonable efforts to include all of the shares of the Buyer's Class A Common
Stock, $.01 par value per share (the "COMMON STOCK") issuable on conversion of
the Preferred Stock, in an underwritten public offering of the Buyer's Common
Stock (the "PUBLIC OFFERING"), in accordance with the Securities Act of 1933, as
amended (the "SECURITIES ACT"), on a "piggyback" registration basis on or prior
to April 30, 1999. In this regard, the provisions of Subsection 2.2(b)(ii)(C)
below will apply. The Stockholders shall sell in the Public Offering all shares
of Common Stock which are issuable upon conversion of all of the shares of the
Preferred Stock and which the Buyer is able to register in the Public Offering,
unless the underwriters in the Public Offering require that the Stockholders
sell fewer than all of such shares of Common Stock or the Buyer and the
Stockholders mutually agree that a fewer number of such shares of Common Stock
will be registered and sold.
(II) Any shares of Common Stock issuable to the
Stockholders on conversion of the Preferred Stock and which have not been
registered and sold pursuant to the Public Offering by April 30, 1999 (other
than as a result of the Stockholders' failure to participate in the Public
Offering), will be registered by the Buyer in a "shelf" registration statement
under the Securities Act as promptly as possible after April 30, 1999 and taking
into account the period of time required by applicable law for the Buyer to
deliver to the Sellers and the
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Stockholders a prospectus with respect to the offer and sale of such shares of
Common Stock; provided, however, the Buyer may delay the effectiveness of any
such shelf registration statement until the expiration of any "lock-up" period
required by the underwriters in the Public Offering; and provided, further, the
Stockholders agree that they will not offer, sell, contract to sell, pledge, or
otherwise dispose of any of the shares of Common Stock which are registered
pursuant to such registration statement (the "REGISTERED COMMON SHARES") for an
additional ninety (90) days from the date of issuance. Upon the effectiveness of
such registration statement, the Sellers and/or the Stockholders will promptly
convert all shares of the Preferred Stock held by them into Registered Common
Stock.
(III) The Buyer shall deliver to the Sellers and the
Stockholders, at least thirty (30) days prior to the payment of the Contingent
Stock Component (as defined in Section 2.3(b) below) a prospectus with respect
to the Buyer's offer and sale to the Sellers of the shares of Common Stock
contemplated by this clause (III). The Sellers' Agent may, by notice (the
"FURTHER REGISTRATION NOTICE") to the Buyer at least seven (7) days prior to the
payment of the Contingent Stock Component, elect to receive up to fifty percent
(50%) of the Contingent Stock Component in shares of registered Common Stock
which have also been registered in a shelf registration statement under the
Securities Act, in which case the term "Registered Common Shares" as used in
this Agreement shall also include the applicable number of registered shares of
Common Stock issued as part of the Contingent Stock Component. Provided that the
Sellers' Agent shall have timely delivered the Further Registration Notice, at
the time of payment of the Contingent Purchase Price the Buyer shall issue and
deliver to the Sellers, pro rata according to the numbers of shares of Preferred
Stock set forth opposite their names on Part III of Schedule 2.2 hereto, that
number of whole shares of Common Stock obtained by dividing the portion of the
Contingent Stock Component specified in the Further Registration Notice (not to
exceed 50% thereof) by the Market Price (as defined in the Statement of Rights
and Preferences) as of the date of such payment of the Contingent Purchase
Price. No fractional shares of Common Stock shall be issued in connection with
the foregoing payments of a portion of the Contingent Stock Component. To the
extent that such fractional shares would otherwise be issued, the Buyer shall
pay cash in lieu of such fractional shares based upon the applicable Market
Price. The Sellers and the Stockholders hereby agree that they will not offer,
sell, contract to sell, or otherwise dispose of any of the Registered Common
Shares included in the Contingent Stock Component for a period of one hundred
eighty (180) days from the date of delivery thereof by the Buyer.
(C) If requested by the managing or lead managing
underwriter in the Public Offering contemplated by clause (B)(I) above, the
Sellers and the Stockholders shall execute and deliver such customary
documentation as is utilized by such underwriter for selling stockholders in
underwritten public offerings including, without limitation, an underwriting
agreement and a "lock-up" agreement with the managing or lead managing
underwriter in such forms as are customarily used by such underwriter with any
modifications as the parties thereto shall agree. In connection with any such
registration, the Sellers and the Stockholders shall supply to the Buyer such
information as may be reasonably requested by the Buyer in connection with the
preparation and filing of a registration statement with the Securities and
Exchange Commission (the "SEC"). The Sellers and the Stockholders shall not
supply any information to the Buyer for
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inclusion in such registration statement that will, taken as a whole, at the
time the registration statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(D) The obligations of the parties with respect to
the Registered Common Shares will be subject to the additional provisions
relating thereto set forth in Section 2.8 below.
(E) In the event that the Buyer shall, for any
reason, fail to deliver the Registered Common Shares to the Sellers in
connection with the payment of the Contingent Purchase Price, the Buyer shall be
obligated to deliver to the respective Sellers cash in the amount of the Market
Price with respect to such Registered Common Shares as of the date of payment of
such Contingent Purchase Price, and such payment in cash shall be in full
satisfaction of the Buyer's obligation to deliver such Registered Common Shares.
(F) To the extent that the Sellers' Agent does not
timely deliver a Further Registration Notice, the Buyer shall have no obligation
to the Sellers or the Stockholders to deliver any registered shares of Common
Stock. Thereafter, the Buyer's sole obligation with respect to the Preferred
Stock and the shares of Common Stock issuable upon conversion of the Preferred
Stock (the "COMMON SHARES") shall be to use its best reasonable efforts to make
available current public information with respect to the Buyer within the
meaning of Subsection (c)(1) of SEC Rule 144 ("RULE 144") to the extent
necessary to facilitate public resales by the Sellers of the Common Shares,
pursuant to Rule 144.
2.3 CONTINGENT PURCHASE PRICE.
(a) As used in this Agreement, (i) the term "CONTINGENT PURCHASE
PRICE" shall mean an amount equal to the amounts payable pursuant to Section
2.3(b) below; (ii) the term "CALCULATION PERIOD" shall mean the twelve (12)
month period commencing with the first full month after the Closing Date; (iii)
the term "EARNINGS BEFORE TAXES" shall mean the earnings before taxes of each of
the Buick Dealership Business, the Imports Dealership Business and the Motors
Dealership Business, in each case for the Calculation Period, calculated as
provided in Section 2.3(c) below; (iv) the terms "BUICK DEALERSHIP BUSINESS",
"IMPORTS DEALERSHIP BUSINESS" and "MOTORS DEALERSHIP BUSINESS" shall mean the
respective automobile dealership businesses of each of Buick, Imports and Motors
acquired by the Buyer pursuant to this Agreement; (v) the term "DEALERSHIP
BUSINESSES" shall mean the Buick Dealership Business, the Imports Dealership
Business and the Motors Dealership Business; and (vi) the term "AGGREGATE
EARNINGS BEFORE TAXES" shall mean the sum total of the Earnings Before Taxes of
the Dealership Businesses and the Earnings Before Taxes of the Cadillac
Dealership Business (each as defined and calculated pursuant to the Merger
Agreement).
(b) Subject to the provisions of Section 2.3(c) below, not later
than 90 days after the end of the Calculation Period the Buyer shall pay to the
respective Sellers their respective
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installments, if any, of the Contingent Purchase Price, calculated as follows:
(i) The installment of the Contingent Purchase Price
payable to Buick shall be an amount equal to three (3) times the Earnings Before
Taxes of the Buick Dealership Business in excess of $186,000;
(ii) The installment of the Contingent Purchase Price
payable to Imports shall be an amount equal to three and one-half (3.5) times
the Earnings Before Taxes of the Imports Dealership Business in excess of
$1,688,000; and
(iii) The installment of the Contingent Purchase Price
payable to Motors shall be an amount equal to four (4) times the Earnings Before
Taxes of the Motors Dealership Business in excess of $4,710,000;
provided, however, that the Buyer shall be under no obligation to pay any of the
Contingent Purchase Price unless the Aggregate Earnings Before Taxes exceed
$7,564,000. The Contingent Purchase Price shall be paid to the respective
Sellers 65% in cash and 35% (the "CONTINGENT STOCK COMPONENT") by the issuance
and delivery to the respective Sellers of shares of Preferred Stock at the rate
of one share of Preferred Stock for every $1,000 of such Contingent Purchase
Price, subject, however, to any rights of the Sellers to receive a percentage of
the Contingent Stock Component in registered shares of Common Stock pursuant to
Section 2.2(b) above. Fractional shares of Preferred Stock may be issued in
connection with the payment of the Contingent Purchase Price; however, no
fractional shares of Common Stock shall be issued upon conversion of the
Preferred Stock. At the request of Sellers' Agent, the Buyer shall furnish the
Sellers' Agent with copies of the Buyer's factory financial statements for each
month during the Calculation Period.
(c) Earnings Before Taxes shall be calculated by the Buyer in
accordance with GAAP (as defined in Section 11.3) and subject to the following
special rules:
(i) No deduction shall be taken for federal and state
income taxes, or for state franchise taxes based on corporate income, owed by
the respective Dealership Businesses;
(ii) No deduction shall be taken for any interest expenses
(including acquisition debt) of the respective Dealership Businesses other than
floor plan financing interest attributable to the Businesses and other interest
expenses directly attributable to the operations of the respective Dealership
Businesses;
(iii) Earnings Before Taxes shall be determined before (A)
any expense chargeable with respect to the Non-Competition Agreement, or (B) any
management fee expense allocation from the Buyer in respect of management fees
payable to the Buyer;
(iv) No deduction shall be taken for any amortization of
goodwill included in the Purchase Price; and
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(v) Overhead expenses or other expenses which have been
incurred by the respective Dealership Businesses which are allocated to the
respective Dealership Businesses but do not directly relate to the operation of
the respective Dealership Businesses, or that portion so allocated which is not
reasonably related to the operation of the respective Dealership Businesses,
shall not be deducted in determining Earnings Before Taxes.
At the time of the payment of the Contingent Purchase Price, the Buyer
shall deliver to the Sellers' Agent a statement in writing setting forth in
reasonable detail the manner in which the Contingent Purchase Price was
determined. The Sellers' Agent shall have a period of thirty (30) days from the
date of delivery of the Buyer's statement of the Contingent Purchase Price to
object in writing to the calculation of the Contingent Purchase Price set forth
therein; failing such objection within such period by the Sellers' Agent, the
Sellers shall be deemed to have accepted the Buyer's calculation of the
Contingent Purchase Price. If the Sellers' Agent shall have timely objected to
the Buyer's calculation of the Contingent Purchase Price, the parties shall
negotiate in good faith in an effort to resolve any dispute regarding the
Contingent Purchase Price. If the parties are unable to resolve such dispute
within a period of thirty (30) days after the Buyer's receipt of the Sellers'
objection, the matter shall be submitted to a "big six" accounting firm mutually
acceptable to the parties, which shall be instructed to resolve such dispute as
promptly as possible. The costs and expenses of such accounting firm shall be
shared equally between the Buyer and the Sellers. Upon the final determination
of the Contingent Purchase Price, the Buyer or the Sellers, as the case may be,
shall make appropriate payment to the other, as the case may be, in the amount
of the Contingent Purchase Price as finally determined. The party making the
payment shall also pay interest on the amount of such payment at an amount of
such payment at an annual rate of interest equal to the Buyer's floor plan
financing rate from time to time in effect from the original date of payment of
the Contingent Purchase Price by the Buyer to the date of such payment.
2.4 ASSUMPTION OF LIABILITIES. At the Closing, the Sellers will assign
to the Buyer and the Buyer will assume and agree to perform and discharge the
Liabilities pursuant to separate assignment and assumption agreements with the
respective Sellers in a form reasonably satisfactory to the Sellers' counsel
(the "ASSUMPTION AGREEMENTS"). Notwithstanding any of the foregoing, except as
expressly provided in this Section 2.4 and in Section 2.5, the Buyer does not
and will not assume or become liable for any obligations or liabilities of the
Sellers or the Stockholders of any kind whatsoever, fixed or contingent, known
or unknown as a result of the transactions contemplated by this Agreement
(collectively, the "RETAINED LIABILITIES"). The Sellers shall retain, and hereby
agree to satisfy and discharge, all of the Retained Liabilities, including those
set forth on Part II of Schedule 2.4 hereto.
2.5 INDUCEMENT FEE. As an inducement to the Buyer to negotiate and enter
into this Agreement and to undertake the further cost and expense of conducting
its due diligence investigation and preparing to satisfy its obligations at the
Closing, the Sellers hereby agree, jointly and severally, to pay to the Buyer
not later than April 30, 1999, the sum of $500,000 (the "INDUCEMENT FEE"). The
Inducement Fee will be included in the Liabilities and will become an obligation
of the Buyer or any other person (including any holder of a right of first
refusal, preemptive right or other similar right, with respect to any of the
Assets) who purchases the Assets,
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or any portion thereof, as a result of the execution and delivery by the Sellers
of this Agreement. The Inducement Fee will be canceled if this Agreement is
terminated for any reason other than the exercise of a right of first refusal,
preemptive right or other similar right, by an applicable automobile
manufacturer or distributor or any person claiming by, through or under it.
2.6 NON-COMPETITION AGREEMENTS. At the Closing, Thomas P. Williams, Sr. shall
enter into a non-competition agreement with the Buyer in substantially the form
of Exhibit C hereto (the "NON-COMPETITION AGREEMENT"). In addition to the
Business and Intangible Assets Purchase Price, the Buyer shall pay to Thomas P.
Williams, Sr. the sum of $10,000 as further consideration for such
Non-Competition Agreement.
2.7 EMPLOYMENT AGREEMENTS. At the Closing, Thomas P. Williams, Sr.,
Thomas P. Williams, Jr. and Clark Williams will enter into Employment Agreements
with the Buyer in substantially the forms of Exhibits D-1, D-2 and D-3,
respectively, hereto (the "EMPLOYMENT AGREEMENTS").
2.8 ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES.
(a) The Buyer shall have no obligation to maintain the currency
of any prospectus, permit the use of any prospectus or maintain the
effectiveness of any registration statement for the resale of the Registered
Common Shares once all of the Registered Common Shares that remain unsold may be
sold without restriction pursuant to Rule 144.
(b) The Sellers and the Stockholders agree that they shall effect
each resale of Registered Common Shares only pursuant to a current prospectus or
supplements thereto that is a part of the applicable registration statement of
the Buyer (the "RESALE PROSPECTUS").
(c) Any offering of any of the Registered Common Shares under the
Resale Prospectus will be effected in an orderly manner through a securities
dealer, acting as broker or dealer, reasonably acceptable to the Buyer (the
"DESIGNATED BROKER").
(d) The Sellers and the Stockholders will make resales of
Registered Common Shares only by one or more methods described in the Resale
Prospectus, as appropriately supplemented or amended when required.
(e) Since the Registered Common Shares are "restricted
securities" within the meaning of Rule 145 promulgated by the SEC under the
Securities Act, the certificates representing the Registered Common Shares will
be issued by the Buyer with such legends as the Buyer may reasonably require
until such shares are offered pursuant to the foregoing terms under the Resale
Prospectus, at which time such certificates shall be tendered to the Buyer and a
new certificate or certificates without legends shall be issued by the Buyer to
the Designated Broker in order to settle any resales by the Sellers or the
Stockholders.
(f) The Sellers and the Stockholders shall provide the Buyer, in
writing, with all
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information concerning the Sellers and the Stockholders and their resale of the
Registered Common Shares as may reasonably be requested by the Buyer in order to
comply with the Securities Act, and the Sellers and the Stockholders shall
indemnify the Buyer for any liabilities (the "Seller's Liabilities") arising
under the Securities Act, the Securities Exchange Act of 1934 or any state
securities or blue sky laws resulting from any material misstatements in, or
omissions of material information from, such information provided by the Sellers
and the Stockholders to the Buyer.
(g) The Sellers and the Stockholders shall pay any and all
expenses directly related to the resale of the Registered Common Shares,
including, but not limited to, the commissions or fees of the Designated Broker,
but excluding the fees and expenses of the custodial bank or banks holding the
Registered Common Shares, if applicable, which shall be borne by Buyer.
(h) The Buyer shall use its best reasonable efforts to list the
Registered Common Shares for trading on the New York Stock Exchange;
(i) The Buyer shall pay all expenses, including legal and
accounting fees, in connection with the preparation, filing and maintenance of
the applicable registration statement, including amendments thereto and the
Resale Prospectus, including supplements thereto, and the issuance of
certificates representing the Registered Common Shares.
(j) The Buyer shall indemnify the Sellers and the Stockholders
for any liabilities arising under the Securities Act, the Securities Exchange
Act of 1934 or any state securities or blue sky laws resulting from any material
misstatements in, or omissions of material information from, the Resale
Prospectus or the Acquisition Shelf Registration Statement, including the
information incorporated by reference therein, except for the Seller's
Liabilities.
(k) Notwithstanding any provision of this Agreement to the
contrary, the Sellers and the Stockholders shall not have any right to take any
action (and the Sellers and the Stockholders hereby agree that none of them
shall take any action) to restrain, enjoin or otherwise delay any registration
as a result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement. Nothing contained in this
Section 2.8 shall prevent the making of a claim for monetary relief.
ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. At the Closing, the Buyer shall purchase all of the
Sellers' untitled new 1999 and 1998 motor vehicles in the Sellers' inventories
as of the Closing Date and which are listed on Schedule 3.1 hereto, which the
Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to
the Closing (all such vehicles are collectively referred to hereinafter as the
"NEW VEHICLES"). The purchase price to be paid by the Buyer for each New Vehicle
shall be the price at
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which the New Vehicle was invoiced to the respective Seller by the applicable
Manufacturer, as adjusted pursuant to this Article III (the sum of all such
amounts to be paid for New Vehicles as determined by this Article III is herein
referred to as the "NEW VEHICLE PURCHASE PRICE"). Schedule 3.1 shall set forth
each New Vehicle's model, invoice cost, odometer reading and all other
information necessary to calculate the New Vehicle Purchase Price with respect
to such New Vehicle. At the Closing, the Sellers shall assign to the Buyer,
without any additional consideration therefor, by appropriate documents
reasonably satisfactory to the Buyer, all unfilled retail orders and deposits
made thereon. Any proceeds or profits derived from retail orders filled by the
Buyer after the Closing shall belong to the Buyer.
3.2 DEMONSTRATORS. At the Closing, the Buyer shall purchase all of the
Sellers' untitled new 1999 and 1998 motor vehicles in Sellers' inventories as of
the Closing Date which are used in the ordinary course of business for the
purpose of demonstration and which are listed on Schedule 3.2 hereto, which the
Sellers' Agent shall deliver to the Buyer not more than three (3) days prior to
the Closing (all such vehicles are collectively referred to herein as the
"DEMONSTRATORS"). The purchase price to be paid by the Buyer for each
Demonstrator shall be the price at which the Demonstrator was invoiced to the
respective Seller by the applicable Manufacturer, as adjusted pursuant to this
Article III and as reduced by an amount equal to ten cents ($.10) multiplied by
the total mileage on such Demonstrator's odometer up to 6,000 miles and
thirty-two cents ($.32) multiplied by the total mileage on such Demonstrator's
odometer in excess of 6,000 miles (the sum of all such amounts to be paid for
Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE
PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost,
odometer reading and all other information necessary to calculate the
Demonstrator Purchase Price with respect to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICES. The
purchase price paid for each New Vehicle and each Demonstrator purchased under
this Article III shall be: (a) increased by the dealer cost of any equipment and
accessories which have been installed by the respective Seller; and (b)
decreased by (i) the dealer cost of any equipment and accessories which have
been removed from such vehicles, (ii) all paid or unpaid rebates, discounts,
holdback for dealer account and other factory incentives (including without
limitation rebates applied for and paid but unearned, incentive monies claimed
on pre-reported units and carryover allowances on 1997 models), and (iii) any
refundable advertising allowances. To the extent that any such rebates,
discounts, holdbacks, incentives or allowances which have reduced the price
shall be paid to the Buyer, the Buyer shall promptly pay them to the applicable
Sellers.
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any
New Vehicle or Demonstrator shall have been damaged prior to the Closing Date,
or is otherwise in a condition such that it cannot reasonably be presented as
being in a first-class saleable condition, the Sellers' Agent and the Buyer will
attempt to agree on the cost to cover such repairs or some other equitable
reduction in value to reflect such condition, which amount shall be deducted
from the price to be paid for such New Vehicle or Demonstrator. In the event
that the Buyer and the Sellers' Agent cannot agree on the cost of repairs or the
amount of reduction, the Buyer shall have no obligation to purchase any such
damaged New Vehicle or Demonstrator. With respect to any New Vehicle or
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Demonstrator which has been damaged and repaired prior to the Closing Date, the
Sellers' Agent and the Buyer will attempt to agree on an adjustment to the price
to reflect any decrease in the wholesale value of such New Vehicle or
Demonstrator resulting from such damage and repair. In the event that the Buyer
and the Sellers' Agent cannot agree on such adjustment, the Buyer shall have no
obligation to purchase such New Vehicle or Demonstrator. The Sellers' Agent
shall notify the Buyer on or prior to the Closing Date if any New Vehicles or
Demonstrators shall have suffered any damage which is not reflected on Schedule
3.1 or Schedule 3.2.
3.5 USED VEHICLES. The Sellers' Agent and the Buyer shall perform an
inventory of the Sellers' used vehicles as of the Inventory Date and, in
connection with such inventory, the Sellers' Agent and the Buyer shall attempt
to assign a mutually agreed price to each used vehicle owned by the Sellers as
of the Inventory Date. Any such vehicles as to which the Sellers' Agent and the
Buyer are unable to agree upon a price shall not be purchased by the Buyer in
connection herewith. All used vehicles acquired by the Sellers after the
Inventory Date with respect to used vehicles shall be valued at the respective
Sellers' book value therefor; provided, however, the acquisition and valuation
thereof shall be subject to prior approval by the Buyer so long as the Buyer
shall have a representative present at the Sellers' dealerships at the time such
used vehicles are proposed to be accepted. Any such used vehicles as to which
the Sellers' Agent and the Buyer shall agree upon a price as of the Inventory
Date, as well as all used vehicles acquired thereafter by the Sellers in
accordance with this Section 3.5 are collectively referred to herein as the
"USED VEHICLES." At the Closing, the Buyer shall purchase from the respective
Sellers all Used Vehicles owned by the respective Sellers as of the Closing
Date. The sum of all prices assigned to such Used Vehicles purchased by the
Buyer pursuant to the terms of this Section 3.5 shall be referred to herein as
the "USED VEHICLE PURCHASE PRICE".
ARTICLE IV
PARTS/ACCESSORIES
4.1 THE INVENTORY. The Buyer and the Sellers' Agent shall engage a
mutually acceptable third party engaged in the business of appraising, valuing
and preparing inventories for automobile dealerships (hereinafter referred to as
the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the
parts and accessories, as well as the Miscellaneous Inventories, used by the
Sellers in the Businesses. The Inventory (insofar as it relates to parts and
accessories) shall be posted to the respective Manufacturers' approved systems
of inventory control. The cost of the Inventory shall be borne one-half by the
Buyer and one-half by the Sellers. The Buyer shall have the right to deduct the
Sellers' portion of such expense from the cash consideration to be paid to the
Sellers under the terms of this Agreement and to remit such sum directly to the
Inventory Service. The Inventory shall be completed by the Inventory Date.
4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory
shall classify parts and accessories as "returnable" or "nonreturnable". For
purposes of this Agreement, the terms "returnable parts" and "returnable
accessories" shall describe and include only those new
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parts and new accessories for vehicles which are listed (coded) in the latest
current Master Parts Price List Suggested List Prices and Dealer Prices, or
other applicable similar price lists, of the respective Manufacturers, with any
applicable supplements, in effect as of the Inventory Date (as applicable to
each Manufacturer, the "MASTER PRICE LIST") as returnable to the respective
Manufacturer at not less than the purchase price reflected in the Master Price
List. The purchase price for each "returnable part" and "returnable accessory"
will be the price listed in the Master Price List. All parts and accessories
listed (coded) in the Master Price List as nonreturnable to the respective
Manufacturer shall be classified as "nonreturnable". The purchase price for each
"nonreturnable" part and accessory, of which type a Seller has made no sales
during the ninety (90) day period prior to the Inventory Date (or such longer
period of time as is commercially reasonable in the case of "big ticket" parts
such as engine blocks and transmissions), shall be sixty percent (60%) of the
price listed therefor in the Master Price List. The purchase price for each
"nonreturnable" part and accessory, of which type a Seller has made retail sales
to one or more customers during the ninety (90) day period prior to the
Inventory Date, shall be one hundred percent (100%) of the price therefor listed
in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts
shall be equal to the respective Seller's original cost of such parts. The
purchase price for all nuts, bolts and any other parts not addressed in this
Section 4.2 shall equal the fair market value thereof as determined by the
Inventory Service.
4.3 PARTS; PARTS PURCHASE PRICE. At the Closing, the Buyer shall
purchase all parts and accessories owned by the respective Sellers at the
Closing Date and listed on the Inventory (the "PARTS"); provided, however, that
Buyer shall not be obligated to purchase any damaged parts or accessories, parts
and accessories with component parts missing, superseded or obsolete parts or
accessories, or used parts or accessories. The Sellers agree that if parts and
accessories that the Buyer is not obligated to purchase hereunder are not
removed from the Real Property within thirty (30) days after the Closing Date,
they shall become the property of the Buyer without the payment of any
consideration in addition to the consideration otherwise provided herein. The
purchase price for the Parts will equal the value of such items shown on the
Inventory (the "PARTS PURCHASE PRICE").
4.4 PARTS RETURN PRIVILEGES. The Sellers shall assign to the Buyer at
the Closing any net parts return privileges under the respective Manufacturers'
parts return plans that may have accrued to the Sellers prior to the Closing
(and any other special parts return authorizations which may have been granted
to the Sellers by the respective Manufacturers).
ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT
5.1 MISCELLANEOUS INVENTORIES. At the Closing, the Buyer shall purchase
all useable gas, oil and grease, all undercoat material and body materials in
unopened cans and such miscellaneous useable and saleable articles in unbroken
lots (including boutique accessories and pro shop items)
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which (i) are on the respective Sellers' dealership premises, (ii) are owned by
the respective Sellers on the Closing Date, and (iii) are identified in the
Inventory taken by the Inventory Service on the Inventory Date (the foregoing
being, collectively, "MISCELLANEOUS INVENTORIES"). The purchase price for the
Miscellaneous Inventories shall be equal to the replacement cost of the
Miscellaneous Inventories as determined by the Inventory Service and set forth
on the Inventory (the sum of all prices of the Miscellaneous Inventories
pursuant to the terms of this Section 5.1 shall be referred to herein as the
"MISCELLANEOUS INVENTORIES PURCHASE PRICE").
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. The Buyer shall
have no obligation to purchase any such miscellaneous inventory items that are
not included in the Miscellaneous Inventories. The Sellers agree that any
miscellaneous inventory items that are not included in the Miscellaneous
Inventories and are not removed from the Real Property within the thirty (30)
days after the Closing Date, shall become the property of the Buyer without the
payment of any consideration in addition to the consideration otherwise provided
herein.
5.3 WORK IN PROGRESS. At the Closing, the Buyer shall buy at the
Sellers' cost for parts and labor such shop labor and sublet repairs as the
respective Sellers shall have caused to be performed on any repair orders which
are in process at the close of business on the Closing Date for which there are
adequate credit arrangements (the "WORK IN PROGRESS") (the sum of all costs of
the Sellers for the Work in Progress pursuant to the terms of this Section 5.3
shall be referred to herein as the "WORK IN PROGRESS PURCHASE PRICE"). The Buyer
shall complete such repair work and shall be entitled to the entire proceeds to
be collected for such services.
5.4 FIXTURES AND EQUIPMENT. At the Closing, the Buyer shall purchase all
fixtures, machinery, equipment (including company owned vehicles, wreckers,
service loaners and vans and special tools and shop equipment), furniture, signs
and office equipment, and leasehold improvements (excluding those at the Buick
facility) owned by the Sellers as of the Closing Date and used or held for use
in connection with the Businesses, including the items listed on the Book
Depreciation Schedule included as Schedule 5.4 attached hereto, which the
Sellers' Agent shall deliver to the Buyer not later than five (5) days prior to
the Closing (collectively referred to herein as the "FIXTURES AND EQUIPMENT");
provided, however, the Fixtures and Equipment shall not include leasehold
improvements at the Buick facility. The purchase price for each item of Fixtures
and Equipment shall equal the depreciated book value of such item, determined in
accordance with GAAP (as defined in Section 11.3 hereof), and based upon
Schedule 5.4 (the sum of all prices assigned to the Fixtures and Equipment
pursuant to the terms of this Section 5.4 shall be referred to herein as the
"F&E PURCHASE PRICE").
5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any
additional consideration, the Buyer shall acquire all of the Sellers' (i) unused
shop repair orders, parts sales tickets, accounting forms, binders, office and
shop supplies and such shop reference manuals, parts reference catalogs,
non-accounting file copies for all sales of the Sellers for the three (3) years
preceding the Closing Date, (ii) copies of new and used car sales records and
specifically wholesale parts sales records, new and used parts sales records,
and service sales records for the three (3) years preceding the Closing Date,
(iii) product sales training material and reference books on hand as of
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the Closing Date, (iv) customer and registration lists pertaining to the sale of
motor vehicles, service files, repair orders, owner follow-up lists and similar
records relating to the operation of the Businesses, (v) telephone numbers and
listings used by the Sellers in connection with the Businesses, (vi) names and
addresses of the Sellers' service customers and prospective purchasers, (vii)
all lawfully transferrable licenses and permits of the Businesses, and (viii)
the Sellers' rights to the trade names listed on Schedule 5.5 hereto or any
similar variation thereof (such items being collectively the "MISCELLANEOUS
ASSETS").
5.6 CERTAIN RECORDS OF THE SELLER. The Sellers may retain all corporate
records, financial records and correspondence which are not necessary for the
continued operation of the Businesses by the Buyer, and all derivations and
extensions thereof.
5.7 WARRANTY OBLIGATIONS OF THE SELLER. The Buyer shall have no
responsibility to perform any services required under any warranties issued by
the Sellers on the vehicles sold by the Sellers on or prior to the Closing Date,
unless authorized in writing by the respective Sellers accompanied by
arrangements in writing satisfactory to the Buyer to assure the Buyer of payment
for all work performed by the Buyer, and, if so authorized by a Seller, such
Seller shall reimburse the Buyer for all of the Buyer's costs for parts and
labor in connection therewith at established internal rates for parts and labor.
At the Closing Date, the Sellers shall supply the Buyer with a list to which
such warranties and guaranties are applicable, which list shall include the
names of the purchasers, the make and year model of the vehicles purchased and
the date of purchase. The Sellers shall also supply to the Buyer at or prior to
the Closing Date an address for and a designation of the person or persons who
will be responsible for authorizing Buyer to perform any services under any
warranties issued by the Sellers on vehicles sold by them prior to the Closing
Date. The respective Sellers shall reimburse the Buyer promptly upon demand for
all sums due or payable by the respective Sellers to the Buyer hereunder.
5.8 ACCOUNTS RECEIVABLE. The Sellers shall retain all accounts
receivable of the Sellers as of the Closing Date and the Buyer shall retain all
accounts receivable arising out of sales and/or services of the Businesses after
the Closing Date. The Buyer shall have no responsibilities or obligations with
respect to the documentation or collection of the Sellers' accounts receivable,
except that the Buyer, on the Sellers' behalf, shall accept payment of the
Sellers' accounts receivable arising out of the operation of the Businesses
prior to the Closing Date, at no charge to the Sellers, for a period of six (6)
months after the Closing, and the Buyer shall forward to the Sellers' Agent, or
to such of the Sellers designated by him, from time to time during said period,
all of the money so accepted on said accounts receivable.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
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6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a
corporation duly organized and existing and in good standing under the laws of
the State of Delaware, is duly qualified to do business and is in good standing
in every jurisdiction in which the nature of its business makes such
qualification necessary and has the corporate power to own its properties and to
carry on its business as now being conducted. The Board of Directors of the
Buyer has duly approved this Agreement, all other agreements, certificates and
documents executed or to be executed by the Buyer in connection herewith, and
the transactions contemplated hereby and thereby. The Buyer has full corporate
power and authority to execute and deliver this Agreement and all other
agreements, certificates and documents executed or to be executed by the Buyer
in connection herewith, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. This Agreement,
and all other agreements, certificates and documents executed or to be executed
by the Buyer in connection herewith, constitute or, when executed and delivered,
will constitute legal, valid and binding agreements of the Buyer enforceable
against the Buyer in accordance with their respective terms.
6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2
attached hereto, the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions hereof do not and will not: (a) conflict with or violate any of the
provisions of the Buyer's restated certificate of incorporation or by-laws, each
as amended, or any resolution of the Board of Directors or the stockholders of
the Buyer; (b) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court,
administrative or governmental agency or other body applicable to the Buyer; (c)
violate or conflict with or result in a breach of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which the Buyer is a party or by which the Buyer is
bound or affected; or (d) require the consent, authorization or approval of, or
notice to, or filing or registration with, any governmental body or authority,
or any other third party.
6.3 LITIGATION. There are no actions, suits or proceedings pending, or,
to the knowledge of the Buyer, threatened against or affecting the Buyer which
might adversely affect the power or authority of the Buyer to carry out the
transactions to be performed by it hereunder.
6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred
Stock, as well as the shares of Common Stock issuable upon conversion of the
Preferred Stock, has been duly authorized by all necessary corporate action of
the Buyer. Upon the issuance of the Preferred Stock pursuant to this Agreement,
and upon the issuance of shares of Common Stockupon conversion of any of the
Preferred Stock, such Preferred Stock and/or Common Stock, as the case may be,
shall be validly issued, fully paid and non-assessable.
6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists
of:
(a) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of which 300,000 shares are designated Class A Convertible Preferred
Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I
PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES
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II PREFERRED STOCK") and 100,000 shares of Series III (the "SERIES III PREFERRED
STOCK"); as of October 15, 1998, approximately 19,500 shares of Series I
Preferred Stock are issued and outstanding and/or are committed to be issued by
the Buyer, approximately 13,910 shares of Series II Preferred Stock are issued
and outstanding and/or are committed to be issued by the Buyer, and
approximately 31,248 shares of Series III Preferred Stock are issued and
outstanding and/or are committed to be issued by the Buyer;
(b) 50,000,000 shares of Class A Common Stock, par value $0.01
per share, of which 5,588,888 shares are issued and outstanding; and
(c) 15,000,000 shares of Class B Common Stock, par value $0.01
per share, of which 6,200,000 shares are issued and outstanding.
All outstanding capital stock of the Buyer is duly authorized, validly issued,
fully paid and non-assessable and has been issued in conformity with all
applicable federal and state securities laws.
6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent
copies of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii)
the Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31,
1997, (iii) the Buyer's Quarterly Reports on Form 10-Q for the three-month
periods ended March 31, 1998, June 30, 1998 and September 30, 1998, and (iv) any
Current Reports on Form 8-K, filed in 1998, each in the form (excluding
exhibits) filed with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being
hereinafter referred to as its "REPORTS"). Neither the Prospectus nor any of the
Reports contained, at the time of filing thereof with the SEC, any untrue
statement of any material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading.
6.7 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by
the Buyer in this Agreement, and no statement contained in any agreement,
instrument, certificate or schedule furnished or to be furnished by the Buyer
pursuant hereto, contains or will contain any untrue statement of a material
fact or omits or will omit to state a material fact necessary in order to make
such representation or warranty or such statement not misleading. The
representations and warranties of Buyer contained in the Real Property Purchase
Agreement are true and correct.
6.8 ORIGINAL ASSET PURCHASE AGREEMENT. The representations and
warranties of the Buyer in the Original Asset Purchase Agreement were true and
correct when made.
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ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
AND THE STOCKHOLDERS
The Sellers and the Stockholders, jointly and severally, represent and
warrant to the Buyer as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Each Seller (a) is
a corporation duly organized and existing and in good standing under the laws of
the State of Alabama, (b) is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary, and (c) has the corporate power to own its properties
and to carry on its business as now being conducted. Except as set forth on
Schedule 7.1 attached hereto, the Stockholders are the only persons or entities
owning shares of the Sellers. The Board of Directors and the shareholders of
each Seller have duly approved this Agreement, all other agreements,
certificates and documents executed or to be executed by such Seller in
connection herewith, and the transactions contemplated hereby and thereby. Each
Seller has full corporate power and authority to execute and deliver this
Agreement and all other agreements, certificates and documents executed or to be
executed by such Seller in connection herewith, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement, and all other agreements, certificates and documents
executed or to be executed by each Seller in connection herewith, constitute or,
when executed and delivered, will constitute legal, valid and binding agreements
of such Seller enforceable against such Seller in accordance with their
respective terms. This Agreement, and all other agreements, certificates and
documents executed or to be executed by each Stockholder in connection herewith,
constitute or, when executed and delivered, will constitute legal, valid and
binding agreements of such Stockholder enforceable against such Stockholder in
accordance with their respective terms.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of Sellers' articles of incorporation or by-laws, each as amended, or any
resolution of the Board of Directors or the shareholders of the Sellers; (b)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to any of the Sellers, the Assets,
the Businesses or the Liabilities; (c) violate or conflict with or result in a
breach of, or constitute a default under, or an event giving rise to a right of
termination of, any Contract (as defined in Section 7.12), any material
instrument, agreement or indenture or any mortgage, deed of trust or similar
contract to which any Seller or any Stockholder is a party or by which any
Seller, any Stockholder or any of the Assets are bound or affected; (d) result
in the creation or imposition of any Encumbrance upon any of the Assets; or (e)
require the consent, authorization or approval of, or notice to, or filing or
registration with, any governmental body or authority, or any other third party.
7.3 LITIGATION. There are no actions, suits or proceedings pending
or, to the knowledge
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of the Sellers and the Stockholders, threatened against any Seller or
Stockholder which might adversely affect the power or authority of any of them
to carry out the transactions to be performed by such party hereunder. There are
no actions, suits or proceedings pending, or, to the knowledge of the Sellers
and the Stockholders, threatened, against or affecting any Seller, other than
those disclosed on Schedule 7.3 attached hereto, and none of the actions, suits
or proceedings described on Schedule 7.3, if determined adversely to any Seller,
would have a material adverse effect on the business, assets or financial
condition of such Seller.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4
attached hereto, the Sellers have good title to the Assets, free and clear of
all liens (including tax liens), encumbrances, actions, claims, payments or
demands of any kind and character (collectively, "ENCUMBRANCES"), except
Encumbrances for ad valorem personal property taxes not yet due and payable. All
of the Assets to be transferred hereunder conform, as to condition and
character, to the descriptions of such Assets contained herein and will be
transferred at the Closing free and clear of all Encumbrances, except
Encumbrances for ad valorem personal property taxes not yet due and payable. To
the knowledge of the Sellers and the Stockholders, the ownership and use of the
Assets, and the operation of the Businesses, do not infringe upon the
intellectual property rights of any other person or entity.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached
hereto, there are no permits or approvals used or obtained for use by any of the
Sellers which are required under applicable law in connection with the ownership
or operation of the Businesses.
7.6 TAXES. Each of the Sellers has filed all federal, state and local
governmental tax returns required to be filed by it in accordance with the
provisions of law pertaining thereto and has paid all taxes and assessments
(including, without limitation of the foregoing, income, excise, unemployment,
social security, occupation, franchise, property and import taxes, duties or
charges and all penalties and interest in respect thereof) required by it to
have been paid to date.
7.7 EMPLOYEES. Schedule 7.7 attached hereto discloses, as of the date
hereof, all of Sellers' employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and accrued vacation time.
Except as disclosed on Schedule 7.7, none of the Sellers has any "employee
benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
including without limitation, any bonus, deferred compensation, pension,
profit-sharing, stock option, employee stock purchase, secrecy agreement or
covenant not to compete with any employee. None of the Sellers is a party to any
collective bargaining agreement or other labor contract, and there has not been
nor is there pending or, to the knowledge of the Sellers and the Stockholders,
threatened any union organizational drive or application for certification of a
collective bargaining agent. Each of the Sellers has been and is now in material
compliance with the "COBRA" health care continuation coverage requirements of
Section 4980B of the Internal Revenue Code of 1986, as amended, and Sections
601-608 of ERISA and any applicable state health care continuation coverage
requirements. None of the Sellers has made any promises or incurred any
liability, pursuant to an Employee Benefit Plan or otherwise, to
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provide medical or other welfare benefits to retired or former employees of the
Sellers (other than COBRA or state mandated continuation coverage, where
applicable). Except as disclosed on Schedule 7.7, none of Sellers' employees or
former employees has elected COBRA continuation coverage or has incurred a COBRA
qualifying event since June 1, 1996.
7.8 FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer the
financial statements of the Sellers described in Schedule 7.8 hereto (the
"FINANCIAL STATEMENTS"). The Financial Statements have been prepared in
accordance with GAAP consistently applied, except as specified in Schedule 7.8
hereto. The Financial Statements are in accordance with the books and records of
the respective Sellers, which books and records are true, correct and complete
in all material respects. The balance sheet of each Seller included in the
Financial Statements fairly presents the financial condition of such Seller as
of the date thereof, and the related statement of income of each Seller included
in the Financial Statements fairly presents the results of the operations of
such Seller and the changes in its financial position for the period indicated,
all in accordance with GAAP consistently applied. Each of the Sellers has no
outstanding material claims, liabilities, obligations or indebtedness of any
nature, fixed or contingent, except as set forth in the Financial Statements or
in the Schedules to this Agreement, and except for liabilities incurred in the
ordinary course of business and of the kind and type reflected in the Financial
Statements. To the knowledge of the Sellers and the Stockholders, the Financial
Statements contain adequate reserves for all reasonably anticipated claims
relating to matters with respect to which the Sellers are self-insured.
7.9 BROKERS AND FINDERS. No Seller or Stockholder has engaged any broker
or any other person or entity who would be entitled to any brokerage commission
or finder's fee in respect of the execution of this Agreement and/or the
consummation of the transactions contemplated hereby.
7.10 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.10(a) attached hereto, the
Assets comply with, and the Business has been conducted in all material respects
in compliance with, all laws, rules and regulations (including all worker safety
and all Environmental Laws (as defined in the Real Property Purchase
Agreements), rules and regulations), applicable zoning and other laws,
ordinances, regulations and building codes, and no Seller or Stockholder has
received any notice of any violation thereof which has not been adequately
remedied. All Demonstrators have been operated in the ordinary course of
business with dealer tags and have not had certificates of title issued with
respect to them.
(b) Except as set forth on Schedule 7.10(b) attached hereto, (i)
no Seller has at any time generated, used, treated or stored Hazardous Materials
on, or transported Hazardous Materials to or from, the Real Property or any
property adjoining or adjacent to the Real Property and, to the knowledge of the
Sellers and the Stockholders, no party other than the Sellers has taken such
actions on or with respect to the Real Property, (ii) no Seller has at any time
released or disposed of Hazardous Materials on the Real Property or any property
adjoining or adjacent to the Real Property, and, to the knowledge of the Sellers
and the Stockholders, no party other than the
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Sellers has taken any such actions on the Real Property, (iii) the Sellers have
at all times been in compliance with all Environmental Laws and the requirements
of any permits issued under such Environmental Laws with respect to the Real
Property, the Assets and the operation of the Businesses, except where failure
to comply has not had and will not have, and could not reasonably be expected to
have, a material adverse effect on the Assets or the Liabilities or the
prospects, properties, earnings, results of operations or condition (financial
or otherwise) of the Businesses, (iv) there are no past, pending or, to the
knowledge of the Sellers and the Stockholders, threatened environmental claims
against any Seller, the Real Property, the Assets or the Businesses, (v) to the
knowledge of the Sellers and the Stockholders, there are no facts or
circumstances, conditions or occurrences regarding the Sellers, the Real
Property, the Assets or the Businesses that could reasonably be anticipated to
form the basis of an environmental claim against any Seller, the Real Property,
the Assets or the Businesses or to cause the Real Property, the Assets or any of
the Businesses to be subject to any restrictions on its ownership, occupancy,
use or transferability under any Environmental Law, (vi) there are not now and,
to the knowledge of the Sellers and the Stockholders, never have been any
underground storage tanks located on the Real Property, (vii) no Seller has
transported or arranged for the transportation of any Hazardous Materials to any
site other than the Real Property and (viii) none of the Sellers or the
Stockholder has operated any Business at any location other than the Real
Property. As used herein, the term "HAZARDOUS MATERIALS" means any waste,
pollutant, chemical, hazardous substance, toxic substance, hazardous waste,
special waste, solid waste petroleum or petroleum-derived substance or waste, or
any constituent or decomposition product of any such pollutant, material,
substance or waste, regulated under or as defined by any Environmental Law.
(c) Neither the Sellers nor any stockholder, director, officer,
agent or employee of the Sellers or, to the knowledge of the Sellers and the
Stockholders, any other person or entity associated with or acting for or on
behalf of the Sellers, has, directly or indirectly: made any contribution, gift,
bribe, rebate, payoff, influence payment, kickback, or other payment to any
person or entity, regardless of form, whether in money, property or services:
(i) to obtain favorable treatment in securing business, (ii) to pay for
favorable treatment for business secured or (iii) to obtain special concessions
or for special concessions already obtained, for or in respect of any Seller.
7.11 FIXTURES AND EQUIPMENT. The Fixtures and Equipment are in good
condition, ordinary wear and tear excepted, and constitute all of the fixtures,
machinery, equipment, furniture, signs and office equipment used or intended for
use by the Sellers in the Businesses.
7.12 CONTRACTS. Each of the Sellers has in all material respects
performed all of its obligations required to be performed by it to the date
hereof, and is not in default or alleged to be in default in any material
respect, under any contract or lease to be assigned to the Buyer hereunder,
including without limitation the contracts and leases set forth on Part I of
Schedule 2.4 (collectively, the "CONTRACTS"), and there exists no event,
condition or occurrence which, after notice or lapse of time or both, would
constitute such a default. To the knowledge of the Sellers and the Stockholders,
no other party to any Contract is in default in any respect of any of its
obligations thereunder. Each of the Contracts is valid and in full force and
effect and enforceable against the applicable Seller in
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accordance with its terms, and, to the knowledge of the Sellers and the
Stockholders, enforceable against the other parties thereto in accordance with
their respective terms.
7.13 ADEQUACY OF ASSETS. Except for the Sellers' cash and accounts
receivable and Sellers' rights under their respective dealership agreements with
the Manufacturers, the Assets, together with the Real Property and the contracts
and leases set forth on Part I of Schedule 2.4 hereto, comprise all of the
assets, properties and rights necessary for the Buyer to operate the Businesses
substantially in the manner operated by the Sellers prior to the Closing.
7.14 YEAR 2000. The Sellers have (i) initiated a review and assessment
of all areas within their Businesses and operations (including those affected by
the Manufacturer, suppliers, vendors and customers) that could be adversely
affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Sellers may be unable to recognize and perform properly
date- sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and time line as described on Schedule
7.14 for addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan and timetable, except as set forth in said Schedule 7.14.
7.15 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by
the Sellers or the Stockholders in this Agreement, and no statement contained in
any agreement, instrument, certificate or schedule furnished or to be furnished
by any Seller or any Stockholder pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make such representation or warranty or such
statement not misleading. The representations and warranties of the Owners
contained in the Real Property Purchase Agreements are true and correct.
7.16 ORIGINAL ASSET PURCHASE AGREEMENT. the representations and
warranties of the Sellers and the Stockholders in the Original Asset Purchase
Agreement were true and correct when made.
ARTICLE VIII
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to perform this Agreement at the Closing
are subject to the following conditions precedent which shall be fully satisfied
at or before the Closing, unless waived in writing by the Buyer:
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Sellers and the Stockholders herein contained shall be true
and correct in all material respects on and as of the Closing Date as if made on
and as of the Closing Date, and the Buyer shall have received a certificate from
a duly authorized officer of each of the Sellers and from each of the
Stockholders, dated the Closing Date, to such effect.
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8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Sellers or
the Stockholders at or before the Closing shall have been duly performed or
complied with, and the Buyer shall have received a certificate from a duly
authorized officer of each of the Sellers and from each of the Stockholders,
dated the Closing Date, to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any other third party (a) to prohibit or
restrain the sale contemplated by this Agreement or otherwise challenge the
power and authority of the parties to enter into this Agreement or to carry out
their obligations hereunder or the legality or validity of the sale contemplated
by this Agreement, or (b) which would have a materially adverse effect on the
conduct of an automobile dealership business by the Buyer at any of the Real
Property.
8.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been
completed to the reasonable satisfaction of the Buyer.
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. The Sellers shall have
furnished to the Buyer (a) evidence to the reasonable satisfaction of the Buyer
and its counsel with respect to the corporate organization and existence of the
Sellers, and (b) UCC-11 search reports or other evidence reasonably satisfactory
to the Buyer and its counsel that the Assets are free and clear of all
Encumbrances.
8.6 BOARD RESOLUTIONS. Each of the Sellers shall have furnished to the
Buyer a copy of the resolutions duly adopted by such Seller's Board of Directors
and stockholder authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of such Seller as of the Closing Date.
8.7 NO DAMAGE. As of the Closing Date, there shall not have been any
fire, accident or other casualty or any labor disturbance, civil commotion,
riot, act of God or the public enemy, or any change in the Businesses or the
Assets or which would have a material adverse effect on the conduct of an
automobile dealership business using the Assets at any of the Real Property or
which would interfere with the use by the Buyer of such Assets in connection
with the conduct of an automobile dealership business at any of the Real
Property.
8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a
Motor Vehicle Dealer under applicable Alabama motor vehicle dealer registration
laws and shall have obtained all other authorizations, consents, licenses and
permits from applicable governmental agencies having or asserting jurisdiction,
which the Buyer deems necessary or appropriate to conduct business as an
automobile dealer at the Real Property.
8.9 CONSENT AND APPROVALS. The Sellers shall have obtained all other
authorizations, consents and approvals from third persons and entities as are
(a) required to assign those contracts and leases that the Buyer is to assume at
the Closing, including, without limitation, all leases of the Real Property
which is not being sold pursuant to the Real Property Purchase Agreements, or
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(b) otherwise required to consummate the transactions contemplated by this
Agreement.
8.10 CERTIFICATES OF ORIGIN, ETC. The Sellers shall have transferred to
the Buyer certificates of title or origin for all New Vehicles, Demonstrators
and Used Vehicles, and all of their respective registration lists, owner
follow-up lists and service files on hand as of the Closing Date with respect to
the Businesses.
8.11 TERMINATION OF SELLERS' AGREEMENTS WITH MANUFACTURERS. The Sellers
shall have terminated in writing the Sellers' respective Sales and Service
Agreements with the Manufacturers.
8.12 BILLS OF SALE, ETC. The Sellers and the Stockholders shall have
executed, as appropriate, and delivered to the Buyer the Bills of Sale, other
documents of transfer of title contemplated hereby and any and all other
documents necessary or desirable in connection with the transfer of the Assets,
which documents shall warrant title to the Buyer consistent with this Agreement
and shall in all respects be in such form as may be reasonably required by the
Buyer and its counsel.
8.13 MANUFACTURER APPROVAL. Each of the Manufacturers shall have
approved the Buyer or the Buyer's affiliate as an authorized dealer at each
parcel of the Real Property and O. Bruton Smith or O. Bruton Smith's designee,
as the authorized Dealer Operator, and the respective Manufacturers shall have
executed Dealer Agreements on terms reasonably satisfactory to the Buyer.
8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under
the Other Basic Agreements shall have been satisfied or fulfilled unless waived
in writing by the Buyer hereunder.
8.15 OPINION OF COUNSEL. The Buyer shall have received an opinion of
Williams & Ledbetter counsel to the Sellers and the Stockholders, dated the
Closing Date, in form and substance reasonably satisfactory to the Buyer and its
counsel.
8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS. The Buyer
shall have received the Non-Competition Agreement and the Employment Agreements,
duly executed by the relevant parties thereto.
8.17 CHANGE OF NAMES. The Sellers shall have delivered to the Buyer all
documents, including, without limitation, resolutions of the respective Board of
Directors and the shareholders of each of the Sellers, necessary to effect a
change of names of each of the Sellers after the Closing to names other than the
corporate names and the trade names referred to in Section 5.5 hereof or any
variation thereof.
8.18 NO MATERIAL ADVERSE CHANGE. There shall have been no material
adverse change or development in the business, prospects, properties, earnings,
results of operations or financial condition of any of the Sellers or any of the
Assets or the Liabilities.
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8.19 FORMS SATISFACTORY. The form of all instruments, certificates and
documents to be executed and delivered by the Sellers to the Buyers pursuant to
this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
8.20 HSR ACT. All applicable waiting periods under the HSR Act (as
defined in Section 10.13 hereof) shall have expired without any indication by
the Antitrust Division or the FTC (each as defined in Section 10.13 hereof) that
either of them intends to challenge the transactions contemplated hereby or, if
any such challenge or investigation is made or commenced, the conclusion of such
challenge or investigation permits the transactions contemplated hereby in all
material respects.
8.21 AUDITED FINANCIAL STATEMENTS OF BUYER. The Buyer shall have
completed preparation of such audited financial statements o the Sellers as may
be required by applicable regulations of the Securities and Exchange Commission.
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligations of the Sellers to perform this Agreement at the Closing
are subject to the following conditions precedent which shall be fully satisfied
on or before the Closing, unless waived in writing by the Sellers' Agent:
9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Buyer herein contained shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the Sellers shall have received a certificate from the
President or a Vice President of the Buyer, dated the Closing Date, to such
effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Buyer at or
before the Closing shall have been duly performed or complied with, and the
Sellers shall have received a certificate from the President or a Vice President
of the Buyer, dated the Closing Date, to such effect.
9.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any third party to prohibit or restrain
the sale contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the sale contemplated by
this Agreement.
9.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been
completed to the reasonable satisfaction of the Sellers' Agent.
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9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have
furnished the Sellers and the Stockholder with (a) evidence to the reasonable
satisfaction of the Sellers' Agent and its counsel with respect to the corporate
organization and existence and (b) a copy of the resolutions duly adopted by the
Board of Directors of the Buyer authorizing the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby,
certified by an officer of the Buyer as of the Closing Date.
9.6 INITIAL PURCHASE PRICE. The Buyer shall have tendered to the Sellers
the cash portion of the Initial Purchase Price and the Stock Component and shall
have duly executed and delivered to the respective Sellers the Assumption
Agreements.
9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
parties under the Other Basic Agreements, other than the Buyer or it assignees,
shall have been satisfied or fulfilled, unless waived in writing by the Sellers'
Agent.
9.8 OPINION OF COUNSEL. The Sellers shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing
Date, in form and substance reasonably satisfactory to the Sellers and their
counsel.
9.9 FORMS SATISFACTORY. The form of all certificates, instruments and
documents to be executed and/or delivered by the Buyer to the Sellers pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Sellers and its counsel,
none of whose approval shall be unreasonably withheld or delayed.
9.10 EMPLOYMENT AGREEMENTS. The Sellers' Agent shall have received the
Employment Agreement with Thomas P. Williams, Sr., duly executed by the Buyer,
and the Buyer shall have offered employment to each of Thomas P. Williams, Jr.
and Charles Clark Williams pursuant to the Employment Agreements in the form of
Exhibits D-2 and D-3, respectively, hereto.
9.11 HSR ACT. All applicable waiting periods under the HSR Act shall
have expired without any indication by the Antitrust Division or the FTC that
either of them intends to challenge the transactions contemplated hereby, or, if
any such challenge or investigation is made or commenced, the conclusion of such
challenge or investigation permits the transactions contemplated hereby in all
material respects.
ARTICLE X
COVENANTS AND AGREEMENTS
10.1 FURTHER ASSURANCES. Each of the Sellers agrees that it will, at any
time and from time to time, after the Closing, upon request of the Buyer, do,
execute, acknowledge and deliver all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required to convey and transfer to and vest in the Buyer and protect its rights,
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title and interest in and enjoyment of all the Assets.
10.2 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use
their reasonable best efforts to obtain, and to cooperate with each other in
obtaining, all authorizations, approvals, licenses, permits and other consents
contemplated by Articles VIII and IX.
10.3 OPERATION OF THE BUSINESSES. During the period from the date of
this Agreement through the Closing Date, the Sellers will conduct the operation
of their respective Businesses in the ordinary course and in accordance with
past practices.
10.4 ACCESS. From the date hereof until the Closing, each of the Sellers
shall afford to the Buyer, its attorneys, accountants and such other
representatives of the Buyer as the Buyer shall designate to such Seller, free
and full access at all reasonable times, and upon reasonable prior notice, to
the Assets and the properties, books and records of such Seller, and to
interview personnel, suppliers and customers of such Seller, in order that the
Buyer may have full opportunity to make such due diligence investigation as it
shall reasonably desire of the Assets and the Businesses.
10.5 ENVIRONMENTAL AUDIT. In connection with the Buyer's due diligence
investigation, the Sellers shall allow an environmental consulting firm selected
by the Buyer (the "ENVIRONMENTAL AUDITOR") to have prompt access to the Real
Property in order to conduct an environmental investigation, satisfactory to the
Buyer in scope (such scope being sufficient to result in a Phase I environmental
audit report and a Phase II environmental audit report, if desired by the
Buyer), of, and to prepare a report with respect to, the Real Property (the
"ENVIRONMENTAL AUDIT"). Each of the Sellers shall provide to the Environmental
Auditor: (i) reasonable access to all of its existing records concerning the
matters which are the subject of the Environmental Audit; and (ii) reasonable
access to the employees of such Seller and the last known addresses of former
employees of such Seller who are most familiar with the matters which are the
subject of the Environmental Audit (such Seller agreeing to use reasonable
efforts to have such former employees respond to any reasonable requests or
inquiries by the Environmental Auditor). The Sellers shall otherwise cooperate
with the Environmental Auditor in connection with the Environmental Audit. The
Buyer, on the one hand, and the Sellers, on the other hand, shall each bear 50%
of the costs, fees and expenses in connection with the Environmental Audit. To
the extent that the Environmental Auditor shall conduct a Phase II environmental
audit, the Buyer's selection of the Environmental Auditor must be reasonably
acceptable to the Sellers.
10.6 INDEMNIFICATION BY SELLERS AND STOCKHOLDERS. All representations
and warranties of the Sellers and the Stockholders contained herein, or in any
agreement, certificate or document executed by the respective Sellers and the
Stockholders in connection herewith, shall survive the Closing. All information
contained in any Schedule furnished hereunder by the Sellers or the Sellers'
Agent shall be deemed a representation and warranty by the Sellers and the
Stockholders made in this Agreement as to the accuracy of such information. The
Sellers and the Stockholders, jointly and severally, agree to indemnify and hold
harmless the Buyer and its stockholders, officers, directors, employees and
agents, and their respective successors and assignees, from and against any and
all losses, liabilities, obligations, assessments, suits, actions, proceedings,
claims or demands,
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including costs, expenses and fees (including reasonable attorneys' fees and
expert witness fees) incurred in connection therewith, suffered by any of them
or asserted against any of them or the Assets, arising out of or based upon (a)
the failure of any representation or warranty of the Sellers and the
Stockholders contained herein, or in any agreement, certificate or document
executed by any Seller or Stockholder in connection herewith, to be true and
correct, (b) the breach of any covenant or agreement of any Seller or
Stockholder contained in this Agreement or in any agreement, instrument or
document executed by any Seller or Stockholder in connection herewith, (c) the
Retained Liabilities or any liability or obligation of any Stockholder not
expressly assumed by the Buyer pursuant to this Agreement, or (d) any
arrangements or agreements made or alleged to have been made by the Sellers or
the Stockholders with any broker, finder or other agent in connection with the
transactions contemplated hereby.
10.7 INDEMNIFICATION BY BUYER. All representations and warranties of the
Buyer contained herein or in any agreement, certificate or document executed by
the Buyer in connection herewith, shall survive the Closing. All information
contained in any Schedule furnished hereunder by the Buyer shall be deemed a
representation and warranty by the Buyer made in this Agreement as to the
accuracy of such information. The Buyer agrees to indemnify and hold harmless
each of the Sellers and its stockholders, officers, directors, employees and
agents, and their respective successors and assignees, from and against any and
all losses, liabilities, obligations, assessments, suits, actions, proceedings,
claims or demands, including costs, expenses and fees (including reasonable
attorneys' fees and expert witness fees) incurred in connection therewith,
suffered by any of them, or asserted against any of them, arising out of or
based upon (a) the failure of any representation or warranty of the Buyer
contained herein, or in any agreement, certificate or document executed by the
Buyer in connection herewith, to be true and correct, (b) the breach of any
covenant or agreement of the Buyer contained in this Agreement or in any
agreement, instrument or document executed by the Buyer in connection herewith,
or (c) any arrangements or agreements made or alleged to have been made by the
Buyer with any broker, finder or other agent in connection with the transactions
contemplated hereby.
10.8 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments with respect to the Assets shall be prorated on a per diem basis and
apportioned between the Sellers and the Buyer as of the date of the Closing. The
Sellers shall be liable for that portion of such taxes and assessments relating
to, or arising in respect of, periods on or prior to the Closing Date, and the
Buyer shall be liable for that portion of such taxes and assessments relating
to, or arising in respect of, any period after the Closing Date. Any taxes
attributable to the sale or transfer of the Assets to the Buyer hereunder shall
be paid by the Sellers.
10.9 NO PUBLICITY. Except as may be required by law or the rules of the
New York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of negotiations regarding the transactions
contemplated hereby to any person or entity other than such party's accountants,
attorneys, agents and representatives, all of whom shall be subject to this
nondisclosure obligation as agents of such
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party. The parties shall cooperate with each other in the preparation and
dissemination of any public announcements of the transactions contemplated by
this Agreement.
10.10 NO NEGOTIATIONS OR DISCUSSIONS. None of the Sellers or the
Stockholders shall pursue, initiate, encourage or engage in, any negotiations or
discussions with, or provide any information to, any person or entity (other
than the Buyer and its representatives and affiliates) regarding the sale or
possible sale to any such person or entity of any of the Assets or capital stock
of any of the Sellers or any merger or consolidation or similar transaction
involving any of the Sellers.
10.11 MANUFACTURERS. The Sellers shall promptly notify the Manufacturers
regarding the transactions contemplated by this Agreement. The Buyer shall
promptly apply to the Manufacturers for, or cause an affiliate of the Buyer to
apply to the Manufacturers for, the issuance of franchises to operate the
respective automobile dealerships upon the Real Property. Effective as of the
Closing, each of the Sellers shall terminate its Dealer Sales and Service
Agreements with the Manufacturers. The Sellers shall fully cooperate with the
Buyer, and take all reasonable steps to assist the Buyer, in the Buyer's efforts
to obtain its own similar Dealer Sales and Service Agreements with the
Manufacturers. The parties acknowledge that the Buyer's Dealer Agreements are
subject to the approval of the Manufacturers and that the Buyer would be unable
to obtain its own, similar Dealer Sales and Service Agreement absent the
Sellers' termination of their respective agreements with the Manufacturers.
10.12 SELLERS' EMPLOYEES. The Buyer shall have the right, but not the
obligation, to employ any or all of the Sellers' employees. If permitted by law
and applicable regulations, each Seller shall, in consideration for the sale of
substantially all of such Sellers' assets in bulk, assign and transfer to the
Buyer, without additional charge therefor, the amount of reserve in such
Seller's State Unemployment Compensation Fund with respect to the Businesses and
the corresponding experience rate.
10.13 HSR ACT COMPLIANCE. Subject to the determination by the Buyer that
any of the following actions is not required, the Sellers and the Buyer shall
promptly prepare and file Notification and Report Forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "ANTITRUST DIVISION") and respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation.
10.14 BUYER'S FINANCIAL STATEMENTS. The Sellers shall allow, cooperate
with and assist the Buyer's accountants, and shall instruct the Sellers'
accountants to cooperate, in the preparation of audited financial statements of
the Sellers as necessary for any required filings by the Buyer with the
Securities and Exchange Commission or with the Buyer's lenders; provided,
however, that the expense of such audit shall be borne by the Buyer.
10.15 TERMINATION.
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(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(i) By written consent of the Buyer and the Sellers'
Agent;
(ii) By the Buyer prior to the Closing Date Deadline (as
the same may have been extended pursuant to Article I hereof) in the event of
any breach by the Sellers or the Stockholders of any of their respective
material representations, warranties, covenants or agreements contained herein;
(iii) By the Seller's Agent prior to the Closing Date
Deadline (as the same may have been extended pursuant to Article I hereof) in
the event of any breach by the Buyer of any of its material representations,
warranties, covenants or agreements contained herein;
(iv) At any time after the Closing Date Deadline (as the
same may have been extended pursuant to Article I hereof), by written notice by
the Buyer or the Sellers' Agent to the other party(ies) hereto if the Closing
shall not have been completed on or before the Closing Date Deadline (as the
same may have been extended pursuant to Article I hereof);
(v) By the Buyer if, after any initial HSR Act filing, the
FTC makes a "second request" for information, or the FTC or the Antitrust
Division challenges the transactions contemplated hereby; provided that the
Buyer delivers a written notice to the Sellers of its termination hereunder
within 30 days of the Buyer's receipt of such second request or of notice of
such challenge;
(vi) By the Buyer not later than thirty (30) days after
all due diligence materials described on Schedule 10.15 have been furnished to
the Buyer by the Sellers, if the Buyer is not satisfied, in its sole discretion,
with the results of the Buyer's due diligence investigation;
(vii) Subject to the last paragraph of this Section
10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event
that approval by any applicable automobile manufacturer or distributor of the
transactions contemplated by this Agreement is not received prior to the Closing
Date Deadline (as the same may have been extended pursuant to Article I hereof);
or
(viii) Subject to the last paragraph of this Section
10.15(a), by the Buyer, by written notice to the Sellers' Agent, in the event
that any Manufacturer shall exercise any right of first refusal, preemptive
right or other similar right, with respect to any of the Assets;
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii) or (iv) above if such party is in breach of any material
representation, warranty, covenant or agreement of such party contained in this
Agreement.
Notwithstanding the provisions of Subsections 10.15(a)(vii) and (viii)
above, the Buyer may elect to terminate this Agreement only as to the Assets
with respect to the dealership franchise from
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the Manufacturer referred to in such Subsection; in such event, the Business and
Intangible Assets Purchase Price shall be reduced by the applicable amount
opposite the name of the applicable Seller on Schedule 2.2 hereto and the other
components of the Purchase Price shall be appropriately reduced.
(b) In the event of termination of this Agreement pursuant to
Section 10.15(a), this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 10.15(a) shall not
relieve (a) the Buyer of any liability under Section 10.15(c) below, (b) the
Sellers of any liability under Section 2.5 above or Section 10.15(d) below, or
(c) subject to Section 10.15(e) below, any party hereto of any liability for
breach of any representation and warranty, covenant or agreement hereunder
occurring prior to such termination. In addition, in the event of any such
termination, all filings, applications and other submissions made pursuant to
this Agreement or prior to the execution of this Agreement in contemplation
thereof shall, to the extent practicable, be withdrawn from the agency or other
entity to which made.
(c) If this Agreement is terminated by the Sellers' Agent
pursuant to Section 10.15(a)(iv) above and the failure to complete the Closing
on or before the Closing Date Deadline shall have been due to the Buyer's breach
of its material representations and warranties or its material covenants or
agreements under this Agreement, then the Buyer shall, within ten (10) days
after receipt of demand of the Sellers, promptly pay to the Sellers in
immediately available funds, as liquidated damages for the loss of the
transaction, a termination fee of $1,000,000 (the "BUYER'S TERMINATION FEE").
(d) If this Agreement is terminated by the Buyer pursuant to
Section 10.15(a)(iv) above and the failure to complete the Closing on or before
the Closing Date Deadline shall have been due to the Sellers' breach of any of
their material representations and warranties or any of their material covenants
or agreements under this Agreement, then the Sellers, jointly and severally,
shall, within ten (10) days after receipt of demand of the Buyer, promptly pay
to the Buyer in immediately available funds, as liquidated damages for the loss
of the transaction, a termination fee of $1,000,000 (the "SELLERS' TERMINATION
FEE").
(e) In the case of termination of this Agreement pursuant to
Section 10.15(a)(iv) hereof, the rights of the terminating party to be paid the
Sellers' Termination Fee or the Buyer's Termination Fee, as the case may be,
shall be the respective parties' sole and exclusive remedies for damages; in the
event of such termination by either party, such party shall have no right to
equitable relief for any breach or alleged breach of this Agreement, other than
for specific performance for the payment of the Sellers' Termination Fee or the
Buyer's Termination Fee, as the case may be. Nothing contained in this Agreement
shall prevent any party from electing not to exercise any right it may have to
terminate this Agreement and, instead, seeking any equitable relief (including
specific performance) to which it would otherwise be entitled in the event of
breach by any other party hereto.
ARTICLE XI
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MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement
shall not be assignable by any party hereto without the prior written consent of
the other parties. The Buyer may assign this Agreement, without the consent of
the other parties hereto, to a corporation, partnership or limited liability
company controlled by the Buyer, including a corporation, partnership or limited
liability company to be formed at any time prior to the Closing Date, and to any
person or entity who shall acquire all or substantially all of the assets of the
Buyer or of such corporation, partnership or limited liabilities company
controlled by the Buyer (including any such acquisition by merger or
consolidation); provided said assignment shall be in writing and the assignee
shall assume all obligations of the Buyer hereunder, whereupon the assignee
shall be substituted in lieu of the Buyer named herein for all purposes,
provided, however, that the Buyer originally named herein shall continue to be
liable with respect to its obligations hereunder. The Buyer may assign this
Agreement, without the consent of the other parties hereto, as collateral
security, and the other parties hereto agree to execute and deliver any
acknowledgment of such assignment by the Buyer as may be required by any lender
to the Buyer.
11.2 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of North Carolina.
11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated
by this Agreement shall be in accordance with generally accepted accounting
principles ("GAAP").
11.4 FEES AND EXPENSES. Except as otherwise specifically provided in
this Agreement, each of the parties hereto shall be responsible for the payment
of such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENT; MERGER CLAUSE. This Agreement, including the schedules
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement may not be amended except by a
writing executed by all of the parties hereto. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party.
Any waiver by a party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of such
provision or any other provision of this Agreement. Neither the failure nor any
delay by any party hereto in exercising any right or power under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right or power, and no single or partial exercise of any such right or power
will
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preclude any other or further exercise of such right or power or the exercise of
any other right or power.
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile or one (1) business day after the date of
deposit with such nationally recognized overnight courier. All such notices,
claims, certificates, requests, demands and other communications shall be
addressed to the respective parties at the addresses set forth below or to such
other address as the person to whom notice is to be given may have furnished to
the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy No.: (704) 563-5116
Attention: Theodore M. Wright, Chief Financial
Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy No.: (704) 334-4706
Attention: Edward W. Wellman, Jr.
If to the Sellers or the Stockholders, to:
Mr. Thomas P. Williams, Sr.
Tom Williams Automotive Group
P.O. Box 2643
Birmingham, Alabama 35202-2643
With a copy to:
Williams & Ledbetter
2140 Eleventh Avenue South, Suite 410
The Park Building
Birmingham, Alabama 35205
Attn: C. Crawford Williams, Jr., Esq.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts.
34
<PAGE>
Each such counterpart hereof shall be deemed to be an original instrument, and
all such counterparts together shall constitute but one agreement.
11.9 SELLERS' KNOWLEDGE. Whenever any representation or warranty of the
Sellers or the Stockholders contained herein or in any other document executed
and delivered in connection herewith is based upon the knowledge of the Sellers
or the Stockholders, (a) such knowledge shall be deemed to include (i) the best
actual knowledge, information and belief of any of the Sellers or the
Stockholders, and (ii) any information which any Stockholder would reasonably be
expected to be aware of in the prudent discharge of his or her duties in the
ordinary course of business (including consultation with legal counsel) on
behalf of any Seller, and (ii) the knowledge of any Seller or Stockholder shall
be deemed to be the knowledge of all of the Sellers and the Stockholders.
11.10 ARBITRATION.
(a) Any dispute, claim or controversy arising out of or relating
to this Agreement or the interpretation or breach hereof shall be resolved by
binding arbitration under the commercial arbitration rules of the American
Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not
inconsistent with this Agreement. Judgment upon the award of the arbitrators may
be entered in any court having jurisdiction thereof or such court may be asked
to judicially confirm the award and order its enforcement, as the case may be.
The demand for arbitration shall be made by any party hereto within a reasonable
time after the claim, dispute or other matter in question has arisen, and in any
event shall not be made after the date when institution of legal proceedings,
based on such claim, dispute or other matter in question, would be barred by the
applicable statute of limitations. The arbitration panel shall consist of three
(3) arbitrators, one of whom shall be appointed by each of the Buyer and the
Sellers within thirty (30) days after any request for arbitration hereunder. The
two arbitrators thus appointed shall choose the third arbitrator within thirty
(30) days after their appointment; provided, however, that if the two
arbitrators are unable to agree on the appointment of the third arbitrator
within 30 days after their appointment, either arbitrator may petition the
American Arbitration Association to make the appointment. The place of
arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to
render their decision within sixty (60) days after their selection and to
allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(b) Nothing contained in this Section 11.10 shall prevent any
party hereto from seeking any equitable relief to which it would otherwise be
entitled from a court of competent jurisdiction.
11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to
Section 11.1 hereof, this Agreement shall be binding upon, inure to the benefit
of and be enforceable by the respective successors and assigns of the parties
hereto. Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon or give to any employee of the Sellers, or any other
person, firm, corporation or legal entity, other than the parties hereto and
their successors
35
<PAGE>
and permitted assigns, any rights, remedies or other benefits under or by reason
of this Agreement.
11.12 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.13 SEVERABILITY. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
36
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
THE BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
--------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
THE SELLERS: TOM WILLIAMS BUICK, INC.
By: /s/ Thomas P. Williams
--------------------------------
Name: Thomas P. Williams, Sr.
Title: President
WILLIAMS CADILLAC, INC.
By: /s/ Thomas P. Williams
--------------------------------
Name: Thomas P. Williams, Sr.
Title: President
TOM WILLIAMS MOTORS, INC.
By: /s/ Thomas P. Williams
--------------------------------
Name: Thomas P. Williams, Sr.
Title: President
TOM WILLIAMS AUTO, INC.
By: /s/ Thomas P. Williams
--------------------------------
Name: Thomas P. Williams, Sr.
Title: President
37
<PAGE>
THE SHAREHOLDERS: /s/ Thomas P. Williams (SEAL)
-----------------------
Thomas P. Williams, Sr.
/s/ Thomas P. Williams, Jr. (SEAL)
---------------------------
Thomas P. Williams, Jr.
/s/ Charles Clark Williams (SEAL)
--------------------------
Charles Clark Williams
38
Exhibit 10.35a
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of March 16, 1999 (this
"AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), WILLIAMS CADILLAC COMPANY, INC., an Alabama corporation (the
"COMPANY"), and THOMAS P. WILLIAMS, SR., CHARLES CLARK WILLIAMS, THOMAS P.
WILLIAMS, JR., and CATHERINE D. WARD (being collectively, the "SELLERS").
W I T N E S S E T H:
WHEREAS, the Sellers own in the aggregate 5,000 shares of common stock
of the Company, par value $100 per share (the "SHARES"), which shares represent
all of the issued and outstanding shares of capital stock of the Company and are
owned of record and beneficially by the Sellers in the amounts set forth
opposite their respective names on Exhibit A hereto; and
WHEREAS, pursuant to that certain Asset Purchase Agreement dated as of
November 3, 1998, by and between the Buyer, the Company, and Thomas P. Williams,
Sr., Charles Clark Williams, Thomas P. Williams, Jr. (the "ORIGINAL SELLERS"),
and the other parties named therein (the "ORIGINAL ASSET PURCHASE AGREEMENT"),
the Buyer agreed to purchase, and the Original Sellers agreed to sell, certain
assets used in connection with the Original Sellers' four automobile dealership
businesses, including the Cadillac dealership business of the Company (the
"CADILLAC DEALERSHIP BUSINESS"); and
WHEREAS, pursuant to the terms and in accordance with the conditions of
Section 2.2(c) of the Original Asset Purchase Agreement, the Original Sellers
have elected to structure the acquisition by Buyer of the Cadillac Dealership
Business as an acquisition of the Shares pursuant to a merger (the "MERGER") of
the Company with and into a wholly-owned Alabama subsidiary of the Buyer (the
"SUB"), to be formed by the Buyer prior to the consummation of the transactions
contemplated hereby, on the terms and subject to the conditions set forth
herein; and
WHEREAS, contemporaneously herewith, the Buyer, the Original Sellers,
and the other parties to the Original Asset Purchase Agreement are executing an
Amended and Restated Asset Purchase Agreement (the "AMENDMENT") to reflect,
among other things, certain changes to the terms of the Original Asset Purchase
Agreement as a result of the Original Sellers' election under Section 2.2(c) of
the Original Asset Purchase Agreement to structure the sale of the Cadillac
Dealership Business as a stock acquisition pursuant to the Merger (the Original
Asset Purchase Agreement, as amended and restated pursuant to the Amendment,
being the "AMENDED ASSET PURCHASE AGREEMENT"); and
<PAGE>
WHEREAS, the Buyer has entered into those certain Contracts to Purchase
and Sell Property (the "REAL PROPERTY PURCHASE AGREEMENTS") with (i) Tom-Jo,
L.L.C. and (ii) Williams Realty Ventures, L.L.C. (collectively, the "OWNERS"),
whereby the Buyer has agreed to buy, and the Owners have agreed to sell, the
land, buildings and improvements located at the Real Property (as defined
therein); and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by
each of the Real Property Purchase Agreements and the Amended Asset Purchase
Agreement (collectively, the "OTHER BASIC AGREEMENTS"); and
WHEREAS, the Buyer desires to acquire the Shares from the Sellers
pursuant to the Merger, and the Sellers are willing to transfer the Shares to
the Buyer pursuant to the Merger, upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I.
CERTAIN DEFINITIONS
"ASSETS" shall mean: the New Vehicles (as defined in Section 3.1
hereof); the Demonstrators (as defined in Section 3.2 hereof); the Used Vehicles
(as defined in Section 3.5 hereof); the Parts (as defined in Section 4.3
hereof); the Miscellaneous Inventories (as defined in Section 5.1 hereof); the
Work in Progress (as defined in Section 5.3 hereof); and the Fixtures and
Equipment.
"CLOSING DATE" shall mean the date, not later than the Closing Date
Deadline (as hereinafter defined), of the closing of the transactions
contemplated by this Agreement (the "CLOSING"). The Closing shall be held at the
offices of Williams & Ledbetter, 2140 Eleventh Avenue South, Birmingham, Alabama
at 9:00 a.m. on the Closing Date.
"CLOSING DATE DEADLINE" shall mean the "Closing Date Deadline" under the
Amended Asset Purchase Agreement.
"INVENTORY DATE" shall mean December 31, 1998.
"MANUFACTURER" shall mean General Motors Corporation.
<PAGE>
"REAL PROPERTY" shall mean the land, buildings and improvements where
the Cadillac Dealership Business is currently operated.
"SELLERS' AGENT" shall mean Thomas P. Williams, Sr., as agent for the
Sellers hereunder.
ARTICLE II.
THE MERGER & THE MERGER CONSIDERATION
2.1 THE MERGER.
(a) Subject to the provisions of this Agreement and the Articles of Merger
substantially in the form of Exhibit B attached hereto (the "Certificate of
Merger""ARTICLES OF MERGER"), the Company shall be merged with and into the Sub
in accordance with the provisions of the Alabama Business Corporation Act (the
"Georgia Law""MERGER LAW"), whereupon the existence of the Company shall cease
and the Sub shall be the surviving corporation (the Sub and the Company are
sometimes herein referred to as the "Constituent Corporations""MERGING
COMPANIES" and the Sub after the Merger is sometimes herein referred to as the
"Surviving Corporation""SURVIVING COMPANY").
(b) As soon as practicable after satisfaction of, or, to the extent permitted
hereunder, waiver of all conditions to the Merger, the Merging Companies shall
execute and file the Articles of Merger with the Secretary of State of the State
of Alabama in accordance with the Merger Law, and shall otherwise make all other
filings or recordings required by the Merger Law in connection with the Merger.
The Merger shall become effective at such date and time as the Articles of
Merger are duly filed with, and accepted by, the Secretary of State of the State
of Alabama (the "Effective Time""EFFECTIVE TIME").
(c) At the Effective Time, the separate existence of the Company shall cease and
the Company shall be merged with and into the Sub and the Sub shall be the
Surviving Company, whose name thereafter shall be "SONIC - WILLIAMS CADILLAC,
INC.."
(d) From and after the Effective Time: (i) the Articles of Incorporation and the
Bylaws of the Sub, both as in effect immediately prior to the Effective Time,
shall be the Articles of Incorporation and the Bylaws of the Surviving Company,
until thereafter amended in accordance with applicable law; (ii) the directors
of the Sub at the Effective Time shall become the directors of the Surviving
Company, until their successors are duly elected or appointed and qualified in
accordance with
<PAGE>
applicable law; and (iii) the officers of the Sub at the Effective Time shall
become the initial officers of the Surviving Company, to serve at the pleasure
of the board of directors of the Surviving Company.
(e) At the Effective Time, by virtue of the Merger and the applicable
provisions of the Merger Law and without any further action on the part of the
Merging Companies or on the part of the Company's shareholders:
(i) each share of common stock of the Sub outstanding immediately prior to the
Effective Time shall, automatically and without any action on the part of the
holder thereof, be converted into one share of common stock of the Surviving
Company; and
(ii) all of the Shares shall, automatically and without any action on the part
of the Sellers, cease to be outstanding and shall be converted into the right to
receive the Merger Consideration (as defined in Section 2.2 below) in accordance
with the provisions of said Section 2.2. All Shares, when so converted, shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and the Sellers holding Shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration in
accordance with provisions of said Section 2.2.
2.2 THE MERGER CONSIDERATION.
(a) The consideration to be paid by the Buyer for the Shares pursuant to the
Merger (the "MERGER CONSIDERATION") shall consist of the Basic Merger
Consideration (as defined in Section 2.2(b) below) and the Contingent Merger
Considerations (as defined in Section 2.3(a) below).
(b) For the purposes of this Agreement, the term "BASIC MERGER CONSIDERATION"
shall consist of the sum of (i) Three Million Two Hundred Thirty-Four Thousand
One Hundred Fifty-Six Dollars ($3,234,156), plus the Net Book Value (as defined
in Section 2.2(g) below).
(c) (i) At the Closing, the Sellers' Agent shall deliver to the Buyer a
certificate setting forth the Sellers' estimate of the Net Book Value (the
"ESTIMATED NET BOOK VALUE"). Subject to the provisions of Section 2.2(g) below,
at the Closing, provided that such estimate of the Net Book Value shall be
acceptable to the Buyer (such estimate and the Buyer's acceptance thereof to be
without prejudice to the rights of the parties under Section 2.2(g) below), the
Buyer shall issue and deliver to the Sellers, pro rata according to the
respective numbers of the Shares set forth opposite their names on Exhibit A
hereto, that number of whole shares of the Buyer's Class A Convertible Preferred
Stock, Series III (the "PREFERRED STOCK"), obtained by dividing
<PAGE>
the Basic Merger Consideration (for this purpose only, calculated with reference
to the Estimated Net Book Value) by $1,000. No fractional shares of Preferred
Stock shall be issued; any such fraction of a share of Preferred Stock shall be
paid in cash at the rate of $1,000 per whole share of Preferred Stock. The
Preferred Stock shall have such rights and preferences as are set forth in the
Statement of Rights and Preferences of Preferred Stock attached as Exhibit B to
the Amended Asset Purchase Agreement (the "STATEMENT OF RIGHTS AND
PREFERENCES"). No portion of the Basic Merger Consideration shall be paid in
cash, except for any fractional shares of Preferred Stock and any adjustments
based upon the Net Book Value pursuant to Subsection 2.2(g) below.
(ii) (A) The Buyer will use its best reasonable efforts to
include all of the shares of the Buyer's Class A Common Stock, $.01 par value
per share (the "COMMON STOCK") which are issuable upon conversion of the shares
of Preferred Stock held by certain of the Sellers (the "PIGGYBACK SELLERS"), as
set forth in subparagraphs (I) - (III) below (the "PIGGYBACK COMMON SHARES"), in
an underwritten public offering of the Buyer's Common Stock (the "PUBLIC
OFFERING"), in accordance with the Securities Act of 1933, as amended (the
"SECURITIES ACT"), on a "piggyback" registration basis on or prior to April 30,
1999. Each of the Piggyback Sellers shall sell in the Public Offering all of
his/her Piggyback Common Shares which the Buyer is able to register in the
Public Offering (unless the managing or lead managing underwriter in the Public
Offering requires that the Piggyback Sellers, individually or in the aggregate,
sell fewer than all of the shares they have elected to sell (as set forth in
subparagraphs (I) - (III) below) or unless the Buyer and the Piggyback Sellers
mutually agree that a fewer number of such shares of Common Stock will be
registered and sold). The Piggyback Common shares shall be determined as
follows:
(I) Thomas P. Williams, Jr. -- all shares of Common
Stock issuable upon conversion of all shares of Preferred Stock held by him in
excess of Three Hundred and Fifty (350) shares of Preferred Stock;
(II) Charles Clark Williams -- all shares of Common
Stock issuable upon conversion of all shares of Preferred Stock held by him in
excess of Three Hundred and Fifty (350) shares of Preferred Stock; and
(III) Catherine D. Ward -- all shares of Common
Stock issuable upon conversion of all shares of Preferred Stock held by her in
excess of One Hundred (100) shares of Preferred Stock.
(B) If requested by the managing or lead managing
underwriter in the Public Offering, each of the Piggyback Sellers shall execute
and deliver such customary documentation as is utilized by such underwriter for
selling stockholders in underwritten public offerings including, without
limitation, an underwriting agreement
<PAGE>
and a "lock-up" agreement with the managing or lead managing underwriter in such
forms as are customarily used by such underwriter. In connection with any such
registration, each of the Piggyback Sellers shall supply to the Buyer such
information as may be reasonably requested by the Buyer in connection with the
preparation and filing of a registration statement with the Securities and
Exchange Commission (the "SEC"). The Piggyback Sellers shall not supply any
information to the Buyer for inclusion in such registration statement that will,
taken as a whole, at the time the registration statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(C) Any Piggyback Common Shares which have not been
registered and sold pursuant to the Public Offering by April 30, 1999 for
whatever reason (other than as a result of any Piggyback Seller's failure to
participate in the Public Offering), will be registered by the Buyer in the
"shelf" registration statement referred to in Subsection (iii) immediately
below.
(iii) As promptly as possible after the earlier of (A) the
closing of the Public Offering, or (B) April 30, 1999, the Buyer shall cause all
shares of Common Stock issuable upon conversion of the Preferred Stock
(including any Piggyback Common Shares which were not sold in the Public
Offering other than as a result of any Piggyback Seller's failure to participate
in the Public Offering) to be registered under a "shelf" registration statement
filed with the SEC under the Securities Act; provided, however, the Buyer may
either (C) delay the effectiveness of any such shelf registration statement
until the expiration of any "lock-up" period (not to exceed 90 days) required by
the underwriters in the Public Offering, or (D) not delay such effectiveness, in
which case the Sellers hereby agree to be bound by any such "lock-up" as fully
as if the Sellers had signed the applicable lock-up agreement required by such
underwriters. All shares of Common Stock registered pursuant to this Subsection
(iii) are hereinafter called the "REGISTERED COMMON SHARES." Upon the
effectiveness of such "shelf" registration statement, the Sellers will promptly
convert all shares of the Preferred Stock held by them into Registered Common
Shares.
(d) The Buyer shall deliver to the Sellers, at least thirty (30) days prior to
the payment of the Contingent Stock Component (as defined in Section 2.3(b)
below) a prospectus with respect to the Buyer's offer and sale to the Sellers of
the shares of Common Stock contemplated by this Subsection (d). The Sellers'
Agent may, by notice (the "FURTHER REGISTRATION NOTICE") to the Buyer at least
seven (7) days prior to the payment of the Contingent Stock Component, elect to
receive up to fifty percent (50%) of the Contingent Stock Component in shares of
registered Common Stock, in which case the term "Registered Common Shares" shall
also include the applicable number of registered shares of Common Stock issued
as part of the Contingent Stock
<PAGE>
Component. Provided that the Sellers' Agent shall have timely delivered the
Further Registration Notice, at the time of payment of the Contingent Purchase
Price the Buyer shall issue and deliver to the Sellers, pro rata according to
the numbers of shares of Preferred Stock issued to the respective Sellers as the
Basic Merger Consideration that number of whole shares of Common Stock obtained
by dividing the portion of the Contingent Stock Component specified in the
Further Registration Notice (not to exceed 50% thereof) by the Market Price (as
defined in the Statement of Rights and Preferences) as of the date of such
payment of the Contingent Purchase Price. No fractional shares of Common Stock
shall be issued in connection with the foregoing payments of a portion of the
Contingent Stock Component. To the extent that such fractional shares would
otherwise be issued, the Buyer shall pay cash in lieu of such fractional shares
based upon the applicable Market Price. The Sellers and the Stockholders hereby
agree that they will not offer, sell, contract to sell, or otherwise dispose of
any of the Registered Common Shares included in the Contingent Stock Component
for a period of one hundred eighty (180) days from the date of delivery thereof
by the Buyer.
(e) The obligations of the parties with respect to the Registered Common Shares
will be subject to the additional provisions relating thereto set forth in
Section 2.8 below.
(f) To the extent that the Sellers' Agent does not timely deliver a Further
Registration Notice, the Buyer shall have no obligation to the Sellers or the
Stockholders to deliver any registered shares of Common Stock. Thereafter, the
Buyer's sole obligation with respect to the Preferred Stock and the shares of
Common Stock issuable upon conversion of the Preferred Stock (the "COMMON
SHARES") shall be (i) to use its best reasonable efforts to make available
current public information with respect to the Buyer within the meaning of
Subsection (c)(1) of SEC Rule 144 ("RULE 144") to the extent necessary to
facilitate public resales by the Sellers of the Common Shares, pursuant to Rule
144.
(g) (i) Not later than 60 days after the Closing Date, the Buyer will prepare
and deliver to the Sellers' Agent an unaudited balance sheet (the "CLOSING
BALANCE SHEET") of the Company as of the close of business on December 31, 1998
(the "EFFECTIVE CLOSING DATE"), consisting of a computation of the consolidated
net book value of the tangible assets of the Company as of the Effective Closing
Date less the consolidated book value of the liabilities of the Company as of
the Effective Closing Date, all in accordance with GAAP (as defined in Section
11.3 below), except as provided below. The tangible net book value reflected on
the Closing Balance Sheet is hereinafter called the "NET BOOK VALUE." The
Closing Balance Sheet will be prepared in accordance with the following
principles: (A) it will utilize the first in-first out (FIFO) method of
inventory accounting; (B) the liabilities of the Company shall include a
$540,312 tax liability associated with the conversion from the last in-first out
(LIFO) method of accounting to the FIFO method of accounting; (C) there shall be
included
<PAGE>
appropriate write-offs for doubtful accounts receivable and bad debts and for
damaged, spoiled, obsolete or slow-moving inventory; (D) any receivables due the
Company from any of the Sellers or any of the directors, officers, employees or
Affiliates (as hereinafter defined) of the Company shall be excluded as assets;
(E) the liabilities of the Company shall include appropriate accruals for all
tax liabilities of the Company; and (F) the values of the respective Assets
shall be: the New Vehicle Value (as defined in Section 3.1 hereof); the
Demonstrator Value (as defined in Section 3.2 hereof); the Used Vehicle Value
(as defined in Section 3.5 hereof); the Parts Value (as defined in Section 4.3
hereof); the Miscellaneous Inventories Value (as defined in Section 5.1 hereof);
the Work in Progress Value (as defined in Section 5.3 hereof); and the F&E Value
(as defined in Section 5.4 hereof). For purposes of this Agreement, the term
"AFFILIATE" shall mean any entity directly or indirectly controlling, controlled
by or under common control with the specified person, whether by stock
ownership, agreement or otherwise, or any parent, child, spouse or sibling of
such person and the concept of "CONTROL" shall mean the possession, direct or
indirect, of the power to direct or cause the direction of the management and
policies of such person or entity, whether through the ownership of voting
securities, by contract or otherwise.
(ii) If within 30 days following delivery of the Closing Balance
Sheet, the Sellers' Agent has not given the Buyer notice of the Sellers'
objection to the computation of the Net Book Value as set forth in the Closing
Balance Sheet (such notice to contain a statement in reasonable detail of the
nature of the Sellers' objection), then the Net Book Value reflected in the
Closing Balance Sheet will be deemed mutually agreed by the Buyer and the
Sellers. If the Sellers' Agent shall have given such notice of objection in a
timely manner, then the issues in dispute will be submitted to a "Big Five"
accounting firm mutually acceptable to the Buyer and the Sellers' Agent (the
"ACCOUNTANTS") for resolution. If issues in dispute are submitted to the
Accountants for resolution: (A) each party will furnish to the Accountants such
work papers and other documents and information relating to the disputed issues
as the Accountants may request and are available to the party or its
subsidiaries (or its independent public accountants), and will be afforded the
opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (B) the
Accountants will be instructed to determine the Net Book Value based upon their
resolution of the issues in dispute; (C) such determination by the Accountants
of the Net Book Value, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (D) the Buyer
and the Sellers shall each bear 50% of the fees and expenses for the Accountants
for such determination.
(iii) To the extent that the Net Book Value, as deemed mutually
agreed by the parties or as determined by the Accountants, as aforesaid, is
greater than the Estimated Net Book Value, the Buyer shall be obligated to pay
the amount of such excess (the "NET BOOK VALUE EXCESS"), together with interest
on the amount of the Net Book Value Excess at the Buyer's floor plan financing
rate from time to time in effect (the
<PAGE>
"INTEREST RATE") from the Closing Date to the date of such payment, promptly to
the Sellers. The payment of the Net Book Value Excess, plus interest as
aforesaid, shall be made, in cash, to the Sellers, pro rata according to the
number of shares of Preferred Stock issued to the respective Sellers as the
Basic Merger Consideration. To the extent that the Net Book Value, as deemed
mutually agreed by the parties or as determined by the Accountants, as
aforesaid, is less than the Estimated Net Book Value, the Sellers shall be
obligated, jointly and severally, to pay the amount of such shortfall (the "NET
BOOK VALUE SHORTFALL"), together with interest on the amount of the Net Book
Value Shortfall at the Interest Rate from the Closing Date to the date of such
payment, in cash, promptly to the Buyer.
2.3 CONTINGENT MERGER CONSIDERATION.
(a) As used in this Agreement, (i) the term "CONTINGENT MERGER CONSIDERATION"
shall mean the amount payable pursuant to Section 2.3(b) below; (ii) the term
"CALCULATION PERIOD" shall mean the twelve (12) month period commencing with the
first full month after the Closing Date; (iii) the term "EARNINGS BEFORE TAXES"
shall mean the earnings before taxes of the Cadillac Dealership Business for the
Calculation Period, calculated as provided in Section 2.3(c) below; (iv) the
term "CADILLAC DEALERSHIP BUSINESS" shall mean the automobile dealership
business of Cadillac acquired by the Buyer pursuant to this Agreement; and (v)
the term "AGGREGATE EARNINGS BEFORE TAXES" shall mean the sum total of the
Earnings Before Taxes of the Cadillac Dealership Business and Dealership
Businesses (as defined in the Amended Asset Purchase Agreement).
(b) Subject to the provisions of Section 2.3(c) below, not later than 90 days
after the end of the Calculation Period the Buyer shall pay to the Sellers, pro
rata according to the number of shares of Preferred Stock issued to the
respective Sellers as the Basic Merger Consideration, the Contingent Merger
Consideration in an amount equal to (i) three (3) times the Earnings Before
Taxes of the Cadillac Dealership Business in excess of $988,000, LESS (ii)
$270,156; provided, however, that the Buyer shall be under no obligation to pay
any of the Contingent Merger Consideration unless the Aggregate Earnings Before
Taxes exceed $7,564,000. The Contingent Merger Consideration shall be paid to
the respective Sellers 65% in cash and 35% (the "CONTINGENT STOCK COMPONENT") by
the issuance and delivery to the respective Sellers of shares of Preferred Stock
at the rate of one share of Preferred Stock for every $1,000 of such Contingent
Stock Component, subject, however, to any rights of the Sellers to receive a
percentage of the Contingent Stock Component in registered shares of Common
Stock pursuant to Section 2.2(d) above. Fractional shares of Preferred Stock may
be issued in connection with the payment of the Contingent Purchase Price;
however, no fractional shares of Common Stock shall be issued upon conversion of
the Preferred Stock. At the request of Sellers' Agent, the Buyer shall furnish
the Sellers' Agent with copies of the Buyer's factory financial statements for
each month during the Calculation Period.
<PAGE>
(c) Earnings Before Taxes shall be calculated by the Buyer in accordance with
GAAP (as defined in Section 11.3) and subject to the following special rules:
(i) No deduction shall be taken for federal and state income taxes, or for
state franchise taxes based on corporate income, owed by the Cadillac Dealership
Business;
(ii) No deduction shall be taken for any interest expenses (including
acquisition debt) of the Cadillac Dealership Business other than floor plan
financing interest attributable to such Business and other interest expenses
directly attributable to the operations of the Cadillac Dealership Business;
(iii) Earnings Before Taxes shall be determined before (A) any expense
chargeable with respect to the Non-Competition Agreement (as hereinafter
defined), or (B) any management fee expense allocation from the Buyer in respect
of management fees payable to the Buyer;
(iv) No deduction shall be taken for any amortization of goodwill included in
the Merger Consideration; and b. Overhead expenses or other expenses which have
been incurred by the Cadillac Dealership Business which are allocated to the
Cadillac Dealership Business but do not directly relate to the operation of the
Cadillac Dealership Business, or that portion so allocated which is not
reasonably related to the operation of the Cadillac Dealership Business, shall
not be deducted in determining Earnings Before Taxes.
At the time of the payment of the Contingent Merger Consideration, the
Buyer shall deliver to the Sellers' Agent a statement in writing setting forth
in reasonable detail the manner in which the Contingent Merger Consideration was
determined. The Sellers' Agent shall have a period of thirty (30) days from the
date of delivery of the Buyer's statement of the Contingent Merger Consideration
to object in writing to the calculation of the Contingent Merger Consideration
set forth therein; failing such objection within such period by the Sellers'
Agent, the Sellers shall be deemed to have accepted the Buyer's calculation of
the Contingent Merger Consideration. If the Sellers' Agent shall have timely
objected to the Buyer's calculation of the Contingent Merger Consideration, the
parties shall negotiate in good faith in an effort to resolve any dispute
regarding the Contingent Merger Consideration. If the parties are unable to
resolve such dispute within a period of thirty (30) days after the Buyer's
receipt of the Sellers' objection, the matter shall be submitted to a "big six"
accounting firm mutually acceptable to the parties, which shall be instructed to
resolve such dispute as promptly as possible. The costs and expenses of such
accounting firm shall be shared equally between the Buyer and the
<PAGE>
Sellers. Upon the final determination of the Contingent Merger Consideration,
the Buyer or the Sellers, as the case may be, shall make appropriate payment to
the other, as the case may be, in the amount of the Contingent Merger
Consideration as finally determined. The party making the payment shall also pay
interest on the amount of such payment at an amount of such payment at an annual
rate of interest equal to the Buyer's floor plan financing rate from time to
time in effect from the original date of payment of the Contingent Merger
Consideration by the Buyer to the date of such payment.
2.4 DELIVERY OF THE SHARES.
(a) At the Closing, each Seller shall deliver to the Buyer a certificate or
certificates representing the number of Shares set forth opposite such Seller's
name on Exhibit A hereto, duly endorsed in blank or with a fully executed stock
power attached, all in proper form for transfer with all transfer taxes, if any,
paid by such Seller. If such certificate or certificates cannot, after a
diligent search, be located, in lieu of such certificate or certificates, such
Seller shall provide an affidavit of lost certificate and indemnity in a form
reasonably satisfactory to the Buyer. Upon such surrender by all the Sellers,
the Sellers shall be entitled to the Merger Consideration, as more fully
provided in Section 2.2 above. Until surrendered in accordance with this Section
2.4, each such certificate for the Shares shall be deemed for all purposes to
evidence only the right to receive the Merger Consideration payable pursuant to
Section 2.2.
(b) The Shares shall be delivered to the Buyer free and clear of all liens,
pledges, encumbrances, claims, security interests, charges, voting trusts,
voting agreements, other agreements, rights, options, warrants or restrictions
or claims of any kind, nature or description (collectively, "ENCUMBRANCES").
2.5 THE SELLERS' COVENANT TO CLOSE. The Sellers further covenant and agree to
vote all of the Shares held by them in favor of the Merger, and otherwise to
take all officer, director, or shareholder actions necessary to cause the
Company to adopt, approve and consummate, the Merger.
2.6 NON-COMPETITION AGREEMENT. At the Closing, Thomas P. Williams, Sr. shall
enter into a non-competition agreement with the Buyer in substantially the form
of Exhibit C to the Amended Asset Purchase Agreement (the "NON- COMPETITION
AGREEMENT").
2.7 EMPLOYMENT AGREEMENTS. At the Closing, Thomas P. Williams, Sr., Thomas P.
Williams, Jr. and Clark Williams will enter into Employment Agreements with the
Buyer in substantially the forms of Exhibits D-1, D-2 and D-3, respectively, to
the Amended Asset Purchase Agreement (the "EMPLOYMENT AGREEMENTS").
<PAGE>
2.8 ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES.
(a) The Buyer shall have no obligation to maintain the currency of any
prospectus, permit the use of any prospectus or maintain the effectiveness of
any registration statement for the resale of the Registered Common Shares once
all of the Registered Common Shares that remain unsold may be sold without
restriction pursuant to Rule 144.
(b) The Sellers agree that they shall effect each resale of Registered Common
Shares only pursuant to a current prospectus or supplements thereto that is a
part of the applicable registration statement of the Buyer (the "RESALE
PROSPECTUS").
(c) Any offering of any of the Registered Common Shares under the Resale
Prospectus will be effected in an orderly manner through a securities dealer,
acting as broker or dealer, reasonably acceptable to the Buyer (the "DESIGNATED
BROKER").
(d) The Sellers will make resales of Registered Common Shares only by one or
more methods described in the Resale Prospectus, as appropriately supplemented
or amended when required.
(e) Since the Registered Common Shares are "restricted securities" within the
meaning of Rule 145 promulgated by the SEC under the Securities Act, the
certificates representing the Registered Common Shares will be issued by the
Buyer with such legends as the Buyer may reasonably require until such shares
are offered pursuant to the foregoing terms under the Resale Prospectus, at
which time such certificates shall be tendered to the Buyer and a new
certificate or certificates without legends shall be issued by the Buyer to the
Designated Broker in order to settle any resales by the Sellers.
(f) The Sellers shall provide the Buyer, in writing, with all information
concerning the Sellers and their resale of the Registered Common Shares as may
reasonably be requested by the Buyer in order to comply with the Securities Act,
and the Sellers shall indemnify the Buyer for any liabilities (the "SELLERS'
LIABILITIES") arising under the Securities Act, the Securities Exchange Act of
1934 or any state securities or blue sky laws resulting from any material
misstatements in, or omissions of material information from, such information
provided by the Sellers to the Buyer.
(g) The Sellers shall pay any and all expenses directly related to the resale of
the Registered Common Shares, including, but not limited to, the commissions or
fees of the Designated Broker.
<PAGE>
(h) The Buyer shall use its best reasonable efforts to list the Registered
Common Shares for trading on the New York Stock Exchange.
(i) The Buyer shall pay all expenses, including legal and accounting fees, in
connection with the preparation, filing and maintenance of the applicable
registration statement, including amendments thereto and the Resale Prospectus,
including supplements thereto, and the issuance of certificates representing the
Registered Common Shares.
(j) The Buyer shall indemnify the Sellers for any liabilities arising under the
Securities Act, the Securities Exchange Act of 1934 or any state securities or
blue sky laws resulting from any material misstatements in, or omissions of
material information from, the Resale Prospectus or the applicable registration
statement, including the information incorporated by reference therein, except
for the Sellers' Liabilities.
(k) Notwithstanding any provision of this Agreement to the contrary, the Sellers
shall not have any right to take any action (and the Sellers hereby agree that
none of them shall take any action) to restrain, enjoin or otherwise delay any
registration as a result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement. Nothing contained in this
Section 2.8 shall prevent the making of a claim for monetary relief.
ARTICLE III.
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. For purposes of the Closing Balance Sheet, the Assets shall
include all of the Company's untitled new 1999 and 1998 motor vehicles in the
Company's inventory as of the Effective Closing Date and which are listed on
Schedule 3.1 hereto, which the Sellers' Agent shall deliver to the Buyer not
more than three (3) days prior to the Closing (all such vehicles are
collectively referred to hereinafter as the "NEW VEHICLES"). For purposes of
calculating the Net Book Value, the value of each New Vehicle shall be the price
at which the New Vehicle was invoiced to the Company by the Manufacturer, as
adjusted pursuant to this Article III (the sum of all such values for New
Vehicles as determined by this Article III is herein referred to as the "NEW
VEHICLE VALUE"). Schedule 3.1 shall set forth each New Vehicle's model, invoice
cost, odometer reading and all other information necessary to calculate the New
Vehicle Value with respect to such New Vehicle.
3.2 DEMONSTRATORS. For purposes of the Closing Balance Sheet, the Assets shall
include all of the Company's untitled new 1999 and 1998 motor vehicles in
<PAGE>
the Company's inventory as of the Effective Closing Date which are used in the
ordinary course of business for the purpose of demonstration and which are
listed on Schedule 3.2 hereto, which the Sellers' Agent shall deliver to the
Buyer not more than three (3) days prior to the Closing (all such vehicles are
collectively referred to herein as the "DEMONSTRATORS"). For purposes of
calculating the Basic Merger Consideration, the value of each Demonstrator shall
be the price at which the Demonstrator was invoiced to the Company by the
Manufacturer, as adjusted pursuant to this Article III and as reduced by an
amount equal to ten cents ($.10) multiplied by the total mileage on such
Demonstrator's odometer up to 6,000 miles and thirty-two cents ($.32) multiplied
by the total mileage on such Demonstrator's odometer in excess of 6,000 miles
(the sum of all such values for Demonstrators hereunder is herein referred to as
the "DEMONSTRATOR VALUE"). Schedule 3.2 shall set forth each Demonstrator's
model, invoice cost, odometer reading and all other information necessary to
calculate the Demonstrator Value with respect to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR VALUES. The value of each New
Vehicle and each Demonstrator shall be: (a) increased by the dealer cost of any
equipment and accessories which have been installed by the Company; and (b)
decreased by (i) the dealer cost of any equipment and accessories which have
been removed from such vehicles.
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any New
Vehicle or Demonstrator shall have been damaged prior to the Closing Date, or is
otherwise in a condition such that it cannot reasonably be presented as being in
a first-class saleable condition, the Sellers' Agent and the Buyer will attempt
to agree on the cost to cover such repairs or some other equitable reduction in
value to reflect such condition, which amount shall be deducted from the value
of such New Vehicle or Demonstrator. In the event that the Buyer and the
Sellers' Agent cannot agree on the cost of repairs or the amount of reduction,
such dispute shall be submitted to the Inventory Service (as defined in Section
4.1) for resolution. With respect to any New Vehicle or Demonstrator which has
been damaged and repaired prior to the Closing Date, the Sellers' Agent and the
Buyer will attempt to agree on an adjustment to the value to reflect any
decrease in the wholesale value of such New Vehicle or Demonstrator resulting
from such damage and repair. In the event that the Buyer and the Sellers' Agent
cannot agree on such adjustment, such dispute shall be submitted to the
Inventory Service (as defined in Section 4.1) for resolution. The Sellers' Agent
shall notify the Buyer on or prior to the Closing Date if any New Vehicles or
Demonstrators shall have suffered any damage which is not reflected on Schedule
3.1 or Schedule 3.2.
3.5 USED VEHICLES. The Sellers' Agent and the Buyer shall perform an inventory
of the Company's used vehicles as of the Inventory Date and, in connection with
such inventory, the Sellers' Agent and the Buyer shall attempt to assign a
mutually agreed price to each used vehicle owned by the Sellers as of the
Inventory Date. The
<PAGE>
value of any such vehicles as to which the Sellers' Agent and the Buyer are
unable to agree upon a price shall be submitted to the Inventory Service (as
defined in Section 4.1) for resolution. All used vehicles acquired by the
Sellers after the Inventory Date with respect to used vehicles shall be valued
at the Company's book value thereof; provided, however, the acquisition and
valuation thereof shall be subject to prior approval by the Buyer so long as the
Buyer shall have a representative present at the Company's dealership at the
time such used vehicles are proposed to be accepted. All used vehicles included
in the Company's inventory as of the Closing Date are collectively referred to
herein as the "USED VEHICLES." For purposes of calculating the Net Book Value,
the sum of all prices assigned to the Used Vehicles pursuant to the terms of
this Section 3.5 shall be referred to herein as the "USED VEHICLE VALUE".
ARTICLE IV.
PARTS/ACCESSORIES
4.1 THE INVENTORY. The Buyer and the Sellers' Agent shall engage a mutually
acceptable third party engaged in the business of appraising, valuing and
preparing inventories for automobile dealerships (hereinafter referred to as the
"INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts
and accessories, as well as the Miscellaneous Inventories, used by the Company
in the Cadillac Dealership Business. The Inventory (insofar as it relates to
parts and accessories) shall be posted to the Manufacturer's approved systems of
inventory control. The cost of the Inventory shall be borne one-half by the
Buyer and one-half by the Sellers. The Buyer shall have the right to deduct the
Sellers' portion of such expense from the cash consideration to be paid to the
Sellers under the terms of this Agreement and to remit such sum directly to the
Inventory Service. The Inventory shall be completed by the Inventory Date.
4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory shall
classify parts and accessories as "returnable" or "nonreturnable". For purposes
of this Agreement, the terms "returnable parts" and "returnable accessories"
shall describe and include only those new parts and new accessories for vehicles
which are listed (coded) in the latest current Master Parts Price List Suggested
List Prices and Dealer Prices, or other applicable similar price lists, of the
Manufacturer, with any applicable supplements, in effect as of the Inventory
Date (the "MASTER PRICE LIST") as returnable to the Manufacturer at not less
than the purchase price reflected in the Master Price List. The value for each
"returnable part" and "returnable accessory" will be the price listed in the
Master Price List. All parts and accessories listed (coded) in the Master Price
List as nonreturnable to the Manufacturer shall be classified as
"nonreturnable". The value for each "nonreturnable" part and accessory, of which
type the Company has made no sales during the ninety (90) day period prior to
the Inventory
<PAGE>
Date (or such longer period of time as is commercially reasonable in the case of
"big ticket" parts such as engine blocks and transmissions), shall be sixty
percent (60%) of the price listed therefor in the Master Price List. The value
for each "nonreturnable" part and accessory, of which type the Company has made
retail sales to one or more customers during the ninety (90) day period prior to
the Inventory Date, shall be one hundred percent (100%) of the price therefor
listed in the Master Price List. The value for all "Jobber" and/or "NPN" parts
shall be equal to the Company's original cost of such parts. The value for all
nuts, bolts and any other parts not addressed in this Section 4.2 shall equal
the fair market value thereof as determined by the Inventory Service.
4.3 PARTS; PARTS VALUE. For purposes of the Closing Balance Sheet, the Assets
shall include all parts and accessories owned by the Company at the Effective
Closing Date and listed on the Inventory, including, without limitation, the
Vogue tire line and rims sold by the Company (the "PARTS"); provided, however,
that no value shall be given to any damaged parts or accessories, parts and
accessories with component parts missing, superseded or obsolete parts or
accessories, or used parts or accessories. Any dispute with respect to such
parts or accessories shall be submitted to the Inventory Service for resolution.
For purposes of calculating the Net Book Value, the value for the Parts will
equal the value of such items shown on the Inventory (the "PARTS VALUE").
ARTICLE V.
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT
5.1 MISCELLANEOUS INVENTORIES. For purposes of the Closing Balance Sheet, the
Assets shall include all useable gas, oil and grease, all undercoat material and
body materials in unopened cans and such miscellaneous useable and saleable
articles in unbroken lots (including boutique accessories and pro shop items)
which (i) are on the Company's dealership premises, (ii) are owned by the
Company on the Effective Closing Date, and (iii) are identified in the Inventory
taken by the Inventory Service on the Inventory Date (the foregoing being,
collectively, "MISCELLANEOUS INVENTORIES"). For purposes of calculating the Net
Book Value, the value of the Miscellaneous Inventories shall be equal to the
replacement cost of the Miscellaneous Inventories as determined by the Inventory
Service and set forth on the Inventory (the sum of all values of the
Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be
referred to herein as the "MISCELLANEOUS INVENTORIES VALUE").
5.2 [INTENTIONALLY LEFT BLANK].
5.3 WORK IN PROGRESS. For purposes of the Closing Balance Sheet, the Assets
shall include the Company's cost for parts and labor for such shop labor and
<PAGE>
sublet repairs as the Company shall have caused to be performed on any repair
orders which are in process at the close of business on the Effective Closing
Date for which there are adequate credit arrangements (the "WORK IN PROGRESS")
(the sum of all costs of the Company for the Work in Progress pursuant to the
terms of this Section 5.3 shall be referred to herein as the "WORK IN PROGRESS
VALUE").
5.4 FIXTURES AND EQUIPMENT. For purposes of the Closing Balance Sheet, the
Assets shall include all fixtures, machinery, equipment (including company owned
vehicles, wreckers, service loaners and vans and special tools and shop
equipment), furniture, signs and office equipment, and leasehold improvements
owned by the Company as of the Effective Closing Date and used or held for use
in connection with the Cadillac Dealership Business, including the items listed
on the Book Depreciation Schedule included as Schedule 5.4 attached hereto,
which the Sellers' Agent shall deliver to the Buyer not later than five (5) days
prior to the Closing (collectively referred to herein as the "FIXTURES AND
EQUIPMENT"). For purposes of calculating the Net Book Value, the value of each
item of Fixtures and Equipment shall equal the depreciated book value of such
item, determined in accordance with GAAP (as defined in Section 11.3 hereof),
and based upon Schedule 5.4 (the sum of all values assigned to the Fixtures and
Equipment pursuant to the terms of this Section 5.4 shall be referred to herein
as the "F&E VALUE").
ARTICLE VI.
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Sellers as follows:
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Buyer is a corporation
duly organized and existing and in good standing under the laws of the State of
Delaware, is duly qualified to do business and is in good standing in every
jurisdiction in which the nature of its business makes such qualification
necessary and has the corporate power to own its properties and to carry on its
business as now being conducted. The Board of Directors of the Buyer has duly
approved this Agreement, all other agreements, certificates and documents
executed or to be executed by the Buyer in connection herewith, and the
transactions contemplated hereby and thereby. The Buyer has full corporate power
and authority to execute and deliver this Agreement and all other agreements,
certificates and documents executed or to be executed by the Buyer in connection
herewith, to consummate the transactions contemplated hereby and thereby and to
perform its obligations hereunder and thereunder. This Agreement, and all other
agreements, certificates and documents executed or to be executed by the Buyer
in connection herewith, constitute or, when executed and delivered, will
constitute legal, valid and binding agreements of the Buyer enforceable against
the Buyer in accordance with their respective terms.
<PAGE>
6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Buyer's restated certificate of incorporation or by-laws, each as
amended, or any resolution of the Board of Directors or the stockholders of the
Buyer; (b) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court,
administrative or governmental agency or other body applicable to the Buyer; (c)
violate or conflict with or result in a breach of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which the Buyer is a party or by which the Buyer is
bound or affected; or (d) require the consent, authorization or approval of, or
notice to, or filing or registration with, any governmental body or authority,
or any other third party.
6.3 LITIGATION. There are no actions, suits or proceedings pending, or, to the
knowledge of the Buyer, threatened against or affecting the Buyer which might
adversely affect the power or authority of the Buyer to carry out the
transactions to be performed by it hereunder.
6.4 AUTHORIZATION OF PREFERRED STOCK. The issuance of the Preferred Stock, as
well as the shares of Common Stock issuable upon conversion of the Preferred
Stock, has been duly authorized by all necessary corporate action of the Buyer.
Upon the issuance of the Preferred Stock pursuant to this Agreement, and upon
the issuance of shares of Common Stock upon conversion of any of the Preferred
Stock, such Preferred Stock and/or Common Stock, as the case may be, shall be
validly issued, fully paid and non-assessable.
<PAGE>
6.5 CAPITALIZATION. The authorized capital stock of the Buyer consists of:
(a) 3,000,000 shares of Preferred Stock, par value $0.10 per share, of which
300,000 shares are designated Class A Convertible Preferred Stock and are, in
turn, divided into 100,000 shares of Series I (the "SERIES I PREFERRED STOCK"),
100,000 shares of Series II (the "SERIES II PREFERRED STOCK") and 100,000 shares
of Series III (the "SERIES III PREFERRED STOCK"); as of October 15, 1998,
approximately 19,500 shares of Series I Preferred Stock are issued and
outstanding and/or are committed to be issued by the Buyer, approximately 13,910
shares of Series II Preferred Stock are issued and outstanding and/or are
committed to be issued by the Buyer, and approximately 31,248 shares of Series
III Preferred Stock are issued and outstanding and/or are committed to be issued
by the Buyer;
(b) 50,000,000 shares of Class A Common Stock, par
value $0.01 per share, of which 5,588,888 shares are issued and outstanding; and
(c) 15,000,000 shares of Class B Common Stock, par value $0.01 per share, of
which 6,200,000 shares are issued and outstanding.
All outstanding capital stock of the Buyer is duly authorized, validly issued,
fully paid and non-assessable and has been issued in conformity with all
applicable federal and state securities laws.
6.6 DISCLOSURE MATERIALS. The Buyer has delivered to the Sellers' Agent copies
of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii) the
Buyer's Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997,
(iii) the Buyer's Quarterly Reports on Form 10-Q for the three-month periods
ended March 31, 1998, June 30, 1998 and September 30, 1998, and (iv) any Current
Reports on Form 8-K, filed in 1998, each in the form (excluding exhibits) filed
with the SEC (collectively, such Forms 10-K, 10-Q and 8-K being hereinafter
referred to as its "REPORTS"). Neither the Prospectus nor any of the Reports
contained, at the time of filing thereof with the SEC, any untrue statement of
any material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading.
6.7 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the Buyer
in this Agreement, and no statement contained in any agreement, instrument,
certificate or schedule furnished or to be furnished by the Buyer pursuant
hereto, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make such
representation or warranty or such statement not misleading. The representations
and warranties of Buyer contained in the Real Property Purchase Agreement are
true and correct.
<PAGE>
ARTICLE VII.
REPRESENTATIONS AND WARRANTIES OF THE SELLERS
The Sellers, jointly and severally, represent and warrant to the Buyer as
follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. The Company (a) is a
corporation duly organized and existing and in good standing under the laws of
the State of Alabama, (b) is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary, and (c) has the corporate power to own its properties
and to carry on its business as now being conducted. Except as set forth on
Schedule 7.1 attached hereto, the Sellers are the only persons or entities
owning shares of the Company. The Board of Directors and the shareholders of the
Company have duly approved this Agreement, all other agreements, certificates
and documents executed or to be executed by the Company in connection herewith,
and the transactions contemplated hereby and thereby. The Company has full
corporate power and authority to execute and deliver this Agreement and all
other agreements, certificates and documents executed or to be executed by the
Company in connection herewith, to consummate the transactions contemplated
hereby and thereby and to perform its obligations hereunder and thereunder. This
Agreement, and all other agreements, certificates and documents executed or to
be executed by the Company in connection herewith, constitute or, when executed
and delivered, will constitute legal, valid and binding agreements of the
Company enforceable against the Company in accordance with their respective
terms. This Agreement, and all other agreements, certificates and documents
executed or to be executed by each Seller in connection herewith, constitute or,
when executed and delivered, will constitute legal, valid and binding agreements
of such Seller enforceable against such Seller in accordance with their
respective terms.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached hereto,
the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of the Company's articles of incorporation or by-laws, each as amended, or any
resolution of the Board of Directors or the shareholders of the Company; (b)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to the Company, the Assets or the
Cadillac Dealership Business; (c) violate or conflict with or result in a breach
of, or constitute a default under, or an event giving rise to a right of
termination of, any Contract (as defined in Section 7.12), any material
instrument, agreement or indenture or any mortgage, deed of trust or similar
contract to which the Company or
<PAGE>
any Seller is a party or by which the Company, any Seller or any of the Assets
are bound or affected; (d) result in the creation or imposition of any
Encumbrance upon any of the Assets; or (e) require the consent, authorization or
approval of, or notice to, or filing or registration with, any governmental body
or authority, or any other third party.
7.3 LITIGATION. There are no actions, suits or proceedings pending or, to the
knowledge of the Sellers threatened against the Company or any Seller which
might adversely affect the power or authority of any of them to carry out the
transactions to be performed by such party hereunder. There are no actions,
suits or proceedings pending, or, to the knowledge of the Sellers, threatened,
against or affecting the Company, other than those disclosed on Schedule 7.3
attached hereto, and none of the actions, suits or proceedings described on
Schedule 7.3, if determined adversely to any Seller, would have a material
adverse effect on the business, assets or financial condition of the Company.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4 attached
hereto, the Sellers have good title to the Assets, free and clear of all
Encumbrances, except Encumbrances for ad valorem personal property taxes not yet
due and payable. All of the Assets conform, as to condition and character, to
the descriptions of such Assets contained herein and, at the Closing, will be
free and clear of all Encumbrances, except Encumbrances for ad valorem personal
property taxes not yet due and payable. To the knowledge of the Sellers, the
ownership and use of the Assets, and the operation of the Cadillac Dealership
Business, do not infringe upon the intellectual property rights of any other
person or entity.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached hereto,
there are no licenses, permits or approvals or other authorizations
(collectively, the "PERMITS") used or obtained for use by the Company which are
required under applicable law in connection with the ownership or operation of
the Cadillac Dealership Business. All Permits have been duly and lawfully
secured or made by the Company and are in full force and effect. There is no
proceeding pending, or, to the Seller's knowledge, threatened or probable of
assertion, to revoke or limit any Permit. None of the transactions contemplated
by this Agreement will terminate, violate or limit the effectiveness of any
Permit.
7.6 TAXES.
(a) The Company has filed all federal, state and local governmental tax returns
required to be filed by it in accordance with the provisions of law pertaining
thereto and has paid all taxes and assessments (including, without limitation of
the foregoing, income, excise, unemployment, social security, occupation,
franchise, property and import taxes, duties or charges and all penalties and
interest in respect thereof) (collectively "TAXES")required by it to have been
paid to date.
<PAGE>
(b) Except as set forth on Schedule 7.6 hereto, the federal and state income tax
returns of the Company have been audited by the Internal Revenue Service ("IRS")
or are closed by the applicable statutes of limitations. Except as set forth on
Schedule 7.6 hereto, the Company has not received any notice of any assessed or
proposed claim or deficiency against it in respect of, or of any present dispute
between it and any governmental agency concerning, any Taxes. Except as set
forth on Schedule 7.6 hereto, no examination or audit of any tax return or
report of the Company by any applicable taxing authority is currently in
progress and there are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any tax return or report of the
Company. Copies of all federal, state and local tax returns and reports required
to be filed by the Company for the years ended 1997, 1996, 1995, 1994 and 1993,
together with all schedules and attachments thereto, have been delivered by the
Sellers to the Buyer.
(c) The Company is not now, nor has it ever been, a member of a consolidated
group for federal income tax purposes or a consolidated, combined or similar
group for state tax purposes. No consent under Section 341 of the Internal
Revenue Code of 1986, as amended (the "CODE") has been made affecting the
Company. The Company is not a party to any agreement or arrangement that would
result in the payment of any "excess parachute payments" under Code Section
280G. The Company is not required to make any adjustment under Code Section
481(a). No power of attorney relating to Taxes is currently in effect affecting
the Company.
7.7 EMPLOYEES. Schedule 7.7 attached hereto discloses, as of the date hereof,
all of the Company's employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and accrued vacation time.
Except as disclosed on Schedule 7.7, the Company does not have any "employee
benefit plan" ("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA")),
including without limitation, any bonus, deferred compensation, pension,
profit-sharing, stock option, employee stock purchase, secrecy agreement or
covenant not to compete with any employee. The Company is not a party to any
collective bargaining agreement or other labor contract, and there has not been
nor is there pending or, to the knowledge of the Sellers, threatened any union
organizational drive or application for certification of a collective bargaining
agent. The Company has been and is now in material compliance with the "COBRA"
health care continuation coverage requirements of Section 4980B of the Code and
Sections 601-608 of ERISA and any applicable state health care continuation
coverage requirements. The Company has not made any promises or incurred any
liability, pursuant to an Employee Benefit Plan or otherwise, to provide medical
or other welfare benefits to retired or former employees of the Company (other
than COBRA or state mandated continuation coverage, where applicable). Except as
disclosed on
<PAGE>
Schedule 7.7, none of the Company's employees or former employees has elected
COBRA continuation coverage or has incurred a COBRA qualifying event since June
1, 1996.
7.8 FINANCIAL STATEMENTS. The Sellers have delivered to the Buyer the financial
statements of the Company described in Schedule 7.8 hereto (the "FINANCIAL
STATEMENTS"). The Financial Statements have been prepared in accordance with
GAAP consistently applied, except as specified in Schedule 7.8 hereto. The
Financial Statements are in accordance with the books and records of the
Company, which books and records are true, correct and complete in all material
respects. The balance sheet of the Company included in the Financial Statements
fairly presents the financial condition of the Company as of the date thereof,
and the related statement of income of the Company included in the Financial
Statements fairly presents the results of the operations of the Company and the
changes in its financial position for the period indicated, all in accordance
with GAAP consistently applied. The Company has no material claims, liabilities,
obligations or indebtedness of any nature, fixed or contingent, known or
unknown, except as set forth in the Financial Statements or in the Schedules to
this Agreement, and except for liabilities incurred in the ordinary course of
business and of the kind and type reflected in the Financial Statements. To the
knowledge of the Sellers, the Financial Statements contain adequate reserves for
all reasonably anticipated claims relating to matters with respect to which the
Sellers are self-insured.
7.9 BROKERS AND FINDERS. Neither the Company nor any Seller has engaged any
broker or any other person or entity who would be entitled to any brokerage
commission or finder's fee in respect of the execution of this Agreement and/or
the consummation of the transactions contemplated hereby.
7.10 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.10(a) attached hereto, the Assets comply
with, and the Cadillac Dealership Business has been conducted in all material
respects in compliance with, all laws, rules and regulations (including all
worker safety and all Environmental Laws (as defined in the Real Property
Purchase Agreements), rules and regulations), applicable zoning and other laws,
ordinances, regulations and building codes, neither the Company nor any Seller
has received any notice of any violation thereof which has not been adequately
remedied. All Demonstrators have been operated in the ordinary course of
business with dealer tags and have not had certificates of title issued with
respect to them.
(b) Except as set forth on Schedule 7.10(b) attached hereto, (i) the Company has
not at any time generated, used, treated or stored Hazardous Materials on, or
transported Hazardous Materials to or from, the Real Property or any property
adjoining or adjacent to the Real Property and, to the knowledge of the Sellers,
no party
<PAGE>
other than the Company has taken such actions on or with respect to the Real
Property, (ii) the Company has not at any time released or disposed of Hazardous
Materials on the Real Property or any property adjoining or adjacent to the Real
Property, and, to the knowledge of the Sellers, no party other than the Company
has taken any such actions on the Real Property, (iii) the Company has at all
times been in compliance with all Environmental Laws and the requirements of any
permits issued under such Environmental Laws with respect to the Real Property,
the Assets and the operation of the Cadillac Dealership Business, except where
failure to comply has not had and will not have, and could not reasonably be
expected to have, a material adverse effect on the Assets or the prospects,
properties, earnings, results of operations or condition (financial or
otherwise) of the Cadillac Dealership Business, (iv) there are no past, pending
or, to the knowledge of the Sellers, threatened environmental claims against the
Company, the Real Property, the Assets or the Cadillac Dealership Business, (v)
to the knowledge of the Sellers, there are no facts or circumstances, conditions
or occurrences regarding the Company, the Real Property, the Assets or the
Cadillac Dealership Business that could reasonably be anticipated to form the
basis of an environmental claim against the Company, the Real Property, the
Assets or the Cadillac Dealership Business or to cause the Real Property, the
Assets or the Cadillac Dealership Business to be subject to any restrictions on
its ownership, occupancy, use or transferability under any Environmental Law,
(vi) there are not now and, to the knowledge of the Sellers, never have been any
underground storage tanks located on the Real Property, (vii) the Company has
not transported or arranged for the transportation of any Hazardous Materials to
any site other than the Real Property, and (viii) neither the Company nor any of
the Sellers has operated the Cadillac Dealership Business at any location other
than the Real Property. As used herein, the term "HAZARDOUS MATERIALS" means any
waste, pollutant, chemical, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste petroleum or petroleum-derived substance or
waste, or any constituent or decomposition product of any such pollutant,
material, substance or waste, regulated under or as defined by any Environmental
Law.
(c) Neither the Company or the Sellers, nor any stockholder, director, officer,
agent or employee of the Company or, to the knowledge of the Sellers, any other
person or entity associated with or acting for or on behalf of the Company, has,
directly or indirectly: made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity,
regardless of form, whether in money, property or services: (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured or (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company.
7.11 FIXTURES AND EQUIPMENT. The Fixtures and Equipment are in good condition,
ordinary wear and tear excepted, and constitute all of the fixtures,
<PAGE>
machinery, equipment, furniture, signs and office equipment used or intended for
use by the Company in the Cadillac Dealership Business.
7.12 CONTRACTS.
(a) Set forth on Schedule 7.12 hereto is a list or, where indicated, a brief
description of all leases and all other contracts, agreements, documents,
instruments, guarantees, plans, understandings or arrangements, written or oral,
which are material to the Company or its business or assets (collectively, the
"CONTRACTS"). True copies of all Contracts have been furnished to the Buyer.
(b) The Company has in all material respects performed all of its obligations
required to be performed by it to the date hereof, and is not in default or
alleged to be in default in any material respect, under any of the Contracts.
There exists no event, condition or occurrence which, after notice or lapse of
time or both, would constitute a default under any of the Contracts. To the
knowledge of the Sellers, no other party to any Contract is in default in any
respect of any of its obligations thereunder. Each of the Contracts is valid and
in full force and effect and enforceable against the Company in accordance with
its terms, and, to the knowledge of the Sellers, enforceable against the other
parties thereto in accordance with their respective terms. Except as set forth
in Schedule 7.12 or Schedule 7.2 hereto, the consummation of the Merger will not
require the consent of any party to any of the Contracts.
7.13 ADEQUACY OF ASSETS. The Assets, together with the Real Property, the
Contracts, and the Company's cash and accounts receivable comprise all of the
assets, properties and rights necessary for the Buyer to operate the Cadillac
Dealership Business substantially in the manner operated by the Company prior to
the Closing.
7.14 YEAR 2000. The Company has (i) initiated a review and assessment of all
areas within its businesses and operations (including those affected by the
Manufacturer, suppliers, vendors and customers) that could be adversely affected
by the "Year 2000 Problem" (that is, the risk that computer applications used by
the Company may be unable to recognize and perform properly date-sensitive
functions involving certain dates prior to and any date after December 31,
1999), (ii) developed a plan and timeline as described on Schedule 7.14 for
addressing the Year 2000 Problem on a timely basis, and (iii) to date,
implemented that plan and timetable, except as set forth in said Schedule 7.14.
7.15 OWNERSHIP OF SHARES. Each Seller owns of record and beneficially the number
of Shares set forth opposite such Seller's name on Exhibit A hereto. Each Seller
has, and will have at the time of the Closing, good and valid title to the
Shares to be sold by such Seller hereunder, free and clear of all Encumbrances.
<PAGE>
7.16 RELATED PARTY TRANSACTIONS. There are no transactions between the Company
and any of the Sellers or any entities directly or indirectly controlled by any
of the Sellers including, without limitation, any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from, any of the Sellers, or any such entity.
7.17 CAPITALIZATION. All of the Shares are duly authorized, validly issued,
fully paid and non-assessable and are held by the Sellers in the amounts
indicated on Exhibit A hereto. There are no preemptive rights, whether at law or
otherwise, to purchase any of the securities of the Company, and there are no
outstanding options, warrants, "phantom" stock plans, subscriptions, agreements,
plans or other commitments pursuant to which the Company is or may become
obligated to sell or issue any shares of its capital stock or any other debt or
equity security, and there are no outstanding securities convertible into shares
of such capital stock or any other debt or equity security.
7.18 SUBSIDIARIES AND INVESTMENTS. The Company does not own or maintain,
directly or indirectly, any capital stock of or other equity or ownership or
proprietary interest in any other corporation, partnership, association, trust,
joint venture or other entity and does not have any commitment to contribute to
the capital of, make loans to, or share in the losses of, any such entity.
7.19 REAL PROPERTY. Except for any Real Property which is being sold pursuant to
either of the Real Property Purchase Agreements, the Company does not own or
lease (as landlord or tenant) any real property including any land, buildings
and improvements.
7.20 PATENTS; TRADEMARKS; TRADE NAMES; COPYRIGHTS; LICENSES, ETC.
(a) Except as set forth on Schedule 7.20 hereto, there are no patents,
trademarks, trade names, service marks, service names and copyrights, and there
are no applications therefor or licenses thereof, inventions, trade secrets,
computer software, logos, slogans, proprietary processes and formulae or other
proprietary information, know-how and intellectual property rights, whether
patentable or unpatentable, that are owned or leased by the Company or used in
the conduct of the Company's business. The Company is not a party to, and the
Company pays no royalty to anyone under, any license or similar agreement. There
is no existing claim, or, to the knowledge of the Sellers, any basis for any
claim, against the Company that any of its operations, activities or products
infringe the patents, trademarks, trade names, copyrights or other property
rights of others or that the Company is wrongfully or otherwise using the
property rights of others.
<PAGE>
(b) The Company has the right to use the names "Williams Cadillac" in the State
of Alabama and, to the knowledge of the Sellers, no person uses, or has the
right to use, such name or any derivation thereof in connection with the
manufacture, sale, marketing or distribution of products or services commonly
associated with an automobile dealership.
7.21 CERTAIN LIABILITIES.
1. All accounts payable by the Company to third parties as of the date hereof
arose in the ordinary course of business and none are delinquent or past- due.
(a) Schedule 7.21 hereto sets forth a list of all indebtedness of the Company,
other than accounts payable, as of the close of business on the day preceding
the date hereof, including, without limitation, money borrowed, indebtedness of
the Company owed to stockholders and former stockholders, the deferred purchase
price of assets, letters of credit and capitalized leases, indicating, in each
case, the name or names of the lender, the date of maturity, the rate of
interest, any prepayment penalties or premiums and the unpaid principal amount
of such indebtedness as of such date.
7.22 POWERS OF ATTORNEY. There are no persons, firms, associations, corporations
or business organizations or entities holding general or special powers of
attorney from the Company.
7.23 BANK ACCOUNTS, CREDIT CARDS, SAFE DEPOSIT BOXES AND CELLULAR TELEPHONES.
Schedule 7.23 hereto lists all bank accounts, credit cards and safe deposit
boxes in the name of, or controlled by, the Company, and all cellular telephones
provided and/or paid for by the Company, and details about the persons having
access to or authority over such accounts, credit cards, safe deposit boxes and
cellular telephones.
7.24 INSURANCE.
(a) Schedule 7.24 hereto contains a list of all policies of liability, theft,
fidelity, life, fire, product liability, workmen's compensation, health and any
other insurance and bonds maintained by, or on behalf of, the Company on their
respective properties, operations, inventories, assets, business or personnel
(specifying the insurer, amount of coverage, type of insurance, policy number
and any pending claims in excess of $5,000 thereunder). Each such insurance
policy identified therein is and shall remain in full force and effect on and as
of the Closing Date and the Company
<PAGE>
is not in default with respect to any provision contained in any such insurance
policy and has not failed to give any notice or present any claim under any such
insurance policy in a due and timely fashion. The insurance maintained by, or on
behalf of, the Company is adequate in accordance with the standards of business
of comparable size in the industry in which the Company operates and no notice
of cancellation or termination has been received with respect to any such
policy. The Company has not, during the last three (3) fiscal years, been denied
or had revoked or rescinded any policy of insurance.
(b) Set forth on Schedule 7.24 hereto is a summary of information pertaining to
material property damage and personal injury claims in excess of $5,000 against
the Company during the past five (5) years, all of which are fully satisfied or
are being defended by the insurance carrier and involve no exposure to the
Company.
7.25 WARRANTIES. Set forth on Schedule 7.25 hereto are descriptions or copies of
the forms of all express warranties and disclaimers of warranty made by the
Company (separate and distinct from any applicable manufacturers', suppliers' or
other third-parties' warranties or disclaimers of warranties) during the past
five (5) years to customers or users of the vehicles, parts, products or
services of the Company. There have been no breach of warranty or breach of
representation claims against the Company during the past five (5) years which
have resulted in any cost, expenditure or exposure to the Company of more than
$50,000 individually or in the aggregate.
7.26 SUPPLIERS AND CUSTOMERS. The Company is not required to provide bonding or
any other security arrangements in connection with any transactions with any of
its respective customers and suppliers. To the knowledge of the Sellers, no such
supplier, customer or creditor intends or has threatened, or reasonably could be
expected, to terminate or modify any of its relationships with the Company.
7.27 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by the
Sellers or the Stockholders in this Agreement, and no statement contained in any
agreement, instrument, certificate or schedule furnished or to be furnished by
any Seller pursuant hereto, contains or will contain any untrue statement of a
material fact or omits or will omit to state a material fact necessary in order
to make such representation or warranty or such statement not misleading.
<PAGE>
ARTICLE VIII.
CONDITIONS PRECEDENT TO THE BUYER'S OBLIGATIONS
The obligations of the Buyer to perform this Agreement at the Closing are
subject to the following conditions precedent which shall be fully satisfied at
or before the Closing, unless waived in writing by the Buyer:
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and warranties of
the Sellers herein contained shall be true and correct in all material respects
on and as of the Closing Date as if made on and as of the Closing Date, and the
Buyer shall have received a certificate from of each of the Sellers, dated the
Closing Date, to such effect.
8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations required
by this Agreement to be performed or complied with by the Company or the Sellers
at or before the Closing shall have been duly performed or complied with, and
the Buyer shall have received a certificate from each of the Sellers, dated the
Closing Date, to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been instituted by a
governmental agency or any other third party (a) to prohibit or restrain the
transactions contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the transactions
contemplated by this Agreement, or (b) which would have a materially adverse
effect on the conduct of an automobile dealership business by the Buyer at any
of the Real Property.
8.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been
completed to the reasonable satisfaction of the Buyer.
8.5 CORPORATE ORGANIZATION; ENCUMBRANCES; ESTOPPEL LETTERS; ETC. The Sellers
shall have furnished to the Buyer:
(a) certificates dated as of a recent date from the Secretary of State of the
State of Alabama to the effect that the Company is duly incorporated and in good
standing in such state and stating that the Company owes no franchise taxes in
such state and listing all documents of the Company on file with said Secretary
of State;
(b) a copy of the Articles of Incorporation of the Company, including all
amendments thereto, certified as of a recent date by the Secretary of State of
the State of Alabama;
(c) evidence, reasonably satisfactory to the Buyer, of the authority and
incumbency of the persons acting on behalf of the Company in connection with the
execution of any document delivered in connection with this Agreement;
<PAGE>
(d) Uniform Commercial Code Search Reports on Form UCC- 11 with respect to the
Company from the states and local jurisdictions where the principal place of
business of the Company and its assets are located;
(e) the corporate minute books and stock record books of the Company, and all
other books and records of, or pertaining to, the businesses and operations of
the Company;
(f) estoppel letters of lenders to the Company, in form and substance reasonably
satisfactory to the Buyer, with respect to amounts owing by the Company as of
the Closing; and
(g) such other instruments and documents as the Buyer shall reasonably request
not inconsistent with the provisions hereof.
8.6 BOARD RESOLUTIONS. The Company shall have furnished to the Buyer a copy of
the resolutions duly adopted by the Company's Board of Directors and
stockholders authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of the Company as of the Closing Date.
8.7 NO DAMAGE. As of the Closing Date, there shall not have been any fire,
accident or other casualty or any labor disturbance, civil commotion, riot, act
of God or the public enemy, or any change in the Cadillac Dealership Business or
the Assets or which would have a material adverse effect on the conduct of an
automobile dealership business using the Assets at any of the Real Property or
which would interfere with the use by the Buyer of such Assets in connection
with the conduct of an automobile dealership business at any of the Real
Property.
8.8 MOTOR VEHICLE LICENSES. The Buyer shall have been licensed as a Motor
Vehicle Dealer under applicable Alabama motor vehicle dealer registration laws
and shall have obtained all other authorizations, consents, licenses and permits
from applicable governmental agencies having or asserting jurisdiction, which
the Buyer deems necessary or appropriate to conduct business as an automobile
dealer at the Real Property.
8.9 CONSENT AND APPROVALS. The Sellers shall have obtained all other
authorizations, consents and approvals from third persons and entities as are
(a) contemplated by Schedules 7.2 and 7.12 hereto, or (b) otherwise required to
consummate the transactions contemplated by this Agreement.
8.10 CERTIFICATES OF ORIGIN, ETC. The Company shall have transferred to the
Buyer certificates of title or origin for all New Vehicles, Demonstrators and
Used
<PAGE>
Vehicles, and all of their respective registration lists, owner follow-up lists
and service files on hand as of the Closing Date with respect to the Cadillac
Dealership Business.
8.11 APPRAISAL/DISSENTERS' RIGHTS. No holder of capital stock of the Company
shall have any appraisal or dissenters' rights under applicable law.
8.12 [INTENTIONALLY LEFT BLANK]
8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved the transfer of
the Shares to the Buyer and shall have given any required approval of the Buyer
or the Buyer's affiliate as an authorized dealer at each parcel of the Real
Property and O. Bruton Smith or O. Bruton Smith's designee, as the authorized
Dealer Operator, and the Manufacturer shall have executed a Dealer Agreement on
terms reasonably satisfactory to the Buyer.
8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under
the Other Basic Agreements shall have been satisfied or fulfilled unless waived
in writing by the Buyer hereunder.
8.15 OPINION OF COUNSEL. The Buyer shall have received an opinion of
Williams & Ledbetter counsel to the Sellers and the Company, dated the Closing
Date, in form and substance reasonably satisfactory to the Buyer and its
counsel.
8.16 NON-COMPETITION AGREEMENT AND EMPLOYMENT AGREEMENTS. The Buyer shall
have received the Non-Competition Agreement and the Employment Agreements, duly
executed by the relevant parties thereto.
8.17 [INTENTIONALLY LEFT BLANK]
8.18 NO MATERIAL ADVERSE CHANGE. There shall have been no material adverse
change or development in the business, prospects, properties, earnings, results
of operations or financial condition of the Company or any of the Assets.
8.19 FORMS SATISFACTORY. The form of all instruments, certificates and
documents to be executed and delivered by the Sellers to the Buyer pursuant to
this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
8.20 HSR ACT. All applicable waiting periods under the HSR Act (as defined
in Section 10.13 hereof) shall have expired without any indication by the
Antitrust Division or the FTC (each as defined in Section 10.13 hereof) that
either of them intends to challenge the transactions contemplated hereby or, if
any such challenge or
<PAGE>
investigation is made or commenced, the conclusion of such challenge or
investigation permits the transactions contemplated hereby in all material
respects.
8.21 AUDITED FINANCIAL STATEMENTS OF BUYER. The Buyer shall have completed
preparation of such audited financial statements of the Company as may be
required by applicable regulations of the Securities and Exchange Commission or
by the Buyer's lenders.
ARTICLE IX
CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS
The obligations of the Sellers to perform this Agreement at the Closing are
subject to the following conditions precedent which shall be fully satisfied on
or before the Closing, unless waived in writing by the Sellers' Agent:
9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of the Buyer herein contained shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of the
Closing Date, and the Sellers shall have received a certificate from the
President or a Vice President of the Buyer, dated the Closing Date, to such
effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by the Buyer at or
before the Closing shall have been duly performed or complied with, and the
Sellers shall have received a certificate from the President or a Vice President
of the Buyer, dated the Closing Date, to such effect.
9.3 NO LITIGATION. No action, suit or proceeding shall have been instituted
by a governmental agency or any third party to prohibit or restrain the
transactions contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the transactions
contemplated by this Agreement.
9.4 INVENTORY. The Inventory and Used Vehicle valuations shall have been
completed to the reasonable satisfaction of the Sellers' Agent.
9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. The Buyer shall have furnished
the Sellers:
(a) a copy of the resolutions duly adopted by the Board of Directors of
the Buyer authorizing the execution and delivery of this Agreement and the
consummation
<PAGE>
of the transactions contemplated hereby, certified by an officer of the Buyer as
of the Closing Date;
(b) certificates dated as of a recent date from the Secretary of State
of the State of Delaware to the effect that the Buyer is duly incorporated and
in good standing in such State;
(c) certificates dated as of a recent date from the Secretary of State
of the State of Alabama to the effect that the Sub is duly incorporated and in
good standing in such State;
(d) a copy of the Buyer's Certificate of Incorporation, including all
amendments thereto, certified by the Secretary of State of the State of
Delaware;
(e) a copy of the Sub's Articles of Incorporation, including all
amendments thereto, certified by the Secretary of State of the State of Alabama;
(f) evidence, reasonably satisfactory to the Sellers, of the authority
and incumbency of the persons acting on behalf of the Buyer in connection with
the execution of any document delivered in connection with this Agreement; and
(g) such other instruments and documents as the Sellers shall reasonably
request not inconsistent with the provisions hereof.
9.6 BASIC MERGER CONSIDERATION. The Buyer shall have tendered to the Sellers
the Basic Merger Consideration.
9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
parties other than the Buyer or its assignee under the Other Basic Agreements
shall have been satisfied or fulfilled, unless waived in writing by the Sellers'
Agent.
9.8 OPINION OF COUNSEL. The Sellers shall have received an opinion of
Parker, Poe, Adams & Bernstein L.L.P., counsel to the Buyer, dated the Closing
Date, in form and substance reasonably satisfactory to the Sellers and their
counsel.
9.9 FORMS SATISFACTORY. The form of all certificates, instruments and
documents to be executed and/or delivered by the Buyer to the Sellers pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Sellers and its counsel,
none of whose approval shall be unreasonably withheld or delayed.
<PAGE>
9.10 EMPLOYMENT AGREEMENTS. The Sellers' Agent shall have received the
Employment Agreement with Thomas P. Williams, Sr., duly executed by the Buyer,
and the Buyer shall have offered employment to each of Thomas P. Williams, Jr.
and Charles Clark Williams pursuant to the Employment Agreements in the form of
Exhibits D-2 and D-3, respectively, to the Amended Asset Purchase Agreement.
9.11 HSR ACT. All applicable waiting periods under the HSR Act shall have
expired without any indication by the Antitrust Division or the FTC that either
of them intends to challenge the transactions contemplated hereby, or, if any
such challenge or investigation is made or commenced, the conclusion of such
challenge or investigation permits the transactions contemplated hereby in all
material respects.
ARTICLE X
COVENANTS AND AGREEMENTS
10.1 FURTHER ASSURANCES. Each of the Sellers agrees that it will, at any
time and from time to time, after the Closing, upon request of the Buyer, do,
execute, acknowledge and deliver all such further acts, deeds, assignments,
transfers, conveyances, powers of attorney and assurances as may be reasonably
required to convey and transfer to and vest in the Buyer and protect its rights,
title and interest in and enjoyment of all the Assets.
10.2 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use their
reasonable best efforts to obtain, and to cooperate with each other in
obtaining, all authorizations, approvals, licenses, permits and other consents
contemplated by Articles VIII and IX.
10.3 OPERATION OF THE BUSINESSES. During the period from the date of this
Agreement through the Closing Date, the Company will conduct, and the Sellers
will use their best reasonable efforts to cause the Company to conduct, the
operation of the Cadillac Dealership Business in the ordinary course and in
accordance with past practices.
10.4 ACCESS. From the date hereof until the Closing, each of the Sellers
shall afford to the Buyer, its attorneys, accountants and such other
representatives of the Buyer as the Buyer shall designate to such Seller, free
and full access at all reasonable times, and upon reasonable prior notice, to
the Assets and the properties, books and records of the Company, and to
interview personnel, suppliers and customers of the Company, in order that the
Buyer may have full opportunity to make such due diligence investigation as it
shall reasonably desire of the Assets and the Cadillac Dealership Business.
<PAGE>
10.5 ENVIRONMENTAL AUDIT. In connection with the Buyer's due diligence
investigation, the Company and the Sellers shall allow an environmental
consulting firm selected by the Buyer (the "ENVIRONMENTAL AUDITOR") to have
prompt access to the Real Property in order to conduct an environmental
investigation, satisfactory to the Buyer in scope (such scope being sufficient
to result in a Phase I environmental audit report and a Phase II environmental
audit report, if desired by the Buyer), of, and to prepare a report with respect
to, the Real Property (the "ENVIRONMENTAL AUDIT"). The Company and each of the
Sellers shall provide to the Environmental Auditor: (i) reasonable access to all
of the Company's existing records concerning the matters which are the subject
of the Environmental Audit; and (ii) reasonable access to the employees of the
Company and the last known addresses of former employees of the Company who are
most familiar with the matters which are the subject of the Environmental Audit
(each Seller agreeing to use reasonable efforts to have such former employees
respond to any reasonable requests or inquiries by the Environmental Auditor).
The Company and the Sellers shall otherwise cooperate with the Environmental
Auditor in connection with the Environmental Audit. The Buyer, on the one hand,
and the Sellers, on the other hand, shall each bear 50% of the costs, fees and
expenses in connection with the Environmental Audit. To the extent that the
Environmental Auditor shall conduct a Phase II environmental audit, the Buyer's
selection of the Environmental Auditor must be reasonably acceptable to the
Sellers.
10.6 INDEMNIFICATION BY SELLERS. All representations and warranties of the
Sellers contained herein, or in any agreement, certificate or document executed
by the respective Sellers in connection herewith, shall survive the Closing. All
information contained in any Schedule furnished hereunder by the Sellers or the
Sellers' Agent shall be deemed a representation and warranty by the Sellers made
in this Agreement as to the accuracy of such information. The Sellers, jointly
and severally, agree to indemnify and hold harmless the Buyer and its
stockholders, officers, directors, employees and agents, and their respective
successors and assignees, from and against any and all losses, liabilities,
obligations, assessments, suits, actions, proceedings, claims or demands,
including costs, expenses and fees (including reasonable attorneys' fees and
expert witness fees) incurred in connection therewith, suffered by any of them
or asserted against any of them or the Assets, arising out of or based upon (a)
the failure of any representation or warranty of the Sellers contained herein,
or in any agreement, certificate or document executed by any Seller in
connection herewith, to be true and correct, (b) the breach of any covenant or
agreement of any Seller contained in this Agreement or in any agreement,
instrument or document executed by any Seller in connection herewith, or (c) any
arrangements or agreements made or alleged to have been made by the Company or
the Sellers with any broker, finder or other agent in connection with the
transactions contemplated hereby.
10.7 INDEMNIFICATION BY BUYER. All representations and warranties of the
Buyer contained herein or in any agreement, certificate or document executed by
the
<PAGE>
Buyer in connection herewith, shall survive the Closing. All information
contained in any Schedule furnished hereunder by the Buyer shall be deemed a
representation and warranty by the Buyer made in this Agreement as to the
accuracy of such information. The Buyer agrees to indemnify and hold harmless
each of the Sellers and their respective successors and assignees, from and
against any and all losses, liabilities, obligations, assessments, suits,
actions, proceedings, claims or demands, including costs, expenses and fees
(including reasonable attorneys' fees and expert witness fees) incurred in
connection therewith, suffered by any of them, or asserted against any of them,
arising out of or based upon (a) the failure of any representation or warranty
of the Buyer contained herein, or in any agreement, certificate or document
executed by the Buyer in connection herewith, to be true and correct, (b) the
breach of any covenant or agreement of the Buyer contained in this Agreement or
in any agreement, instrument or document executed by the Buyer in connection
herewith, or (c) any arrangements or agreements made or alleged to have been
made by the Buyer with any broker, finder or other agent in connection with the
transactions contemplated hereby.
10.8 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments with respect to the Assets shall be prorated on a per diem basis and
apportioned between the Sellers and the Buyer as of the date of the Closing. The
Sellers shall be liable for that portion of such taxes and assessments relating
to, or arising in respect of, periods on or prior to the Closing Date, and the
Buyer shall be liable for that portion of such taxes and assessments relating
to, or arising in respect of, any period after the Closing Date. Any sales, use,
transfer, intangible, excise, stamp or other taxes attributable to the sale or
transfer of the Shares to the Buyer hereunder shall be paid by the Sellers.
10.9 NO PUBLICITY. Except as may be required by law or the rules of the New
York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of negotiations regarding the transactions
contemplated hereby to any person or entity other than such party's accountants,
attorneys, agents and representatives, all of whom shall be subject to this
nondisclosure obligation as agents of such party. The parties shall cooperate
with each other in the preparation and dissemination of any public announcements
of the transactions contemplated by this Agreement.
10.10 NO NEGOTIATIONS OR DISCUSSIONS. Neither the Company nor any of the
Sellers shall pursue, initiate, encourage or engage in, any negotiations or
discussions with, or provide any information to, any person or entity (other
than the Buyer and its representatives and affiliates) regarding the sale or
possible sale to any such person or entity of any of the Assets or capital stock
of the Company or any merger or consolidation or similar transaction involving
the Company.
<PAGE>
10.11 MANUFACTURER. The Sellers shall promptly notify the Manufacturer
regarding the transactions contemplated by this Agreement. The Buyer shall
promptly apply to the Manufacturer for, or cause an affiliate of the Buyer to
apply to the Manufacturer for, the issuance of franchises to operate the
respective automobile dealerships upon the Real Property. The Sellers shall
fully cooperate with the Buyer, and take all reasonable steps to assist the
Buyer, in the Buyer's efforts to obtain its own Dealer Sales and Service
Agreement with the Manufacturer.
10.12 [INTENTIONALLY LEFT BLANK].
10.13 HSR ACT COMPLIANCE. Subject to the determination by the Buyer that
any of the following actions is not required, the Sellers and the Buyer shall
promptly prepare and file Notification and Report Forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
with the Federal Trade Commission (the "FTC") and the Antitrust Division of the
Department of Justice (the "ANTITRUST DIVISION") and respond as promptly as
practicable to all inquiries received from the FTC or the Antitrust Division for
additional information or documentation.
10.14 BUYER'S FINANCIAL STATEMENTS. The Sellers shall allow, cooperate with
and assist the Buyer's accountants, and shall instruct the Sellers' accountants
to cooperate, in the preparation of audited financial statements of the Sellers
as necessary for any required filings by the Buyer with the Securities and
Exchange Commission or with the Buyer's lenders; provided, however, that the
expense of such audit shall be borne by the Buyer.
10.15 TERMINATION.
(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing
Date:
(i) By written consent of the Buyer and the Sellers' Agent;
(ii) By the Buyer prior to the Closing Date Deadline (as the same
may have been extended pursuant to Article I hereof) in the event of any breach
by the Sellers of any of their respective material representations, warranties,
covenants or agreements contained herein;
(iii) By the Seller's Agent prior to the Closing Date Deadline
(as the same may have been extended pursuant to Article I hereof) in the event
of any breach by the Buyer of any of its material representations, warranties,
covenants or agreements contained herein;
<PAGE>
(iv) At any time after the Closing Date Deadline (as the same may
have been extended pursuant to Article I hereof), by written notice by the Buyer
or the Sellers' Agent to the other party(ies) hereto if the Closing shall not
have been completed on or before the Closing Date Deadline (as the same may have
been extended pursuant to Article I hereof);
(v) By the Buyer if, after any initial HSR Act filing, the FTC
makes a "second request" for information, or the FTC or the Antitrust Division
challenges the transactions contemplated hereby; provided that the Buyer
delivers a written notice to the Sellers of its termination hereunder within 30
days of the Buyer's receipt of such second request or of notice of such
challenge;
(vi) By the Buyer not later than thirty (30) days after all due
diligence materials described on Schedule 10.15 have been furnished to the Buyer
by the Sellers, if the Buyer is not satisfied, in its sole discretion, with the
results of the Buyer's due diligence investigation;
(vii) Subject to the last paragraph of this Section 10.15(a), by
the Buyer, by written notice to the Sellers' Agent, in the event that approval
by the Manufacturer of the transactions contemplated by this Agreement is not
received prior to the Closing Date Deadline (as the same may have been extended
pursuant to Article I hereof); or
(viii) Subject to the last paragraph of this Section 10.15(a), by
the Buyer, by written notice to the Sellers' Agent, in the event that the
Manufacturer shall exercise any right of first refusal, preemptive right or
other similar right, with respect to any of the Assets;
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii) or (iv) above if such party is in breach of any material
representation, warranty, covenant or agreement of such party contained in this
Agreement.
(b) In the event of termination of this Agreement pursuant to Section
10.15(a), this Agreement shall be of no further force or effect; provided,
however, that any termination pursuant to Section 10.15(a) shall not relieve (a)
the Buyer of any liability under Section 10.15(c) below, (b) the Sellers of any
liability under Section 2.5 above or Section 10.15(d) below, or (c) subject to
Section 10.15(e) below, any party hereto of any liability for breach of any
representation and warranty, covenant or agreement hereunder occurring prior to
such termination. In addition, in the event of any such termination, all
filings, applications and other submissions made pursuant to this Agreement or
prior to the execution of this Agreement in contemplation thereof shall, to the
extent practicable, be withdrawn from the agency or other entity to which made.
<PAGE>
(c) If this Agreement is terminated by the Sellers' Agent pursuant to
Section 10.15(a)(iv) above and the failure to complete the Closing on or before
the Closing Date Deadline shall have been due to the Buyer's breach of its
material representations and warranties or its material covenants or agreements
under this Agreement, then the Buyer shall, within ten (10) days after receipt
of demand of the Sellers, promptly pay to the Sellers in immediately available
funds, as liquidated damages for the loss of the transaction, a termination fee
of $1,000,000 (the "BUYER'S TERMINATION FEE"); provided, however, the obligation
to pay such Termination Fee shall be reduced to the extent a similar Termination
Fee is paid under Section 10.15 of the Amended Asset Purchase Agreement.
(d) If this Agreement is terminated by the Buyer pursuant to Section
10.15(a)(iv) above and the failure to complete the Closing on or before the
Closing Date Deadline shall have been due to the Sellers' breach of any of their
material representations and warranties or any of their material covenants or
agreements under this Agreement, then the Sellers, jointly and severally, shall,
within ten (10) days after receipt of demand of the Buyer, promptly pay to the
Buyer in immediately available funds, as liquidated damages for the loss of the
transaction, a termination fee of $1,000,000 (the "SELLERS' TERMINATION FEE");
provided, however, the obligation to pay such Termination Fee shall be reduced
to the extent a similar Termination Fee is paid under Section 10.15 of the
Amended Asset Purchase Agreement.
(e) In the case of termination of this Agreement pursuant to Section
10.15(a)(iv) hereof, the rights of the terminating party to be paid the Sellers'
Termination Fee or the Buyer's Termination Fee, as the case may be, shall be the
respective parties' sole and exclusive remedies for damages; in the event of
such termination by either party, such party shall have no right to equitable
relief for any breach or alleged breach of this Agreement, other than for
specific performance for the payment of the Sellers' Termination Fee or the
Buyer's Termination Fee, as the case may be. Nothing contained in this Agreement
shall prevent any party from electing not to exercise any right it may have to
terminate this Agreement and, instead, seeking any equitable relief (including
specific performance) to which it would otherwise be entitled in the event of
breach by any other party hereto.
ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement shall
not be assignable by any party hereto without the prior written consent of the
other parties. The Buyer may assign this Agreement, without the consent of the
other parties hereto, to a corporation, partnership or limited liability company
controlled by the Buyer, including a corporation, partnership or limited
liability company to be formed at any time
<PAGE>
prior to the Closing Date, and to any person or entity who shall acquire all or
substantially all of the assets of the Buyer or of such corporation, partnership
or limited liabilities company controlled by the Buyer (including any such
acquisition by merger or consolidation); provided said assignment shall be in
writing and the assignee shall assume all obligations of the Buyer hereunder,
whereupon the assignee shall be substituted in lieu of the Buyer named herein
for all purposes, provided, however, that the Buyer originally named herein
shall continue to be liable with respect to its obligations hereunder. The Buyer
may assign this Agreement, without the consent of the other parties hereto, as
collateral security, and the other parties hereto agree to execute and deliver
any acknowledgment of such assignment by the Buyer as may be required by any
lender to the Buyer.
11.2 GOVERNING LAW. The interpretation and construction of this Agreement,
and all matters relating hereto, shall be governed by the laws of the State of
North Carolina.
11.3 ACCOUNTING MATTERS. All accounting matters required or contemplated by
this Agreement shall be in accordance with generally accepted accounting
principles ("GAAP").
11.4 FEES AND EXPENSES. Except as otherwise specifically provided in this
Agreement, each of the parties hereto shall be responsible for the payment of
such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENT; MERGER CLAUSE. This Agreement, including the schedules and
other documents referred to herein which form a part hereof, contains the entire
understanding of the parties hereto with respect to the subject matter contained
herein and therein. This Agreement may not be amended except by a writing
executed by all of the parties hereto. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or right
arising out of this Agreement or the documents referred to in this Agreement can
be discharged by one party, in whole or in part, by a waiver or renunciation of
the claim or right unless in writing signed by the other party. Any waiver by a
party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach of such provision or any other
provision of this Agreement. Neither the failure nor any delay by any party
hereto in exercising any right or power under this Agreement or the documents
referred to in this Agreement will operate as a waiver of such right or power,
and no single or partial exercise of any such right or power will preclude any
other or further exercise of such right or power or the exercise of any other
right or power.
<PAGE>
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile or one (1) business day after the date of
deposit with such nationally recognized overnight courier. All such notices,
claims, certificates, requests, demands and other communications shall be
addressed to the respective parties at the addresses set forth below or to such
other address as the person to whom notice is to be given may have furnished to
the others in writing in accordance herewith.
If to the Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy No.: (704) 563-5116
Attention: Theodore M. Wright, Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy No.: (704) 334-4706
Attention: Edward W. Wellman, Jr.
If to the Sellers, to:
Mr. Thomas P. Williams, Sr.
Tom Williams Automotive Group
401 South 20th Street
Birmingham, Alabama 35205
With a copy to:
Williams & Ledbetter
2140 Eleventh Avenue South, Suite 410
The Park Building
Birmingham, Alabama 35205
Attn: C. Crawford Williams, Jr., Esq.
<PAGE>
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts. Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
11.9 SELLERS' KNOWLEDGE. Whenever any representation or warranty of the
Sellers contained herein or in any other document executed and delivered in
connection herewith is based upon the knowledge of the Sellers, (a) such
knowledge shall be deemed to include (i) the best actual knowledge, information
and belief of any of the Sellers, and (ii) any information which any Seller
would reasonably be expected to be aware of in the prudent discharge of his or
her duties in the ordinary course of business (including consultation with legal
counsel) on behalf of the Company, and (ii) the knowledge of any Seller shall be
deemed to be the knowledge of all of the Sellers.
11.10 ARBITRATION.
(a) Any dispute, claim or controversy arising out of or relating to this
Agreement or the interpretation or breach hereof shall be resolved by binding
arbitration under the commercial arbitration rules of the American Arbitration
Association (the "AAA RULES") to the extent such AAA Rules are not inconsistent
with this Agreement. Judgment upon the award of the arbitrators may be entered
in any court having jurisdiction thereof or such court may be asked to
judicially confirm the award and order its enforcement, as the case may be. The
demand for arbitration shall be made by any party hereto within a reasonable
time after the claim, dispute or other matter in question has arisen, and in any
event shall not be made after the date when institution of legal proceedings,
based on such claim, dispute or other matter in question, would be barred by the
applicable statute of limitations. The arbitration panel shall consist of three
(3) arbitrators, one of whom shall be appointed by each of the Buyer and the
Sellers within thirty (30) days after any request for arbitration hereunder. The
two arbitrators thus appointed shall choose the third arbitrator within thirty
(30) days after their appointment; provided, however, that if the two
arbitrators are unable to agree on the appointment of the third arbitrator
within 30 days after their appointment, either arbitrator may petition the
American Arbitration Association to make the appointment. The place of
arbitration shall be Atlanta, Georgia. The arbitrators shall be instructed to
render their decision within sixty (60) days after their selection and to
allocate all costs and expenses of such arbitration (including legal and
accounting fees and expenses of the respective parties) to the parties in the
proportions that reflect their relative success on the merits (including the
successful assertion of any defenses).
(b) Nothing contained in this Section 11.10 shall prevent any party
hereto from seeking any equitable relief to which it would otherwise be entitled
from a court of competent jurisdiction.
11.11 SUCCESSORS AND ASSIGNS; NO THIRD PARTY BENEFICIARIES. Subject to
Section 11.1 hereof, this Agreement shall be binding upon, inure to the benefit
of and
<PAGE>
be enforceable by the respective successors and assigns of the parties hereto.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon or give to any employee of the Sellers, or any other
person, firm, corporation or legal entity, other than the parties hereto and
their successors and permitted assigns, any rights, remedies or other benefits
under or by reason of this Agreement.
11.12 HEADINGS. The article, section and paragraph headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
11.13 SEVERABILITY. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
11.14 CERTAIN TAX RETURNS. The Sellers shall cooperate with and provide
assistance to the Buyer and the Surviving Company in connection with the
preparation and filing of all federal, state, local and foreign income tax
returns which relate to the Surviving Company and to periods prior to Closing
but which are not required to be filed until after the Closing.
11.15 REGARDING THE COMPANY'S NAME. Any references to the Company as
"Williams Cadillac, Inc." in the other agreements, certificates, documents and
instruments executed and delivered in connection with the transactions
contemplated by this Agreement and the Amended Asset Purchase Agreement shall be
deemed references to the Company under its current name, which is "Williams
Cadillac Company, Inc."
[SIGNATURES ARE ON NEXT PAGE]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
THE BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
-------------------------------------
Name: B. Scott Smith
Title: President
THE COMPANY: WILLIAMS CADILLAC COMPANY, INC.
By: /s/ Thomas P. Williams
-------------------------------------
Name: Thomas P. Williams, Sr.
Title: President
THE SELLERS: /s/ Thomas P. Williams (SEAL)
-------------------------------------
Thomas P. Williams, Sr.
/s/ Thomas P. Williams (SEAL)
-------------------------------------
Thomas P. Williams, Jr.
/s/ Charles Clark Williams (SEAL)
-------------------------------------
Charles Clark Williams
/s/ Catherine D. Ward (SEAL)
-------------------------------------
Catherine D. Ward
Exhibit 10.36
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 25th day
of November, 1998 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation
("BUYER"), GLOBAL IMPORTS, INC., a Georgia corporation (the "SELLER"), and
WILLIAM MORRIS WHITMIRE (the "STOCKHOLDER").
WITNESSETH:
WHEREAS, Seller is engaged in a BMW automobile and motorcycle dealership
business located at 550 and 500 Interstate North Parkway, N.W., Atlanta, Georgia
30339 (the "BUSINESS"); and
WHEREAS, Seller desires to sell and Buyer desires to buy, or to cause
one or more subsidiaries or affiliates of Buyer to buy, certain assets
pertaining to the Business, subject to the terms and conditions of this
Agreement; and
WHEREAS, contemporaneously with the execution of this Agreement, Buyer
has entered into a Contract to Purchase and Sell Property (the "REAL PROPERTY
PURCHASE AGREEMENT") with the Stockholder, Susan Whitmire Ott, Donald Scott
Whitmire, Dean Keith Whitmire, Dana Whitmire Fortner, and Davis Stanton Whitmire
(the foregoing being, collectively, the "OWNER"), whereby Buyer has agreed to
buy, and the Owner has agreed to sell, the property at 550 and 500 Interstate
North Parkway, N.W., Atlanta, Georgia 30339 (the "REAL PROPERTY"); and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Real Property Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
2
<PAGE>
ARTICLE I
CERTAIN DEFINITIONS
1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1);
the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in
Section 3.5), if any; the Parts (as defined in Section 4.3); the Miscellaneous
Inventories (as defined in Section 5.1); the Work in Progress and Prepaid
Expenses (both as defined in Section 5.3); the Fixtures and Equipment (which
includes leasehold improvements) (as defined in Section 5.4); the Miscellaneous
Assets (as defined in Section 5.5); and the goodwill of the Business.
1.2 "CLOSING DATE" shall mean the date, not sooner than January 1, 1999
and not later than the Closing Date Deadline (as hereinafter defined), of the
closing of the purchase and sale of the Assets (the "CLOSING") which shall be a
date designated by Buyer not later than fifteen (15) days after receipt by Buyer
of the approvals, and the satisfaction of the other conditions, set forth in
Sections 8.8 and 8.13 or such other date as is mutually agreed upon by the
parties hereto. The Closing shall be held at the offices of Smith, Gambrell &
Russell, LLP, Suite 3100, Promenade II, 1230 Peachtree Street, N.E., Atlanta,
Georgia 30309-3592 at 9:00 a.m. on the Closing Date.
1.3 "CLOSING DATE DEADLINE" shall mean January 4, 1999; provided,
however, if, as of such date, any of the conditions set forth in Sections 8.8 or
8.13 shall not have been satisfied or audited financial statements contemplated
by Section 8.19 shall not have been completed, Buyer may elect to extend the
Closing Date Deadline for up to an additional thirty (30) days.
1.4 "INVENTORY DATE" shall mean the close of business on the date of
completion of the Inventory (as defined in Section 4.1), which date shall not be
more than three (3) days prior to the Closing Date, or such later date prior to
the Closing as is mutually agreed by Seller and Buyer.
1.5 "LIABILITIES" shall mean: (i) all obligations of Seller, arising in
the ordinary course of business after the Closing Date, and not as a result of
any breach or default prior to the Closing Date, under (A) all contracts and
leases of Seller that are set forth on Annex A of Schedule 2.4 attached hereto,
and (B) all other contracts and leases of Seller that are entered into in
connection with the Business in the ordinary course of business at any time
after the date hereof and on or prior to the Closing Date, but only if Buyer has
agreed to assume such other contracts or leases pursuant to the Assumption
Agreement (as defined in Section 2.4 below); (ii) Seller's obligations under all
unfilled retail orders assigned to Buyer pursuant to Section 3.1 below; (iii)
Seller's obligations with respect to open purchase orders as of the Closing Date
for new vehicles, parts, accessories, miscellaneous assets, inventories and
similar items ordered in the ordinary course of business which are not included
in New Vehicles or Parts and which are delivered after the Closing Date; and
(iv) the Inducement Fee as provided in Section 2.5 hereof.
1.6 "MANUFACTURER" shall mean BMW of North America, Inc.
3
<PAGE>
ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1 SALE AND PURCHASE; PURCHASE PRICE.
(a) Upon the terms and subject to the conditions hereinafter set
forth, at the Closing, Seller will sell, transfer and convey the Assets to Buyer
and Buyer will purchase the Assets from Seller for the consideration set forth
in this Agreement. The sale, transfer and conveyance of the Assets will be made
by execution and delivery at the Closing of a bill of sale in a form reasonably
satisfactory to Buyer's counsel (the "BILL OF SALE") and such other instruments
of assignment, transfer and conveyance as Buyer shall reasonably request. The
Assets will be sold to Buyer free and clear of all Encumbrances (as defined in
Section 7.4 below), except for ad valorem personal property taxes not yet due
and payable, liens securing the claims or demands of materialmen, mechanics,
carriers, warehousemen, landlords and other like persons for labor, materials,
supplies or rentals incurred in the ordinary course of business where payment
thereof is not yet required, and liens and security interests which secure only
the Liabilities (the foregoing exceptions being, collectively, the "Permitted
Encumbrances"). To the extent that the Assets include Seller's rights to the
name "Global Imports," such rights will also be transferred subject to the
rights, if any, of third parties to use such name outside of the Atlanta
Standard Metropolitan Statistical Area (as determined by the United States
Office of Management and Budget) or to use such name within such Standard
Metropolitan Statistical Area in any business other than an automobile
dealership business. Except to the extent specifically included within the
Assets, Seller will not sell, and Buyer will not purchase, any other tangible or
intangible assets of Seller.
(b) The aggregate purchase price to be paid for the Assets (the
"PURCHASE PRICE" shall consist of the Initial Purchase Price (as defined in
Section 2.2 below) and the Contingent Purchase Price (as defined in Section 2.3
below).
2.2 INITIAL PURCHASE PRICE.
(a) The aggregate purchase price (the "PURCHASE PRICE") to be
paid for the Assets shall consist of Twelve Million Three Hundred Thousand
Dollars ($12,300,000), as the purchase price for the Business and intangible
assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS PURCHASE
PRICE"), plus the sum of: (a) the New Vehicle Purchase Price (as defined in
Section 3.1); (b) the Demonstrator Purchase Price (as defined in Section 3.2);
(c) the Used Vehicle Purchase Price (as defined in Section 3.5), if applicable;
(d) the Parts Purchase Price (as defined in Section 4.3); (e) the Miscellaneous
Inventories Purchase Price (as defined in Section 5.1); (f) the Work in Progress
and Prepaid Expenses Purchase Price (as defined in Section 5.3); and (g) the
Fixtures and Equipment Purchase Price (as defined in Section 5.4). The parties
acknowledge that the New Vehicle Purchase Price, the Parts Purchase Price, and
the Miscellaneous Inventories Purchase Price will be based upon information
contained in Schedule 3.1 and the Inventory (as defined in Section 4.1), both of
which are to be delivered prior to the Closing Date. The parties also
acknowledge that adjustments to those categories of Assets will have to be made
to reflect ordinary course increases
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or decreases in those assets between the time of delivery of such Schedule 3.1
and the Inventory and the Closing Date, and that the related components of the
Purchase Price will have to be adjusted to reflect any such adjustments to those
Assets. All of the foregoing adjustments (with appropriate payments by the
parties) will be made as promptly as possible after the Closing. Each party will
use the Purchase Price allocation described in Schedule 2.2 hereto in all
reporting to, and tax returns filed with, the Internal Revenue Service and other
state and local taxing authorities.
(b) At the Closing, Buyer shall deliver to Seller by a certified
check or by wire transfer to an account or accounts designated by Seller one day
prior to Closing, in an amount equal to Four Million One Hundred Fifty Thousand
Dollars ($4,150,000) plus the sum of: (i) the New Vehicle Purchase Price; (ii)
the Demonstrator Purchase Price; (iii) the Used Vehicle Purchase Price; (iv) the
Parts Purchase Price; (v) the Miscellaneous Inventories Purchase Price; (vi) the
Work in Progress and Prepaid Expenses Purchase Price; and (vii) the Fixtures and
Equipment Purchase Price.
(c) At the option of Seller, exercisable by written notice to
Buyer no later than fifteen (15) days after the Closing (the "STOCK COMPONENT
NOTICE"), Seller shall elect to receive payment of the balance of the Initial
Purchase Price (such balance being called the "STOCK COMPONENT") by one of two
methods, as follows:
(i) Seller may elect to receive the Stock Component by
the issuance and delivery by Buyer to Seller of 452,778 shares (the "REGISTERED
COMMON SHARES") of Buyer's Class A Common Stock, $.01 par value per share (the
"COMMON STOCK"), which Registered Common Shares shall have been registered
pursuant to a "shelf" registration under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and shall be subject to the filing and effectiveness of
any required post-effective amendment to such "shelf" registration with respect
to Seller which amendment Buyer agrees to file within five (5) business days
after the Common Stock is delivered to Seller and to diligently endeavor to
cause such post-effective amendment to be declared effective; or
(ii) Seller may elect to receive the Stock Component by
the issuance and delivery by Buyer to Seller of that number of whole shares of
Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"),
obtained by (A) multiplying 452,778 by the Market Price (as defined in the
Statement of Rights and Preferences of the Preferred Stock attached hereto as
Exhibit A (the "STATEMENT OF RIGHTS AND PREFERENCES")) as of the Closing Date,
and (B) dividing the product obtained from such multiplication by $1,000. No
fractional shares of Preferred Stock shall be issued; any such fraction of a
share of Preferred Stock shall be paid in cash at the rate of $1,000 per whole
share of Preferred Stock. The Preferred Stock shall have such rights and
preferences as are set forth in the Certificate of Designation, Preferences and
Rights of Class A Convertible Preferred Stock referred to in the Statement of
Rights and Preferences.
(iii) If Seller shall elect to receive the Stock Component
in shares of Preferred Stock, Buyer's sole obligation with respect to the
Preferred Stock and the shares of Common Stock issuable upon conversion of the
Preferred Stock (the "COMMON SHARES") shall be (A) to use its best reasonable
efforts to make available current public information with respect to
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Buyer within the meaning of Subsection (c)(1) of Rule 144 ("RULE 144")
promulgated by the Securities and Exchange Commission (the "SEC") to the extent
necessary to facilitate public resales by the Seller of the Common Shares,
pursuant to Rule 144, (B) to remove stop transfer instructions and restrictive
legends, as provided in subsection (vi) below, and (C) to use its best
reasonable efforts to provide "piggyback" registration rights with respect to
the Common Shares in the event that Buyer shall undertake a registered public
offering of the Common Stock utilizing a registration statement on SEC Forms S-1
or S-3 (or any successor form thereto). In such case, the provisions of
subsection (iv) immediately below shall be applicable. Furthermore, such
piggyback registration rights shall be subject to customary provisions,
including those regarding expenses (which shall be paid by Buyer except for the
fees of separate counsel, if any, engaged by Seller, underwriter discounts and
allowances for the sale of such shares, and blue sky fees to the extent
applicable state laws require payment by Seller), underwriter cut-backs and
pro-rations with other holders of registration rights, and shall terminate at
such time as the holder of such piggyback registration rights shall be free to
sell all of such holder's Common Shares under Rule 144.
(iv) If requested by the managing or lead managing
underwriter for any registration of shares of Common Stock which includes the
Common Shares on a piggyback basis and which is an underwritten registered
public offering, Seller and the Stockholder shall execute and deliver an
underwriting agreement with the managing or lead managing underwriter in such
form as is customarily used by such underwriter with any modifications as the
parties thereto shall agree. In connection with any such registration, Seller
and the Stockholder shall supply to Buyer such information as may be reasonably
requested by Buyer in connection with the preparation and filing of a
registration statement with the SEC. Seller and the Stockholder shall not supply
any information to Buyer for inclusion in such registration statement that will,
taken as a whole, at the time the registration statement becomes effective under
the Securities Act, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(v) The Stock Component shall be paid to Seller by the
issuance and delivery to Seller, not later than fifteen (15) days after the
receipt by Buyer of the Stock Component Notice, of the Registered Common Shares
or the Preferred Stock, as the case may be.
(vi) Buyer shall remove any and all stop transfer
instructions and shall remove any restrictive legend on the certificates with
respect to the Preferred Stock and any Common Shares then owned by Seller to the
extent that either (A) such Preferred Stock or Common Shares may hereafter be
registered under the Securities Act of 1933, as amended, and under any
applicable state securities or blue sky laws, or (B) Buyer has received an
opinion of counsel, in form and substance reasonably satisfactory to the Buyer,
that such registration is not required. Upon receipt of reasonable evidence that
the requirements of Rule 144(k) have been complied with (including an opinion of
counsel reasonably satisfactory to Buyer to such effect), Buyer shall remove any
and all stop transfer instructions and shall remove any restrictive legend on
such certificates.
2.3 CONTINGENT PURCHASE PRICE.
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(a) As used in this Agreement, (i) the term "CONTINGENT PURCHASE
PRICE" shall mean an amount, not to exceed an aggregate total of $1,000,000,
equal to five (5) times the Earnings Before Taxes of Buyer, or any successor to
or assignee of Buyer, between $2,800,000 and $3,000,000 during the Overall
Calculation Period, as more fully provided in paragraph (b) below, (ii) the term
"SUBJECT BUSINESS" shall mean the business of the Seller acquired pursuant to
this Agreement, (iii) the term "CALCULATION PERIOD" shall mean each of the three
consecutive twelve calendar month periods which collectively comprise the
Overall Calculation Period; (iv) the "OVERALL CALCULATION PERIOD" shall mean the
thirty-six consecutive calendar month period beginning with the first full
calendar month after the Closing Date, (v) the term "EARNINGS BEFORE TAXES"
shall mean the combined earnings before taxes of Buyer or any successor to or
assignee of Buyer from the Subject Business, as more fully provided in paragraph
(d) below; and (vi) the term "QUALIFIED EARNINGS BEFORE TAXES" shall mean, for
any Calculation Period, Earnings Before Taxes for such Calculation Period of
$2,800,000 up to and including $3,000,000.
(b) Not later than 120 days after each of the first through the
third anniversaries of the Closing Date, Buyer shall pay to Seller an
installment of the Contingent Purchase Price, calculated as follows:
(i) The installment of Contingent Purchase Price
for the first Calculation Period shall be calculated based upon the excess, if
any, of Qualified Earnings Before Taxes, for such Calculation Period over
$2,800,000, but less than $3,000,000 (any such excess being called the "FIRST
PERIOD EXCESS");
(ii) The installment of Contingent Purchase Price
for the second Calculation Period shall be calculated based upon the excess, if
any, of Qualified Earnings Before Taxes for such Calculation Period over the sum
of (A) $2,800,00 plus (B) the First Period Excess, but less than $3,000,000 (any
such excess being called the "SECOND PERIOD EXCESS"); and
(iii) The installment of Contingent Purchase Price
for the third Calculation Period shall be calculated based upon the excess, if
any, of Qualified Earnings Before Taxes for such Calculation Period over the sum
of (A) $2,800,000 plus (B) the First Period Excess, plus (C) the Second Period
Excess, but less than $3,000,000 (any such excess being called the "THIRD PERIOD
EXCESS");
provided, however, the Contingent Purchase Price payable in respect of all three
Calculation Periods shall not exceed an aggregate total of $1,000,000.
(c) In the event that the Earnings Before Taxes for any
Calculation Period exceed $3,000,000, Buyer shall make a one-time payment to
Seller of $1,000,000, less the amount of any installments of Contingent Purchase
Price which have already been paid to Seller, and Buyer shall have no further
obligations to make any current or future payments of Contingent Purchase Price
to Seller.
An amount equal to 100% of each installment of the Contingent Purchase
Price (if any) shall
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be paid to Seller in cash by wire transfer of immediately available funds to the
account of Seller, which shall be designated by Seller in writing at least one
(1) Business Day prior to the date of payment.
(d) For purposes of calculating Earnings Before Taxes, the
following rules shall apply:
(i) no deduction shall be taken for federal and state
income taxes owed by the Subject Business;
(ii) no deduction shall be taken for any interest expense
of the Subject Business other than floor plan financing interest attributable to
the Subject Business;
(iii) Earnings Before Taxes shall be determined before (A)
any expense chargeable with respect to the Non-Competition Agreement (as defined
in Section 2.7 below) or (B) any management fee expense allocation from Buyer in
respect of management fees payable to Buyer or any affiliate of Buyer;
(iv) no deduction shall be taken for any amortization of
goodwill included in the Initial Purchase Price;
(v) overhead expenses or other expenses which have been
incurred by the Subject Business which are allocated to the Subject Business but
which do not directly relate to the operation of the Subject Business, shall not
be deducted in determining Earnings Before Taxes;
(vi) Earnings Before Taxes shall be determined without
reference to any income or expense attributable to business operations of the
Business other than the Subject Business; and
(vii) no deduction shall be taken for rent payable in
respect of any leases of real property at the Subject Business in excess of an
aggregate total of $105,000 a month.
At the time of, and with the payment of, the Contingent Purchase Price,
Buyer shall deliver to Seller a statement in writing setting forth in reasonable
detail the manner in which the Contingent Purchase Price was determined. Seller
shall have a period of thirty (30) days from the date of delivery of Buyer's
statement of the Contingent Purchase Price to object in writing to the
calculation of the Contingent Purchase Price set forth therein; failing such
objection within such period by Seller Seller shall be deemed to have accepted
Buyer's calculation of the Contingent Purchase Price. If Seller shall have
timely objected to Buyer's calculation of the Contingent Purchase Price, the
parties shall negotiate in good faith in an effort to resolve any dispute
regarding the Contingent Purchase Price. If the parties are unable to resolve
such dispute within a period of thirty (30) days after Buyer's receipt of
Seller's objection, the matter shall be submitted to a "big five" accounting
firm mutually acceptable to the parties, which shall be instructed to resolve
such dispute as promptly as possible. The costs and expenses of such accounting
firm shall be shared equally between Buyer
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and Seller. Upon the final determination of the Contingent Purchase Price, Buyer
or Seller, as the case may be, shall make appropriate payment to the other, as
the case may be, in the amount of the Contingent Purchase Price as finally
determined. The party making the payment shall also pay interest on the amount
of such payment at an amount of such payment at an annual rate of interest equal
to Buyer's floor plan financing rate from time to time in effect from the
original date of payment of the Contingent Purchase Price by Buyer to the date
of such payment.
2.4 ASSUMPTION OF LIABILITIES. At the Closing, Seller will assign to
Buyer and Buyer will assume and agree to perform and discharge the Liabilities
pursuant to an assignment and assumption agreement in a form reasonably
acceptable to Seller's counsel (the "ASSUMPTION AGREEMENT"). Notwithstanding
anything herein to the contrary, except as expressly provided in this Section
2.4 and in Section 2.5 and in the Assumption Agreement, Buyer does not and will
not assume or become liable for any obligations or liabilities of Seller, of any
kind whatsoever, fixed or contingent, known or unknown (collectively, the
"RETAINED LIABILITIES"). Seller shall retain and agrees to satisfy and discharge
all of the Retained Liabilities, including, without limitation, any Retained
Liabilities which are secured by Permitted Encumbrances and the Retained
Liabilities set forth on Part II of Schedule 2.4.
2.5 INDUCEMENT FEE. As an inducement to Buyer to negotiate and enter
into this Agreement and to undertake the further cost and expense of conducting
its due diligence investigation and preparing to satisfy its obligations at the
Closing, Seller hereby agrees to pay to Buyer not later than April 30, 1999 the
sum of $500,000 (the "INDUCEMENT FEE"). The Inducement Fee will be included in
the Liabilities and will become an obligation of Buyer or any other person
(including any holder of a right of first refusal, preemptive right or other
similar right), with respect to any of the Assets who purchases the Assets, or
any portion thereof, as a result of the execution and delivery by Seller of this
Agreement. The Inducement Fee will be canceled if this Agreement is terminated
for any reason other than the exercise of a right of first refusal, preemptive
right or other similar right, by an applicable automobile manufacturer or
distributor or any person claiming by, through or under it.
2.6 EMPLOYMENT AGREEMENT. At the Closing, Buyer and Donald Scott
Whitmire shall enter an employment agreement in substantially the form of
Exhibit B attached hereto (the "EMPLOYMENT AGREEMENT").
2.7 NON-COMPETITION AGREEMENT. At the Closing, William Morris Whitmire
shall enter into a non-competition agreement with Buyer in substantially the
form of Exhibit C attached hereto (the "NON-COMPETITION AGREEMENT"). $10,000 of
the Business and Intangible Assets Purchase Price shall be allocated to the
non-compete covenant set forth in the Non-Competition Agreement.
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ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. At the Closing, Buyer shall purchase all of Seller's
untitled new 1999 and 1998 BMW automobiles and motorcycles in Seller's stock and
unsold by Seller as of the Closing Date and which are listed on Schedule 3.1
hereto, which Seller shall deliver to Buyer not more than three (3) days prior
to the Closing (all such BMW automobiles and motorcycles are collectively
referred to hereinafter as the "NEW VEHICLES"). The purchase price to be paid by
Buyer for each New Vehicle shall be the price at which the New Vehicle was
invoiced to Seller by the Manufacturer, as adjusted pursuant to this Article III
(the sum of all such amounts to be paid for New Vehicles as determined by this
Article III is herein referred to as the "NEW VEHICLE PURCHASE PRICE"). Schedule
3.1 shall set forth the model, invoice cost, and all other information necessary
to calculate the New Vehicle Purchase Price with respect to each New Vehicle
listed in such Schedule 3.1. At the Closing, Seller shall assign to Buyer,
without any additional consideration therefor, by appropriate documents
reasonably satisfactory to Buyer, all unfilled retail orders and deposits made
thereon. Any profits or proceeds derived from such unfilled retail orders shall
belong to Buyer. Notwithstanding the foregoing, however, Buyer agrees to refund
deposits for all retail buyer orders that are terminated for any reason
consistent with reasonable business practice of Seller as of the Closing.
3.2 DEMONSTRATORS. At the Closing, Buyer shall purchase all of Seller's
untitled 1999 and 1998 BMW automobiles and motorcycles in Seller's stock and
unsold by Seller as of the Closing Date which are used in the ordinary course of
business for the purpose of demonstration and that are listed on Schedule 3.2,
which Seller shall deliver to Buyer no more than three (3) days prior to the
Closing (all such BMW automobiles and motorcycles are collectively referred to
herein as the "DEMONSTRATORS"). For purposes of this Agreement, any motor
vehicle with more than 6,000 miles on its odometer shall be deemed to be "used"
rather than a "Demonstrator." The purchase price to be paid by Buyer for each
Demonstrator shall be the price at which the Demonstrator was invoiced to Seller
by the Manufacturer, as adjusted pursuant to this Article III, and as reduced by
an amount equal to ten cents ($.10) multiplied by the total mileage on such
odometer in excess of 1,000 miles (the sum of all such amounts to be paid for
Demonstrators hereunder is herein referred to as the "DEMONSTRATOR PURCHASE
PRICE"). Schedule 3.2 shall set forth each Demonstrator's model, invoice cost,
odometer reading and all other information necessary to calculate the
Demonstrator Purchase Price with respect to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The
purchase price paid for each New Vehicle and each Demonstrator purchased under
this Article III shall be: (a) increased by the dealer cost (parts and labor) of
any equipment and accessories which have been installed by Seller; and (b)
decreased by (i) the dealer cost (parts and labor) of any equipment and
accessories which have been removed from such vehicles, and (ii) all paid or
unpaid rebates, discounts, holdback for dealer account and other factory
incentives (including without limitation rebates applied for and paid but not
earned, incentive monies claimed on pre-reported units and carryover allowances
on 1998 models), and (iii) all refundable advertising allowances, if any. Seller
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shall be entitled to retain all such rebates, discounts, holdback, factory
inventories, carryovers refundable advertising allowances, and incentive monies
claimed on pre-reported units and carryovers.
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any
New Vehicle or Demonstrator shall have been damaged prior to the Closing Date,
Seller and Buyer will attempt to agree on the cost to cover such repairs or some
other equitable reduction in value to reflect such condition, which amount shall
be deducted from the price to be paid for such New Vehicle or Demonstrator. In
the event Buyer and Seller cannot agree on the cost of repairs or the amount of
reduction, Buyer shall have no obligation to purchase, and Seller shall have no
obligation to sell, any such damaged New Vehicle or Demonstrator. With respect
to any New Vehicle or Demonstrator which shall have been damaged and repaired
prior to the Closing Date, Seller and Buyer will attempt to agree on an
adjustment to the price to reflect the decrease, if any, in the wholesale value
of such New Vehicle or Demonstrator resulting from such damage and repair, which
amount shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event Buyer and Seller cannot agree on such adjustment,
Buyer shall have no obligation to purchase, and Seller shall have no obligation
to sell, such New Vehicle or Demonstrator. Seller shall notify Buyer on or prior
to the Closing Date if any New Vehicles or Demonstrators shall have suffered any
damage which is not reflected on Schedules 3.1 and 3.2.
3.5 USED VEHICLES. Buyer shall have no obligation to purchase any
vehicle from Seller other than its obligation hereunder to purchase the New
Vehicles and the Demonstrators. Seller and Buyer shall perform an inventory of
Seller's motor vehicles (including motorcycles) that are not New Vehicles or
Demonstrators as of the Inventory Date and, in connection with such inventory,
Seller and Buyer shall attempt to assign a mutually agreed price to each such
vehicle owned by Seller as of the Closing Date. Any such vehicles as to which
Seller or Buyer are unable to agree upon a price as of the Closing Date shall
not be purchased by Buyer in connection herewith. Any such vehicles as to which
Seller and Buyer shall agree upon a price are collectively referred to herein as
the "USED VEHICLES" and shall be purchased by Buyer at the Closing. The sum of
all prices assigned to such Used Vehicles to be purchased by Buyer pursuant to
the terms of this Section 3.5 shall be referred to herein as the "USED VEHICLE
PURCHASE PRICE."
ARTICLE IV
PARTS/ACCESSORIES
4.1 THE INVENTORY. Buyer and Seller shall engage a mutually acceptable
third party engaged in the business of appraising, valuing and preparing
inventories for automobile dealerships (hereinafter referred to as the
"INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the Parts
(as defined in Section 4.3 below), as well as the Miscellaneous Inventories (as
defined in Section 5.1 below), owned by, and either used or held for use by,
Seller in the Business. The Inventory (insofar as it relates to Parts) shall be
posted to the Manufacturer's approved system of inventory control. The cost of
the Inventory shall be borne one-half by Buyer and one-half by
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Seller. Buyer shall have the right to deduct Seller's portion of such expense
from the consideration to be paid to Seller under the terms of this Agreement
and in such event shall promptly remit such sum directly to the Inventory
Service. The Inventory shall be completed by the Inventory Date. The Inventory
shall identify each Part and each item of Miscellaneous Inventory and its
purchase price.
4.2 RETURNABLE AND NONRETURNABLE PARTS AND ACCESSORIES. The Inventory
shall classify parts and accessories as "returnable" or "nonreturnable." For
purposes of this Agreement, the terms "returnable parts" and "returnable
accessories" shall describe and include only those new parts and new accessories
for vehicles which are listed (coded) in the latest current Master Parts Price
List Suggested List Prices and Dealer Prices, or other applicable similar price
lists, of the Manufacturer, with supplements or the equivalent in effect as of
the Inventory Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer
at not less than the purchase price reflected in the Master Price List. The
purchase price for each "returnable part" and "returnable accessory" will be the
price listed in the Master Price List. All parts and accessories listed (coded)
in the Master Price List as non-returnable to the Manufacturer shall be
classified as "nonreturnable." The purchase price for each "nonreturnable" part
and accessory, of which type Seller has made no sales during the ninety (90) day
period prior to the Inventory Date, shall be sixty percent (60%) of the price
listed therefor in the Master Price List. The purchase price for each
"nonreturnable" part and accessory, of which type Seller has made retail sales
to one or more customers during the ninety (90) day period prior to the
Inventory Date, shall be one hundred percent (100%) of the price therefor listed
in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts
shall be equal to Seller's original cost of such parts. The purchase price for
all nuts, bolts and any other parts not addressed in this Section 4.2 shall
equal the fair market value thereof as determined by the Inventory Service.
4.3 PARTS; PARTS PURCHASE PRICE.
(a) At the Closing, Buyer shall purchase all parts and
accessories owned by Seller at the Closing Date and listed on the Inventory (the
"PARTS") provided, however, that Buyer shall not be obligated to purchase any
damaged parts or accessories, parts and accessories with component parts
missing, superseded or obsolete parts or accessories, or used parts or
accessories. Seller agrees that if parts and accessories that Buyer is not
obligated to purchase hereunder are not removed from the Real Property within
sixty (60) days after the Closing Date, they shall become the property of Buyer
without the payment of any consideration in addition to the consideration
otherwise provided herein. Buyer agrees to provide access to Seller for the
purpose of removing such property during such sixty (60) day period.
(b) The purchase price for the Parts will equal the value of such
items shown on the Inventory (the "PARTS PURCHASE PRICE").
4.4 PARTS RETURN PRIVILEGE. Seller shall assign to Buyer at Closing any
net parts return privileges under the Manufacturer's Parts Return Plans that may
have accrued to Seller prior to the Closing in respect of the Parts (and any
other special parts return authorizations in respect of the Parts which may have
been granted to Seller by the Manufacturer).
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ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT; LEASEHOLD IMPROVEMENTS.
5.1 MISCELLANEOUS INVENTORIES. At the Closing, Buyer shall purchase all
useable gas, oil and grease, all undercoat material and body materials in
unopened cans, drums or other unopened containers and such other miscellaneous
useable and saleable articles in unbroken lots which (i) are on the dealership
premises, (ii) are owned by Seller on the Closing Date, (iii) were purchased
during the thirty (30) day period prior to the Closing Date, and (iv) are
identified in the Inventory taken by the Inventory Service on the Inventory Date
(collectively referred to herein as the "MISCELLANEOUS INVENTORIES"). The
purchase price for the Miscellaneous Inventories shall be equal to the
replacement cost of the Miscellaneous Inventories as determined by the Inventory
Service and set forth on the Inventory (the sum of all prices of the
Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be
referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE").
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. Buyer shall have
no obligation to purchase any such miscellaneous items that are not included in
the Miscellaneous Inventories. Seller agrees that any miscellaneous items that
are not included in the Miscellaneous Inventories and are not removed from the
Real Property within sixty (60) days after the Closing Date shall become the
property of Buyer without the payment of any consideration in addition to the
consideration otherwise provided herein. Buyer agrees to provide access to
Seller for the purpose of removing such property during such sixty (60) day
period.
5.3 WORK IN PROGRESS AND PREPAID EXPENSES.
(a) At the Closing, Buyer shall buy at Seller's actual cost for
parts and labor such shop labor and sublet repairs as Seller shall have caused
to be performed on any repair orders which are in process at the close of
business on the Closing Date for which there are adequate credit arrangements
(the "WORK IN PROGRESS") (the sum of all costs of Seller for the Work in
Progress pursuant to the terms of this Section 5.3(a) and the book value of all
Prepaid Expenses (as defined in Subsection 5.3(b) below) shall be referred to
herein as the "WORK IN PROGRESS AND PREPAID EXPENSES PURCHASE PRICE"). Buyer
shall complete such repair work and shall be entitled to the entire proceeds to
be collected for such services.
(b) At the Closing, Buyer shall purchase from Seller, at Seller's
book value therefor, all bona fide prepaid expenses of Seller with respect to
obligations to non-affiliated parties in the ordinary course of business, as set
forth in Schedule 5.3 hereto to be delivered to Buyer not later than five (5)
days prior to the Closing (the "PREPAID EXPENSES").
5.4 FIXTURES AND EQUIPMENT; LEASEHOLD IMPROVEMENTS. At the Closing,
Buyer shall purchase all leasehold improvements, fixtures, machinery, equipment
(including special tools and
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shop equipment), furniture and all signs and office equipment owned by Seller
and used or held for use in connection with the Business (but excluding the
Stockholder's office furniture) listed on Schedule 5.4 hereto, which Seller
shall deliver to Buyer not later than five (5) days prior to the Closing
(collectively referred to herein as the "FIXTURES AND EQUIPMENT"). The purchase
price for the Fixtures and Equipment shall be Seller's depreciated book value
thereof, as reflected in said Schedule 5.4 attached hereto (the "FIXTURES AND
EQUIPMENT PURCHASE PRICE").
5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any
additional consideration (other than the assumption of liabilities, if any,
associated therewith), Buyer shall purchase all of Seller's (i) unused shop
repair orders, parts sales tickets, accounting forms, binders, office and shop
supplies and such shop reference manuals, parts reference catalogs,
non-accounting file copies for all sales of Seller for the three (3) years
preceding the Closing Date, (ii) copies of new and used car sales records and
specifically wholesale parts sales records, new and used parts sales records,
and service sales records for the three (3) years preceding the Closing Date,
(iii) product sales training material and reference books on hand as of the
Closing Date, (iv) customer and registration lists pertaining to the sale of
motor vehicles, service files, repair orders, owner follow-up lists and similar
records relating to the operation of the Business, (v) telephone numbers and
listings used by Seller in connection with the Business, (vi) names and
addresses of Seller's service customers and prospective purchasers, (vii) all
lawfully transferrable licenses and permits of the Business, (viii) Seller's
rights to the tradename "Global Imports," and any similar variation, and (ix)
rights under contracts, leases, and agreements included in the Liabilities (the
foregoing being collectively referred to herein as the "MISCELLANEOUS ASSETS").
5.6 CERTAIN RECORDS OF THE SELLER. Seller shall retain all corporate
records, financial records and correspondence which are not necessary for the
continued operation of the Business by Buyer.
5.7 WARRANTY OBLIGATIONS OF THE SELLER. To the extent that Seller may
have issued warranties on the vehicles sold by Seller on or prior to the Closing
Date, Buyer shall have no responsibility to perform any services required under
such warranties, unless authorized in writing by Seller accompanied by
arrangements in writing satisfactory to Buyer to assure Buyer of payment for all
work performed by Buyer, and, if such warranty services are so authorized by
Seller, Seller shall reimburse Buyer for all of Buyer's costs for parts and
labor in connection therewith at dealer cost for parts and labor. At the Closing
Date, Seller shall supply Buyer with a list to which such warranties and
guaranties, if any, are applicable, which list shall include the names of the
purchasers, the make and year model of the vehicles purchased and the date of
purchase. Seller shall also supply to Buyer at or prior to the Closing Date an
address for and a designation of the person who will be responsible for
authorizing Buyer to perform any services under such warranties, if any, issued
by Seller on vehicles sold by it on or prior to the Closing Date. Seller shall
reimburse Buyer promptly upon demand for all sums due or payable by Seller to
Buyer hereunder.
5.8 ACCOUNTS RECEIVABLE. Seller shall retain all accounts receivable
arising out of the operation of the Business by Seller prior to the Closing Date
and Buyer shall retain all accounts receivable arising out of sales and/or
services of the Business after the Closing Date. After the
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Closing Date, Buyer shall cooperate with Seller and shall use reasonable efforts
to assist Seller in Seller's efforts to collect Seller's accounts receivable for
a period of six (6) months after the Closing. Buyer shall accept payment of
Seller's accounts receivable, at no charge to Seller for a period of six (6)
months after the Closing, and shall forward to Seller, promptly upon receipt,
all the money so received on said accounts. Notwithstanding anything to the
contrary, Buyer shall have no responsibility to actually collect any of Seller's
accounts receivable.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Stockholder as follows:
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Board of Directors of Buyer has duly approved this
Agreement, all other agreements, certificates and documents executed or to be
executed by Buyer in connection herewith, and the transactions contemplated
hereby and thereby. Buyer has full corporate power and authority to execute and
deliver this Agreement and all other agreements, certificates and documents
executed or to be executed by Buyer in connection herewith, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement, and all other agreements, certificates
and documents executed or to be executed by Buyer in connection herewith,
constitute or, when executed and delivered, will constitute legal, valid and
binding agreements of Buyer enforceable against Buyer in accordance with their
respective terms, except as may be otherwise limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally and equitable relief may be subject to equitable
defenses and the discretion of any court before which any proceeding may be
brought.
6.2 NON-VIOLATION; CONSENTS. Except as set forth on Schedule 6.2
attached hereto, the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and compliance with the
provisions hereof do not and will not: (a) conflict with or violate any of the
provisions of Buyer's restated certificate of incorporation or by-laws, each as
amended, or any resolution of the Board of Directors or the stockholders of
Buyer, (b) violate any law, ordinance, rule or regulation or any judgment,
order, writ, injunction or decree or similar command of any court,
administrative or governmental agency or other body applicable to Buyer, (c)
violate or conflict with or result in a breach of, or constitute a default
under, any material instrument, agreement or indenture or any mortgage, deed of
trust or similar contract to which Buyer is a party or by which Buyer is bound
or affected, or (d) (other than clearance under the HSR Act, as defined in
Section 10.18 below) require the consent, authorization or approval of, or
notice to, or filing or registration with, any governmental body or authority,
or any other third party.
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6.3 LITIGATION. There are no actions, suits or proceedings pending, or,
to the knowledge of Buyer, threatened against or affecting Buyer which might
adversely affect the power or authority of Buyer to carry out the transactions
to be performed by it hereunder.
6.4 BROKER'S AND FINDER'S FEES. Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement,
other than for fees or expenses regarding Presidio Strategies (as more
specifically provided in a letter agreement between Presidio Strategies and
Buyer) and Buyer hereby agrees to assume all liability to Presidio Strategies,
as provided in such letter.
6.5 FINANCING. As of the date hereof and as of the Closing Date, Buyer
has and will have sufficient funds, or sources of financing available to it, to
enable it to perform its obligations at the Closing.
6.6 STOCK COMPONENT. All shares of the Common Stock or the Preferred
Stock to be furnished by Buyer to Seller as consideration under this Agreement,
as well as any of the Common Shares issuable upon conversion of any of the
Preferred Stock have been duly authorized and when issued in accordance with the
terms of this Agreement will be fully paid and nonassessable and will be
transferred and issued to Seller free and clear of all Encumbrances other than
any restriction on the resale of the Common Stock, the Preferred Stock or the
Common Shares imposed by applicable federal and state securities laws and
regulations.
6.7 CAPITALIZATION. The authorized capital stock of Buyer consists of:
(a) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of which 300,000 shares are designated Class A Convertible Preferred
Stock and are, in turn, divided into 100,000 shares of Series I (the "SERIES I
PREFERRED STOCK"), 100,000 shares of Series II (the "SERIES II PREFERRED STOCK")
and 100,000 shares of Series III (the "SERIES III PREFERRED STOCK"); as of
October 15, 1998, approximately 19,500 shares of Series I Preferred Stock are
issued and outstanding and/or are committed to be issued by Buyer, approximately
13,910 shares of Series II Preferred Stock are issued and outstanding and/or are
committed to be issued by Buyer, and approximately 31,248 shares of Series III
Preferred Stock are issued and outstanding and/or are committed to be issued by
Buyer;
(b) 50,000,000 shares of Class A Common Stock, par value $0.01
per share, of which 5,588,888 shares are issued and outstanding; and
(c) 15,000,000 shares of Class B Common Stock, par value $0.01
per share, of which 6,200,000 shares are issued and outstanding.
All outstanding capital stock of Buyer is duly authorized, validly issued, fully
paid and non assessable and has been issued in conformity with all applicable
federal and state securities laws.
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6.8 DELIVERY OF PUBLIC INFORMATION. Buyer has delivered to Seller copies
of (i) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (ii) Buyer's
Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (iii)
Buyer's Quarterly Report on Form 10-Q for the three-month period ended March 31,
1998, June 30, 1998, and September 30, 1998 and (iv) any Current Reports on Form
8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC
(collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as
its "REPORTS"). Neither the Prospectus nor any of the Reports contained, at the
time of filing thereof with the SEC, any untrue statement of any material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements made therein, in light of the circumstances in which they
were made, not misleading.
6.9 LITIGATION. There are no actions, suits, claims, investigations or
legal or administrative or arbitration proceedings pending or, to Buyer's
knowledge, threatened or probable of assertion, against Buyer before any court,
governmental or administrative agency or other body relating to this Agreement
and/or the transactions contemplated hereby. Buyer is not now under any
judgment, order, writ, injunction, decree or other similar command of any court,
administrative agency or other governmental agency which relate to this
Agreement and/or the transactions contemplated hereby.
6.10 MISSTATEMENTS AND OMISSIONS. To the knowledge of Buyer, no
representation or warranty made by Buyer in this Agreement, and no statement
contained in any agreement, instrument, certificate or schedule furnished or to
be furnished by Buyer pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make such representation or warranty or such statement not
misleading.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDER
Seller and the Stockholder, jointly and severally, represent and warrant
to Buyer, as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Georgia, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Stockholder is the only person or entity owning shares of
Seller. Seller has full corporate power and authority to execute and deliver
this Agreement and all other agreements, certificates and documents executed or
to be executed by Seller in connection herewith, to consummate the transactions
contemplated hereby and thereby and to perform its obligations hereunder and
thereunder. This Agreement, and all other agreements, certificates and documents
executed or to be executed by Seller in connection herewith, have been duly
authorized by all necessary corporate action and constitute or, when executed
and delivered, will constitute legal, valid and binding
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agreements of Seller enforceable against Seller in accordance with their
respective terms, except as may be otherwise limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect affecting
creditors' rights generally and equitable relief may be subject to equitable
defenses and the discretion of any court before which any proceeding may be
brought. This Agreement, and all other agreements, certificates and documents
executed or to be executed by the Stockholder in connection herewith, constitute
or, when executed and delivered, will constitute legal, valid and binding
agreements of the Stockholder enforceable against the Stockholder in accordance
with their respective terms, except as may be otherwise limited by bankruptcy,
insolvency, reorganization, moratorium or similar laws now or hereafter in
effect affecting creditors' rights generally and equitable relief may be subject
to equitable defenses and the discretion of any court before which any
proceeding may be brought. Seller has never operated the Business under any
tradenames other than the tradenames listed in Section 5.5.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of Seller's Articles of Incorporation or Bylaws, each as amended, or any
resolution of the Directors of Seller, (b) violate any law, ordinance, rule or
regulation or any judgment, order, writ, injunction or decree or similar command
of any court, administrative or governmental agency or other body applicable to
any of Seller, the Assets, the Business or the Liabilities, (c) violate or
conflict with or result in a breach of, or constitute a default under, or an
event giving rise to a right of termination of, any Contract (as defined in
Section 7.10), any material instrument, agreement or indenture or any mortgage,
deed of trust or similar contract to which Seller or Stockholder is a party or
by which any of Seller, the Stockholder or any of the Assets are bound or
affected, (d) result in the creation or imposition of any Encumbrance upon any
of the Assets, or (e) require the consent, authorization or approval of, or
notice to, or filing or registration with, any governmental body or authority,
or any other third party (other than clearance under the HSR Act).
7.3 LITIGATION. Except as disclosed on Schedule 7.3 hereto, there are no
actions, suits or proceedings pending or, to the knowledge of Seller and the
Stockholder, threatened against Seller or Stockholder which might adversely
affect the power or authority of any of them to carry out the transactions to be
performed by such party hereunder. There are no actions, suits or proceedings
pending, or, to the knowledge of Seller and the Stockholder, threatened against
or affecting Seller, other than those adequately covered by insurance, and those
disclosed on Schedule 7.3 attached hereto, and none of the actions, suits or
proceedings described on Schedule 7.3, if determined adversely to Seller could
reasonably be expected to have, a material adverse effect upon the Assets or the
Liabilities or the business, prospects, properties, earnings, results of
operations or condition (financial or otherwise) of the Business.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4
attached hereto, Seller has good title to the Assets, free and clear of all
liens (including tax liens), security interests, encumbrances, actions, claims,
payments or demands of any kind and character (collectively, "ENCUMBRANCES"),
except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad
valorem personal property taxes not yet due and payable. All of the Assets
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to be transferred hereunder conform, as to condition and character, to the
descriptions of such Assets contained herein and will be transferred at the
Closing free and clear of all Encumbrances, except for Permitted Encumbrances
and the rights, if any, of third parties to use the name "Global Imports"
outside of the Atlanta Standard Metropolitan Statistical Area or to use such
name within such Standard Metropolitan Statistical Area in any business other
than an automobile dealership business. To the knowledge of Seller and the
Stockholder (i) no person uses the name "Global Imports" in the Atlanta Standard
Metropolitan Statistical Area, and (ii) the ownership and use of the Assets
(including, without limitation, Seller's use of the name "Global Imports"), and
the operation of the Business, do not infringe upon the intellectual property
rights of any other person or entity.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached
hereto, there are no material permits or material approvals used or obtained for
use by Seller which are required under applicable law in connection with the
ownership or operation of the Business.
7.6 FINANCIAL STATEMENTS. Seller has delivered to Buyer the financial
statements of Seller described in Schedule 7.6(a) attached hereto (the
"FINANCIAL STATEMENTS"). The Financial Statements (i) are in accordance with the
books and records of Seller, which books and records are true, correct and
complete, (ii) fully and fairly present the financial condition and results of
the operations of Seller as of and for the periods indicated, and (iii) have
been prepared in accordance with generally accepted accounting principles
consistently applied, except as set forth on Schedule 7.6(b). Seller has no
outstanding material claims, liabilities, obligations or indebtedness of any
nature, fixed or contingent, except as set forth in the Financial Statements, or
in the Schedules to this Agreement, and except for liabilities incurred in the
ordinary course of business and of the kind and type reflected in the Financial
Statements. To the knowledge of Seller and the Stockholder, the Financial
Statements contain adequate reserves for all reasonably anticipated claims
relating to matters with respect to which Seller is self-insured.
7.7 BROKERS AND FINDERS. Neither Seller nor Stockholder has engaged any
broker or any other person or entity who would be entitled to any brokerage
commission or finder's fee in respect of the execution of this Agreement and/or
the consummation of the transactions contemplated hereby, other than such fee or
commission the entire cost of which will be borne by Seller. This representation
and warranty does not apply to the fees of Presidio Strategies to the extent
such fees are specified in the letter agreement between Buyer and Presidio
Strategies referred to in Section 6.4 above.
7.8 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.8 (a) attached hereto, the
Assets and the Real Property comply in all material respects with, and the
Business has been conducted in all material respects in compliance with, all
laws, rules and regulations (including all worker safety and all Environmental
Laws (as hereinafter defined)) applicable zoning and other laws, ordinances,
regulations and building codes, and neither Seller nor the Stockholder have
received any notice of any material violation thereof which has not been
remedied.
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(b) Except as set forth on Schedule 7.8(b) attached hereto, (i)
Seller has not at any time generated, used, treated or stored Hazardous
Materials (as hereinafter defined) on, or transported Hazardous Materials to or
from, the Real Property or any property adjoining or adjacent to the Real
Property and, to the knowledge of Seller and the Stockholder, no party other
than Seller has taken such actions on or with respect to the Real Property,
provided, however, certain petroleum products are stored and handled by Seller
in the ordinary course of business in compliance in all material respects with
all Environmental Laws, (ii) Seller has not at any time released or disposed of
Hazardous Materials on the Real Property or any property adjoining or adjacent
to the Real Property, and, to the knowledge of Seller and the Stockholder, no
party other than Seller has taken any such actions on the Real Property, (iii)
Seller has at all times been in compliance with all Environmental Laws and the
requirements of any permits issued under such Environmental Laws with respect to
the Real Property, the Assets and the operation of the Business, except where
failure to comply has not had and could not reasonably be expected to have, a
material adverse effect on the Assets or the Liabilities or the prospects,
properties, earnings, results of operations or condition (financial or
otherwise) of the Business, (iv) there are no pending or, to the knowledge of
Seller and the Stockholder, threatened environmental claims against Seller, the
Real Property, the Assets or the Business, (v) to the knowledge of Seller and
the Stockholder, there are no facts or circumstances, conditions or occurrences
regarding Seller, the Real Property, the Assets or the Business that could
reasonably be anticipated to form the basis of an environmental claim against
Seller, the Real Property, the Assets or the Business or to cause the Real
Property, the Assets or the Business to be subject to any restrictions on its
ownership, occupancy, use or transferability under any environmental law, (vi)
there are not now and, to the knowledge of Seller and the Stockholder, there
never have been any underground storage tanks located on the Real Property,
(vii) Seller has not transported or arranged for the transportation of any
Hazardous Materials to any site other than the Real Property and (viii) except
as set forth on Schedule 7.8(b), neither Seller nor the Stockholder has operated
the Business at any location other than the Real Property. As used herein, the
term "ENVIRONMENTAL LAWS" means all present and future federal, state and local
laws, statutes, regulations, rules, ordinances and common law, and all
judgments, decrees, orders, agreements or permits, issued, promulgated, approved
or entered thereunder by any governmental authority relating to pollution or
Hazardous Materials or protection of human health or the environment, including,
but not limited to, the Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), as amended. As used herein, the term "HAZARDOUS
MATERIALS" means any waste, pollutant, chemical, hazardous substance, toxic
substance, hazardous waste, special waste, solid waste petroleum or
petroleum-derived substance or waste, or any constituent or decomposition
product of any such pollutant, material, substance or waste, regulated under or
as defined by any environmental law.
(c) Neither Seller nor the Stockholder or any director, officer,
agent or employee of Seller or, to the knowledge of Seller and the Stockholder,
any other person or entity associated with or acting for or on behalf of Seller,
has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity,
regardless of form, whether in money, property or services: (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured or (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of Seller.
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7.9 FIXTURES AND EQUIPMENT. Except as set forth on Schedule 7.9 attached
hereto, the Fixtures and Equipment are in good condition, ordinary wear and tear
excepted, and constitute all of the fixtures, machinery, equipment, furniture,
signs and office equipment used or intended for use by Seller in the Business.
All Demonstrators have been operated in the ordinary course of business, are
operated with dealer tags and have not had certificates of title issued with
respect to them.
7.10 CONTRACTS. Seller has in all material respects performed all of its
obligations required to be performed by it to the date hereof, and is not in
default or alleged to be in default in any material respect, under any contract
or lease to be assigned to Buyer hereunder (collectively, the "CONTRACTS"),
including without limitation the contracts and leases set forth on Part I of
Schedule 2.4 and there exists no event, condition or occurrence which, after
notice or lapse of time or both, would constitute such a default by Seller. To
the knowledge of Seller and the Stockholder, no other party to any Contract is
in default in any respect of any of its obligations thereunder. Each of the
Contracts is valid and in full force and effect and enforceable against Seller
in accordance with their respective terms, and, to the knowledge of Seller and
the Stockholder, enforceable against the other parties thereto in accordance
with their respective terms.
7.11 ADEQUACY OF ASSETS. Except for Seller's cash and accounts
receivable, any used vehicles, miscellaneous inventories or parts which Buyer
elects not to purchase, and Seller's rights under its dealership agreements with
the Manufacturer, the Assets, together with the Real Property and the Contracts
(including all equipment leased pursuant to the equipment leases included in the
Contracts), comprise all of the assets, properties, contracts, leases and rights
necessary for Buyer to operate the Business substantially in the manner operated
by Seller prior to the Closing.
7.12 TAXES. Except as set forth on Schedule 7.12, Seller has filed all
federal, state and local governmental tax returns required to be filed by it in
accordance with the provisions of law pertaining thereto and has paid all taxes
and assessments (including, without limitation of the foregoing, income, excise,
unemployment, social security, occupation, franchise, property and import taxes,
duties or charges and all penalties and interest in respect thereof) required by
such tax returns to have been paid to date.
7.13 EMPLOYEES. Schedule 7.13 attached hereto discloses, as of the date
hereof, all of Seller's employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and accrued vacation time.
Except as disclosed on Schedule 7.13, Seller has no "employee benefit plan"
("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), including without
limitation, any bonus, deferred compensation, pension, profit-sharing, stock
option, employee stock purchase, secrecy agreement or covenant not to compete
with any employee. Seller is neither currently nor has ever been a party to any
collective bargaining agreement or other labor contract, and there has not been
nor is there pending or, to the knowledge of Seller and the Stockholder,
threatened any union organizational drive or application for certification of a
collective bargaining agent. Seller has been and is now in material compliance
with the "COBRA" health care continuation coverage requirements of Section 4980B
of the Internal Revenue Code of 1986, as amended, and Sections 601-608 of ERISA
and any
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applicable state health care continuation coverage requirements. Seller has
neither made any promises nor incurred any liability, pursuant to an Employee
Benefit Plan or otherwise, to provide medical or other welfare benefits to
retired or former employees of the Seller (other than COBRA or state mandated
continuation coverage, where applicable). Except as disclosed on Schedule 7.13,
none of Seller's employees or former employees has elected COBRA continuation
coverage or has incurred a COBRA qualifying event since January 1, 1997.
7.14 [INTENTIONALLY LEFT BLANK]
7.15 MISSTATEMENTS AND OMISSIONS. No representation or warranty made by
Seller or the Stockholder in this Agreement, and no statement contained in any
agreement, instrument, certificate or schedule furnished or to be furnished by
Seller or the Stockholder pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make such representation or warranty or such statement not
misleading.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to perform this Agreement at the Closing are
subject to the following conditions precedent which shall be fully satisfied at
or before the Closing, unless waived in writing by Buyer.
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Seller and the Stockholder herein contained shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date, and Buyer shall have received a certificate from the
Stockholder and a duly authorized officer of Seller, dated the Closing Date, to
such effect.
8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by Seller or the
Stockholder at or before the Closing shall have been duly performed or complied
with in all material respects, and Buyer shall have received a certificate from
the Stockholder and a duly authorized officer of Seller, dated the Closing Date,
to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any other third party to prohibit or
restrain the sale contemplated by this Agreement or otherwise challenge the
power and authority of the parties to enter into this Agreement or to carry out
their obligations hereunder or the legality or validity of the sale contemplated
by this Agreement.
8.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of Buyer.
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8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. Seller shall have furnished to
Buyer: (a) a certificate of good standing of Seller issued by the Secretary of
State of the State of Georgia dated no earlier than 15 business days prior to
the Closing Date; (b) a copy of the Articles of Incorporation of Seller
certified by the Secretary of State of the State of Georgia dated no earlier
than 15 business days prior to the Closing Date; (c) a certificate of Seller,
dated the Closing Date, in form and substance reasonably satisfactory to Buyer,
certifying as to (i) no amendments to the Articles of Incorporation of Seller
since the date of the certificate delivered in accordance with Section 8.5(b);
(ii) the Bylaws of Seller; and (iii) the incumbency and signatures of the
officers of Seller executing this Agreement and any other agreements,
instruments or documents to be executed by Seller in connection herewith; and
(d) UCC-11 search reports or other evidence reasonably satisfactory to Buyer and
its counsel that the Assets are free and clear of all Encumbrances other than
Permitted Encumbrances.
8.6 BOARD RESOLUTIONS. Seller shall have furnished to Buyer a copy of
the resolutions duly adopted by the Board of Directors and shareholders of
Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of Seller as of the Closing Date.
8.7 NO DAMAGE. There shall have been no material adverse change or
development in the Assets, the Liabilities or in the prospects, properties,
earnings, results of operations or condition (financial or otherwise) of the
Business, and no event shall have occurred or circumstance shall exist that may,
or could reasonably be expected to, result in such a material adverse change.
8.8 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor
Vehicle Dealer under applicable Georgia motor vehicle dealer registration laws
and shall have obtained all other authorizations, consents, licenses and permits
from applicable governmental agencies having or asserting jurisdiction, which
Buyer deems necessary or appropriate to conduct business as an automobile dealer
at each dealership location included in the Real Property.
8.9 CONSENTS AND APPROVALS. Seller shall have obtained all other
authorizations, consents and approvals from third persons and entities as are
(a) required to assign those material contracts and leases that Buyer is to
assume at Closing or (b) otherwise required of Seller to consummate the
transactions contemplated hereby.
8.10 CERTIFICATES OF ORIGIN; ETC. Seller shall have transferred to Buyer
certificates of title or origin for all New Vehicles, Demonstrators and, if
applicable, Used Vehicles and all of its registration lists, owner follow-up
lists and service files on hand as of the Closing Date with respect to the
Business.
8.11 TERMINATION OF SELLER'S AGREEMENT WITH MANUFACTURER. Seller shall
have terminated in writing Seller's dealer agreement and any other applicable
sales and service agreements with the Manufacturer.
8.12 BILL OF SALE; ETC. Seller and the Stockholder shall have
executed, as appropriate, and
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delivered to Buyer the Bill of Sale, other documents of transfer of title
contemplated hereby and any and all other documents necessary or desirable in
connection with the transfer of the Assets, which documents shall warrant title
to Buyer consistent with this Agreement and shall in all respects be in such
form as may be reasonably required by Buyer and its counsel.
8.13 MANUFACTURE APPROVAL. The Manufacturer shall have approved Buyer or
Buyer's affiliate as an authorized dealer of automobiles and motorcycles and O.
Bruton Smith or O. Bruton Smith's designee, as the authorized Dealer Operator,
and the Manufacturer shall have executed a dealer agreement, and any other
applicable sales and service agreements, on terms reasonably satisfactory to
Buyer.
8.14 REAL PROPERTY PURCHASE AGREEMENT. All conditions to Buyer's
obligations under the Real Property Purchase Agreement shall have been satisfied
or fulfilled unless waived in writing by Buyer and the closing of such
transaction shall take place simultaneously with the Closing.
8.15 CHANGE OF NAMES. Seller shall have delivered to Buyer all
documents, including, without limitation, resolutions of the Board of Directors
and the Stockholder of Seller, necessary to effect a change of name of Seller
after the Closing to names other than the corporate name and trade names
referred to in Section 5.5 hereof or any variation thereof.
8.16 HSR ACT. All applicable waiting periods, if any, under the HSR Act
(as defined in Section 10.18 below) shall have expired without any indication by
the Antitrust Division (as defined in Section 10.18 below) or the FTC (as
defined in Section 10.18 below) that either of them intends to challenge the
transactions contemplated hereby or, if any such challenge or investigation is
made or commenced, there shall have occurred the conclusion of such challenge or
investigation which permits the transactions contemplated hereby in all material
respects.
8.17 EMPLOYMENT AGREEMENT. Donald Scott Whitmire shall have executed and
delivered the Employment Agreement to Buyer.
8.18 NON-COMPETITION AGREEMENT. Seller and William Morris Whitmire shall
have executed and delivered the Non-Competition Agreement to Buyer.
8.19 FINANCIAL STATEMENTS. Buyer shall have completed (at Buyer's
expense) preparation of such audited financial statements of Seller as may be
required by applicable regulations of the SEC or by Buyer's lenders.
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE STOCKHOLDER
The obligations of Seller and the Stockholder to perform this Agreement
at the Closing are subject to the following conditions precedent which shall be
fully satisfied at or before the Closing, unless waived in writing by Seller:
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9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Buyer herein contained shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of the Closing Date,
and Seller shall have received a certificate from a duly authorized officer of
Buyer, dated the Closing Date, to such effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by Buyer at or
before the Closing shall have been duly performed or complied with in all
material respects, and Seller shall have received a certificate from a duly
authorized officer of Buyer, dated the Closing Date, to such effect.
9.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any third party to prohibit or restrain
the sale contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the sale contemplated by
this Agreement.
9.4 INVENTORY. The Inventory shall have been completed to the reasonable
satisfaction of Seller.
9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. Buyer shall have
furnished to Seller and the Stockholder: (a) a certificate of good standing of
Buyer issued by the Secretary of State of the State of Delaware dated no earlier
than 15 business days prior to the Closing Date; (b) a copy of the Articles of
Incorporation of Buyer, certified by the Secretary of State of the State of
Delaware dated no earlier than 15 business days prior to the Closing Date; (c) a
certificate of Buyer, dated the Closing Date, in form and substance reasonably
satisfactory to Seller, certifying as to (i) no amendments to the Articles of
Incorporation of Buyer since the date of the certificate delivered in accordance
with Section 9.5(b); (ii) the Bylaws of Buyer; and (iii) the incumbency and
signatures of the officers of Buyer executing this Agreement and any other
agreements, instruments or documents to be executed by Buyer in connection
herewith; and (d) a copy of the resolutions duly adopted by the Board of
Directors of Buyer authorizing the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby, certified by an
officer of Buyer as of the Closing Date.
9.6 INITIAL PURCHASE PRICE. Buyer shall have tendered to Seller the
Initial Purchase Price in accordance with Section 2.2 and shall have executed
and delivered the Assumption Agreement to Seller.
9.7 REAL PROPERTY PURCHASE AGREEMENT. All conditions to the obligations
of the Owner under the Real Property Purchase Agreement shall have been
satisfied or fulfilled, unless waived in writing by the Owner and the closing of
such transaction shall take place simultaneously with the Closing.
9.8 BOARD RESOLUTIONS. Buyer shall have furnished to Seller a copy
of the resolutions duly adopted by the Board of Directors of Buyer authorizing
the execution and delivery of this
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Agreement and the consummation of the transactions contemplated hereby,
certified by an authorized officer of Buyer as of the Closing Date.
9.9 HSR ACT. All applicable waiting periods, if any, under the HSR Act
shall have expired without any indication of the Antitrust Division or the
Federal Trade Commission that either of them intends to challenge the
transactions contemplated hereby, or, if any such challenge or investigation is
made or commenced, there shall have occurred the conclusion of such challenge or
investigation which permits the transactions contemplated hereby in all material
respects.
9.10 EMPLOYMENT AGREEMENT. Buyer shall have executed and delivered the
Employment Agreement to Donald Scott Whitmire.
9.11 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor
Vehicle Dealer as contemplated by Section 8.8.
9.12 MANUFACTURER APPROVAL. Buyer shall have obtained Manufacturer
approval as contemplated by Section 8.13.
9.13 CONSENTS & APPROVALS. Seller shall have obtained all
authorizations, consents and approvals as are (a) required to assign those
contracts and leases that Buyer is assuming at Closing or (b) otherwise required
of Seller to consummate the transactions contemplated hereby; provided, however,
that, with respect to any such authorization, consent or approval not obtained,
the obtaining thereof shall not be a condition pursuant to this Section 9.13 if
Buyer elects to waive in writing the requirement that such authorization,
consent or approval be obtained; in such event, Buyer shall have no claim for
liability against Seller or the Stockholder for failing to obtain such
authorization, consent or approval and such waiver shall constitute Buyer's
agreement that any such contract or lease requiring such authorization, consent
or approval shall be included in the Liabilities, notwithstanding the failure to
obtain such authorization, consent or approval.
9.14 LIABILITIES. Buyer shall have agreed to assume Seller's obligations
under all contracts and agreements entered into by Seller in the ordinary course
of business between the date hereof and the Closing and which relate to the
Business; provided, however, that Buyer shall not be obligated to assume any
such contract or agreement which involves the payment of more than $50,000
during the life of such contract or agreement unless Buyer shall have given its
written consent thereto prior to Seller's entering into such contract or
agreement.
ARTICLE X
COVENANTS AND AGREEMENTS
10.1 ADDITIONAL INFORMATION. Seller and Buyer shall each furnish to the
other such additional information with respect to any matters or events arising
or discovered subsequent to the date hereof which, if existing or known on the
date hereof, would have rendered any representation
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or warranty made by Seller or Buyer, as the case may be, or any information
contained in any Schedule hereto or any other information supplied in connection
herewith by Seller or Buyer, as the case may be, then inaccurate or incomplete.
The receipt of such additional information by Buyer or Seller, as the case may
be, shall not operate as a waiver by Buyer or Seller, as the case may be, of the
obligation of Seller or Buyer, as the case may be, to satisfy the conditions to
Closing set forth in Section 8.1 or Section 9.1, as the case may be, hereof;
provided, however, if such information shall be furnished to Buyer or Seller, as
the case may be, in a writing which shall also specifically refer to one or more
representations and warranties of Seller or Buyer, as the case may be, contained
herein which in the absence of such information is inaccurate or incomplete,
then if Buyer or Seller, as the case may be, waives the condition to Closing set
forth in Section 8.1 or Section 9.1, as the case may be, hereof and elects to
close the transactions contemplated hereunder, the furnishing of such additional
information shall be deemed to have amended as of the Closing any such
representation and warranty so specifically referred to by Seller or Buyer, as
the case may be.
10.2 FURTHER ASSURANCES. Seller and the Stockholder agree that they
will, at any time and from time to time, after the Closing, upon request of
Buyer, do, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances, in a
form reasonably satisfactory to Buyer's counsel, as may be reasonably required
to convey and transfer to and vest in Buyer, and protect its rights, title and
interest in and enjoyment of, all the Assets.
10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use
their reasonable best efforts to obtain, and to cooperate with each other in
obtaining, at or prior to the Closing, all authorizations, approvals, licenses,
permits and other consents contemplated by Articles VIII and IX, and otherwise
shall use their reasonable best efforts to cause the conditions to their
obligations at Closing, insofar as such conditions are within their control, to
be satisfied at or prior to the Closing.
10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of
this Agreement through the Closing Date, Seller will operate the Business only
in the ordinary course of business and in accordance with past practices. Seller
shall promptly notify Buyer of any material adverse change or development in the
Assets, the Liabilities or in the prospects, properties, earnings, results of
operations or condition (financial or otherwise) of the Business, and of the
occurrence of any event or circumstance that will, or could reasonably be
expected to, result in such a material adverse change.
10.5 ACCESS; ENVIRONMENTAL AUDIT. Until the Closing Seller shall afford
to Buyer, its attorneys, accountants and such other representatives of Buyer as
Buyer shall designate to Seller, free and full access at all reasonable times,
and upon reasonable prior notice, to the Assets and the properties, books and
records of Seller, and to interview personnel, suppliers and customers of
Seller, in order that Buyer may have full opportunity to make such due diligence
investigation as it shall reasonably desire of the Assets, the Liabilities and
the Business. Seller and the Stockholder shall, promptly after the date hereof,
furnish to Buyer the due diligence materials set forth in Schedule 10.5 hereto.
Seller shall allow an environmental consulting firm selected by Buyer (the
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"ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to
conduct an environmental investigation satisfactory to Buyer in scope and
reasonably acceptable to Seller (such scope being sufficient to result in a
Phase I environmental audit report and a Phase II environmental audit report, if
desired by Buyer) of, and to prepare a report with respect to, the Real Property
(the "ENVIRONMENTAL AUDIT"). Seller shall provide to the Environmental Auditor:
(a) reasonable access to all of its existing records concerning the matters
which are the subject of the Environmental Audit; and (b) reasonable access to
the employees of Seller and the last known addresses of former employees of
Seller who are most familiar with the matters which are the subject of the
Environmental Audit (Seller agreeing to use reasonable efforts to have such
former employees respond to any reasonable requests or inquiries by the
Environmental Auditor). The Environmental Auditor shall coordinate all visits to
the Real Property and conversations with employees of Seller with the
Stockholder or his designee and shall use reasonable efforts to minimize any
disruption of Seller's business in performing such investigations. Seller shall
otherwise cooperate with the Environmental Auditor in connection with the
Environmental Audit. Buyer and Seller shall each bear 50% of the costs, fees and
expenses in connection with the Environmental Audit. Buyer shall bear 100% of
the costs, fees and expenses in connection with any financial audit.
10.6 INDEMNIFICATION BY SELLER AND STOCKHOLDER. All representations and
warranties of Seller and the Stockholder contained herein, or in any agreement,
certificate or document executed by Seller or the Stockholder in connection
herewith, shall survive the Closing for a period of two years, except for the
representations and warranties contained in Section 7.12, which shall survive
the Closing for the applicable tax statutes of limitation plus 60 days, and the
representations and warranties contained in Section 7.4 which shall survive for
the applicable statute of limitations for the breach thereof. The foregoing
limitations of survival shall not in any way reduce Seller's obligations with
respect to the Retained Liabilities. All information contained in Schedules 3.1,
3.2, 5.3 and 5.4 furnished hereunder by Seller shall be deemed a representation
and warranty by Seller and the Stockholder made in this Agreement as to the
accuracy of such information. Subject to the provisions of this Agreement,
Seller and the Stockholder, jointly and severally, agree to indemnify and hold
harmless Buyer and its stockholders, officers, directors, employees and agents,
and their respective successors and assignees (the "SELLER INDEMNITEES"), from
and against any and all losses, damages, liabilities, obligations, assessments,
suits, actions, proceedings, claims or demands, including costs, expenses and
fees (including reasonable attorneys' fees and expert witness fees)
(collectively, "LOSSES") incurred in connection therewith, suffered by any of
them or asserted against any of them or the Assets, arising out of or based upon
(a) the breach or failure of any representation or warranty of Seller or the
Stockholder contained herein, or in any agreement, certificate or document
executed by Seller or the Stockholder in connection herewith, to be true and
correct, (b) the breach of any covenant or agreement of Seller or the
Stockholder contained in this Agreement, (c) Seller's failure to discharge the
Retained Liabilities, (d) the parties' failure to comply with applicable bulk
sales laws, or (e) any arrangements or agreements made or alleged to have been
made by Seller or the Stockholder with any broker, finder or other agent in
connection with the transactions contemplated hereby (except as with regard to
Buyer's obligations to Presidio Strategies referred to in Section 6.4 above).
10.7 INDEMNIFICATION BY BUYER. All representations and warranties
of Buyer contained
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herein, or in any agreement, certificate or document executed by Buyer in
connection herewith, shall survive the Closing for a period of two years except
for the representations and warranties in Section 6.6 which shall survive for
the applicable statute of limitations. The foregoing limitation of survival
shall not in any way reduce Buyer's obligations with respect to the Liabilities.
Buyer agrees to indemnify and hold harmless Seller, the Stockholder, and
Seller's officers, directors, employees, agents, and their respective heirs
and/or personal representatives, as the case may be, and successors and assigns
(the "BUYER INDEMNITEES"), from and against any and all Losses incurred in
connection with, suffered by any of them, or asserted against any of them,
arising out of or based upon (a) the breach or failure of any representation or
warranty of Buyer contained herein, or in any agreement, certificate or document
executed by Buyer in connection herewith, to be true and correct, (b) the breach
of any covenant or agreement of Buyer contained in this Agreement, (c) Buyer's
failure to discharge the Liabilities, or (d) any arrangements or agreements made
or alleged to have been made by Buyer with any broker, finder or other agent in
connection with the transactions contemplated hereby.
10.8 INDEMNIFICATION PROCEDURES. If any party to this Agreement becomes
aware of or receives notice of any third party claim or the commencement of any
third party action or proceeding with respect to which another party (the
"INDEMNITOR") is obligated to provide indemnification under this Article X, the
party entitled to indemnification (the "INDEMNITEE") shall promptly give the
Indemnitor notice thereof. Such notice shall not be a condition precedent to any
liability of the Indemnitor under the provisions for indemnification contained
in this Agreement, unless (and only to the extent that) failure to give such
notice materially prejudices the rights of the Indemnitor with respect to such
claims, actions, or proceedings. The Indemnitor may compromise or defend, at the
Indemnitor's own expense, and by the Indemnitor's own counsel, any such matter
involving the asserted liability of the Indemnitee; provided, however, that no
compromise or settlement thereof may be effected by the Indemnitor without the
Indemnitee's prior written consent (which shall in any event not be unreasonably
withheld or delayed); and further provided that an Indemnitor may not undertake
the defense of any such third party claim (including any compromise or
settlement thereof) unless (i) the claim is solely for monetary damages, and
(ii) the Indemnitor confirms in writing to the Indemnitee, prior to undertaking
such defense or prior to making such compromise or settlement, that the matter
is indemnifiable by the Indemnitor. If the Indemnitor elects not to compromise
or defend such matter, then the Indemnitee, at the Indemnitor's expense and by
the Indemnitee's own counsel, may defend such matter, but regardless of whether
or not the Indemnitor elects to assume the defense of any such matter the
Indemnitee may not compromise the defense thereof without the prior written
consent of the Indemnitor, which consent shall not be unreasonably withheld or
delayed. In any event, the Indemnitee, the Indemnitor and the Indemnitor's
counsel (and, if applicable, the Indemnitee's counsel) shall cooperate in the
compromise of, or the defense against, any such asserted liability. If the
Indemnitor chooses to defend any claim, the Indemnitee shall make available to
the Indemnitor any books, records, or other documents within its control that
are reasonably necessary or appropriate for such defense. The foregoing
indemnity procedures shall not be read as a limitation on either party's right
to seek indemnification under this Article X for matters other than third party
initiated claims or demands.
10.9 PAYMENT. The Indemnitor shall promptly pay the Indemnitee any
amount due under
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this Article X, which payment may be accomplished in whole or in part, at the
option of the Indemnitee, by the Indemnitee setting off against any amount owed
to any Indemnitor by the Indemnitee. To the extent set-off is made by an
Indemnitee in satisfaction or partial satisfaction of an indemnity obligation
under this Article X that is disputed by the Indemnitor, upon a subsequent
determination by final judgment not subject to appeal that all or a portion of
such indemnity obligation was not owed to the Indemnitee, the Indemnitee shall
pay the Indemnitor the amount which was set off and not owed together with
interest from the date of set-off until the date of such payment at an annual
rate equal to the Buyer's floor plan financing rate as in effect from time to
time. Upon judgment, determination, settlement or compromise of any third party
claim, the Indemnitor shall pay promptly on behalf of the Indemnitee, and/or to
the Indemnitee in reimbursement of any amount theretofore required to be paid by
it, the amount so determined by judgment, determination, settlement or
compromise and all other claims of the Indemnitee with respect thereto, unless
in the case of a judgment an appeal is made from the judgment. If the Indemnitor
desires to appeal from an adverse judgment, then the Indemnitor shall post and
pay the cost of the security or bond to stay execution of the judgment pending
appeal. Upon the payment in full by the Indemnitor of such amounts, the
Indemnitor shall succeed to the rights of such Indemnitee, to the extent not
waived in settlement, against the third party who made such third party claim,
but shall continue to defend and indemnify the Indemnitee in any subsequent
proceedings against such third party.
10.10 LIMITATIONS ON INDEMNIFICATION.
(a) Notwithstanding anything herein to the contrary, but subject
to paragraph (c) below, the aggregate liability of Seller and the Stockholder
under Section 10.6 to all Seller Indemnitees shall not exceed the Purchase
Price.
(b) No Indemnitee pursuant to Section 10.6 or 10.7, as the case
may be, shall be entitled to any recovery for any Losses suffered by such
Indemnitee as a result of a breach of a representation and warranty hereunder by
the Indemnitor, unless and until the aggregate amount of all Losses suffered by
such Indemnitee as a result of all breaches of representations and warranties
hereunder by the Indemnitor exceeds $100,000 (the "BASKET"), in which event the
Losses may be claimed, but only to the extent that they exceed the Basket. For
purposes of this Section, the Seller Indemnitees shall be considered as one
Indemnitee and the Buyer Indemnitees shall be considered as one Indemnitee.
(c) Absent a showing of fraud by a party, and assuming the
Closing has occurred, the obligation of a party under this Article X shall be
the sole remedy of any other party against such party for monetary damages for
breach of any representation or warranty or covenant contained in this
Agreement. Nothing herein shall limit a party's right to seek injunctive or
other equitable relief in connection with the enforcement of this Agreement.
10.11 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments and utility charges with respect to the Assets shall be prorated on
a per diem basis and apportioned
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between Seller and Buyer as of the date of the Closing. Seller shall be liable
for that portion of such taxes and assessments relating to, or arising in
respect of, periods on or prior to the Closing Date, and Buyer shall be liable
for that portion of such taxes and assessments relating to, or arising in
respect of, any period after the Closing Date. Any taxes attributable to the
sale or transfer of the Assets to Buyer hereunder shall be paid by Seller.
10.12 NO PUBLICITY. Except as may be required by law or the rules of the
New York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of the transactions contemplated hereby to any
person or entity other than such party's accountants, attorneys, agents and
representatives, all of whom shall be subject to this nondisclosure obligation
as agents of such party. The parties shall cooperate with each other in the
preparation and dissemination of any public announcements of the transactions
contemplated by this Agreement.
10.13 NO NEGOTIATIONS OR DISCUSSIONS. Neither Seller nor the Stockholder
shall, directly or indirectly, at any time on or prior to the Closing Date or
termination of this Agreement (as provided herein), pursue, initiate, encourage
or engage in, any negotiations or discussions with, or provide any information
to, any person or entity (other than Buyer and its representatives and
affiliates) regarding the sale or possible sale to any such person or entity of
any of the Assets or capital stock of Seller or any merger or consolidation or
similar transaction involving Seller.
10.14 MANUFACTURER. Seller shall promptly notify the Manufacturer
regarding the transactions contemplated by this Agreement. Buyer shall promptly
apply to the Manufacturer for, or cause an affiliate of Buyer to apply to the
Manufacturer for, the issuance of franchises to operate automobile dealerships
upon the Real Property. Effective as of the Closing, Seller shall terminate its
Dealer Sales and Service Agreements with the Manufacturer. Seller shall fully
cooperate with Buyer, and take all reasonable steps to assist Buyer, in Buyer's
efforts to obtain its own similar Dealer Sales and Service Agreements with the
Manufacturer. The parties acknowledge that Buyer's Dealer Agreements are subject
to the approval of the Manufacturer and that Buyer would be unable to obtain its
own, similar Dealer Sales and Service Agreements absent Seller's termination of
its agreements.
10.15 SELLER'S EMPLOYEES. Buyer shall have the right, but not the
obligation, to employ any or all of Seller's employees; provided, however, Buyer
agrees to offer employment to a sufficient number of Seller's employees to avoid
triggering any notice requirements under the Worker Adjustment Retraining
Notification Act, 29 U.S.C. ss. 2101 et seq. If permitted by law and applicable
regulations, Seller shall, in consideration for the sale of substantially all of
such Seller's assets in bulk, assign and transfer to Buyer, without additional
charge therefor, the amount of reserve in such Seller's State Unemployment
Compensation Fund with respect to the Subject Business and the corresponding
experience rate.
10.16 TERMINATION
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(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(i) by the written mutual consent of the parties hereto
prior to the Closing Date Deadline;
(ii) by Buyer prior to the Closing Date Deadline in the
event of any breach by Seller or the Stockholder of any of their respective
material representations, warranties, covenants or agreements contained herein;
(iii) by Seller prior to the Closing Date Deadline in the
event of any breach by Buyer of any of Buyer's material representations,
warranties, covenants or agreements contained herein;
(iv) at any time after the Closing Date Deadline, by
written notice by Buyer or Seller (subject to Buyer's option to elect to extend
the Closing Date Deadline in accordance with Section 1.3) to the other parties
hereto if the Closing shall not have occurred on or before the Closing Date
Deadline (as the same may have been extended in accordance with Section 1.3);
(v) by Buyer, not later than January 11, 1999 if Buyer is
not satisfied, in its sole discretion, with the results of its due diligence
investigation; provided, however, if Seller has not complied in all material
respects with its obligations under Section 10.5 by December 5, 1998, such
January 4, 1999 date shall be extended by one day for each day after December 5,
1998 until Seller has so complied.
(vi) by Buyer, by written notice to Seller, or by Seller
by written notice to Buyer in the event that the Manufacturer, or any other
person claiming by, through or under the Manufacturer, shall exercise any right
of first refusal, preemptive right or other similar right, with respect to any
of the Assets; or
(vii) by Buyer, by written notice to Seller if, after any
initial HSR Act filing, the FTC makes a "second request" for information, or if
the FTC or the Antitrust Division challenges the transactions contemplated
hereby;
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii), or (iv) above if such party is in breach of any of its material
representations, warranties, covenants or agreements contained herein.
(b) In the event of termination of this Agreement pursuant to
Section 10.16(a), this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 10.16(a) shall not
relieve: (i) Buyer of any liability under Section 10.16(c) below; (ii) Seller
and the Stockholder of any liability under Section 2.5 above or Section 10.16(d)
below; or (iii) subject to Section 10.16(e) below, any party hereto of any
liability for breach of any
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representation, warranty, covenant or agreement hereunder occurring prior to
such termination.
(c) If this Agreement is terminated by Seller pursuant to Section
10.16(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to the Buyer's breach of its material representations,
warranties, covenants or agreements under this Agreement, then Buyer shall, upon
demand of Seller, promptly pay to Seller in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$2,000,000 (the "BUYER TERMINATION FEE").
(d) If this Agreement is terminated by Buyer pursuant to Section
10.16(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to the Stockholder's or Seller's breach of any of their
respective material representations, warranties, covenants or agreements under
this Agreement, then Seller and the Stockholder, jointly and severally, shall,
upon demand of Buyer, promptly pay to Buyer in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$2,000,000 (the "SELLER TERMINATION FEE").
(e) In the case of termination of this Agreement pursuant to
Section 10.16(a)(iv) hereof, the rights of the terminating party to be paid the
Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall
be such party's sole and exclusive remedy for damages; in the event of such
termination by either party, such party shall have no right to equitable relief
for any breach or alleged breach of this Agreement, other than for specific
performance for the payment of the Seller Termination Fee or the Buyer
Termination Fee, as the case may be. Nothing contained in this Agreement shall
prevent any party from electing not to exercise any right it may have to
terminate this Agreement and, instead, seeking any equitable relief (including
specific performance) to which it would otherwise be entitled in the event of
breach of any other party hereto.
(f) Seller and the Stockholder acknowledge and agree that Buyer's
due diligence investigation of Seller and the Business, including without
limitation, its review of the Schedules attached hereto and the information and
documentation received from Seller, shall not constitute a waiver of, or
otherwise modify, Buyer's right to terminate this Agreement under Section
10.16(a)(v) hereof.
10.17 REAL PROPERTY PURCHASE AGREEMENT. The parties hereto acknowledge
and agree that the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Real Property Purchase Agreement, and the parties intend that the closings of
both such transactions shall occur contemporaneously.
10.18 HSR ACT. Subject to the mutual determination by Buyer and Seller
that compliance by Seller and Buyer with the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT"), is not required, Seller
and Buyer shall each prepare and file with the Federal Trade Commission (the
"FTC") and the Antitrust Division of the Department of Justice (the "ANTITRUST
DIVISION"), and respond as promptly as practicable to all inquiries received
from the FTC or the
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Antitrust Division for additional information or documentation. Buyer shall pay
any HSR Act filing fee. The parties shall request early termination of the
applicable waiting period.
ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement
shall not be assignable by any party hereto without the prior written consent of
the other parties. Buyer may assign this Agreement, without the consent of the
other parties hereto, to a corporation, partnership, limited liability company
or other entity controlled by Buyer, including a corporation, partnership,
limited liability company or other entity to be formed at any time prior to the
Closing Date, and to any person or entity who shall acquire all or substantially
all of the assets of Buyer or of such corporation, partnership, limited
liability company or other entity, controlled by Buyer (including any such
acquisition by merger or consolidation); provided said assignment shall be in
writing and the assignee shall assume all obligations of Buyer hereunder,
whereupon the assignee shall be substituted in lieu of Buyer named herein for
all purposes, provided, however, that Buyer originally named herein shall
continue to be liable with respect to its obligations hereunder. Buyer may
assign this Agreement, without the consent of the other parties hereto, as
collateral security, and the other parties hereto agree to execute and deliver
any acknowledgment of such assignment by Buyer as may be required by any lender
to Buyer. No provision of this Agreement, including this Section 11.1, shall be
construed to limit the right of Seller or Stockholder to assign any of his or
its rights under this Agreement, including, without limitation, all rights to
indemnification under Article X, at any time after Closing; provided, however,
that no such assignment shall be construed as relieving Seller or Stockholder of
any obligations under this Agreement.
11.2 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Georgia.
11.3 ACCOUNTING MATTERS. Except as specifically contemplated by this
Agreement, all accounting matters required or contemplated by this Agreement
shall be in accordance with generally accepted accounting principles.
11.4 FEES & EXPENSES. Except as otherwise specifically provided in this
Agreement, each of the parties hereto shall be responsible for the payment of
such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the schedules
and other documents referred to herein which form a part hereof, contains the
entire understanding of the parties hereto with respect to the subject matter
contained herein and therein. This Agreement may not be amended except by a
writing executed by all of the parties hereto. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject
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matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party.
Any waiver by a party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of such
provision or any other provision of this Agreement. Neither the failure nor any
delay by any party hereto in exercising any right or power under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right or power, and no single or partial exercise of any such right or power
will preclude any other or further exercise of such right or power or the
exercise of any other right or power.
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile or one (1) business day after the date of
deposit with such nationally recognized overnight courier. All such notices,
claims, certificates, requests, demands and other communications shall be
addressed to the respective parties at the addresses set forth below or to such
other address as the person to whom notice is to be given may have furnished to
the others in writing in accordance herewith.
If to Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy No.: (704) 563-5116
Attention: Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy No.: (704) 334-4706
Attention: Edward W. Wellman, Jr.
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If to Seller or the Stockholder, to:
William Morris Whitmire
4412 Paces Battle
Atlanta, Georgia 30327
With a copy to:
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Telecopy No.: (404) 685-6983
Attention: James H. Morgan, Jr.
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts. Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
11.9 KNOWLEDGE. Whenever any representation or warranty of Seller or the
Stockholder contained herein or in any other document executed and delivered in
connection herewith is based upon the knowledge of Seller or the Stockholder,
(a) such knowledge shall be deemed to include (i) the best actual knowledge,
information and belief of Seller and the Stockholder and (ii) any information
which the Stockholder would reasonably be expected to be aware of in the prudent
discharge of his duties in the ordinary course of business (including
consultation with legal counsel) as an officer of Seller, and (b) the knowledge
of the Stockholder shall be deemed to be the knowledge of Seller.
11.10 ARBITRATION.
(a) Any dispute, claim or controversy arising out of or relating
to this Agreement or the interpretation or breach hereof shall be resolved by
binding arbitration under the commercial arbitration rules of the American
Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not
inconsistent with this Agreement. Judgment upon the award of the arbitrators may
be entered in any court having jurisdiction thereof or such court may be asked
to judicially confirm the award and order its enforcement, as the case may be.
The demand for arbitration shall be made by any party hereto within a reasonable
time after the claim, dispute or other matter in question has arisen, and in any
event shall not be made after the date when institution of legal proceedings,
based on such claim, dispute or other matter in question, would be barred by the
applicable statute of limitations. The arbitration panel shall consist of three
(3) arbitrators, one of whom shall be appointed by each of Buyer and Stockholder
within thirty (30) days after any request for arbitration hereunder. The two
arbitrators thus appointed shall choose the third arbitrator within thirty (30)
days after their appointment; provided, however, that if the two arbitrators are
unable to agree on the appointment of the third arbitrator within thirty (30)
days after their appointment, either
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arbitrator may petition the American Arbitration Association to make the
appointment. The place of arbitration shall be Atlanta, Georgia. The arbitrators
shall be instructed to render their decision within sixty (60) days after their
selection and to allocate all costs and expenses of such arbitration (including
legal and accounting fees and expenses of the respective parties) to the parties
in the proportions that reflect their relative success on the merits (including
the successful assertion of any defenses).
(b) Nothing contained in this Section 11.10 shall prevent any
party hereto from seeking any equitable relief to which it would otherwise be
entitled from a court of competent jurisdiction.
11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES.
Subject to Section 11.1, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the respective successors heirs, personal
representatives and permitted assigns of the parties hereto. Nothing in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon or give to any employee of Seller, or any other person, firm, corporation
or legal entity, other than the parties hereto and their heirs, personal
representatives, successors and permitted assigns, any rights, remedies or other
benefits under or by reason of this Agreement.
11.12 HEADINGS. The article headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. This Agreement shall be construed without
regard to the degree to which any of the parties hereto has participated in the
drafting of this Agreement.
11.13 SEVERABILITY. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
11.14 ASSISTANCE IN WINDING UP. Buyer shall provide to Seller and the
Stockholder reasonable assistance in connection with Seller's winding up its
affairs after the Closing. The foregoing assistance shall include, without
limitation, reasonable access to computer records through employees of Buyer,
and otherwise making available, at Seller's reasonable expense, the appropriate
employees of Buyer who were employees of Seller prior to the Closing.
11.15 DEMONSTRATORS; STOCKHOLDER'S OFFICE FURNITURE. Buyer will furnish,
at Buyer's expense, the Stockholder with the use of two demonstrator vehicles,
one VII series BMW and one V series BMW, for a period of three years after the
Closing. The Stockholder shall also be entitled to keep his office furniture
identified on Schedule 11.15.
[SIGNATURES ON FOLLOWING PAGE]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
/s/ O. Bruton Smith
-----------------------------------
By: O. Bruton Smith
Its: Chief Executive Officer
SELLER: GLOBAL IMPORTS, INC.
/s/ William Morris Whitmore
-----------------------------------
By: William Morris Whitmire
Its: President
THE STOCKHOLDER: /s/ William Morris Whitmore (SEAL)
---------------------------
William Morris Whitmire
38
Exhibit 10.36a
AMENDMENT NO. 1
AND
SUPPLEMENT
TO
ASSET PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 AND SUPPLEMENT TO ASSET PURCHASE
AGREEMENT (this "AMENDMENT") is made and entered into as of this 18th day of
February, 1999, by and among SONIC AUTOMOTIVE, INC., a Delaware corporation
("BUYER"), GLOBAL IMPORTS, INC., a Georgia corporation ("SELLER"), and WILLIAM
MORRIS WHITMIRE (the "STOCKHOLDER").
W I T N E S S E T H:
WHEREAS, the parties hereto have entered into that certain Asset
Purchase Agreement dated as of November 25, 1998 (the "ASSET PURCHASE
AGREEMENT") (capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned to them in the Asset Purchase Agreement); and
WHEREAS, the parties hereto wish to amend and supplement the Asset
Purchase Agreement as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, and intending to be legally bound, the parties hereto
hereby agree as follows:
1. SCHEDULES. The following Schedules to the Asset Purchase
Agreement have been agreed to by the parties and are attached to this Amendment:
Schedule Description
-------- ------------
2.4, Part I,
Annex A Contracts and Leases
7.2 Compliance re: Seller and Stockholder
7.3 Pending or Threatened Actions, Suits or Proceedings
7.4 Encumbrances on the Assets
7.5 Permits and Approvals
7.6(a) Financial Statements
7.6(b) Exceptions to GAAP
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7.8(a) Compliance with Laws
7.8(b) Environmental Matters
2
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7.9 Fixtures & Equipment
7.12 Taxes
7.13 Employee Matters
11.15 Office Furniture
2. AMENDMENTS.
(a) Section 1.3 of the Asset Purchase Agreement is hereby amended
by deleting the existing Section 1.3 in its entirety and inserting in lieu
thereof the following:
"1.3 "CLOSING DATE DEADLINE" shall mean March 1, 1999."
(b) The Business and Intangible Assets Purchase Price, as the
same appears in the first sentence of Section 2.2(a) of the Asset Purchase
Agreement, is hereby amended to read "Eleven Million Three Hundred Thousand
Dollars ($11,300,000)".
(c) The term "Four Million One Hundred Fifty Thousand Dollars
($4,150,000)", as the same appears in Section 2.2(b) of the Asset Purchase
Agreement, is hereby amended to read "Three Million One Hundred Fifty Thousand
Dollars ($3,150,000)".
(d) Subsection 2.2(c) of the Asset Purchase Agreement is hereby
deleted in its entirety and a new Subsection 2.2(c), as well as new Subsections
2.2(d), (e), (f), (g), (h), (i) and (j) are hereby inserted as follows:
"(c) In payment of the balance of the Initial Purchase
Price (the "STOCK COMPONENT"), Buyer shall issue and deliver to Seller
that number of whole shares of Buyer's Class A Convertible Preferred
Stock, Series III (the "PREFERRED STOCK"), obtained by (A) multiplying
(I) 452,778, as proportionately increased for any increase after
November 25, 1998 and prior to the Closing in the number of outstanding
shares of Buyer's Class A Common Stock, $.01 par value per share (the
"COMMON STOCK"), by way of stock dividend, stock distribution or
subdivision or as proportionately decreased for any decrease after
November 25, 1998 and prior to the Closing in the number of outstanding
shares of Common Stock by way of combination, consolidation,
reclassification or otherwise, by (II) the Market Price (as defined in
the Statement of Rights and Preferences of Preferred Stock attached
hereto as Exhibit A (the "STATEMENT OF RIGHTS AND PREFERENCES")) as of
the Closing Date, and (B) dividing the product obtained from such
multiplication by $1,000. No fractional shares of Preferred Stock shall
be issued; any such fraction of a share of Preferred Stock shall be paid
in cash at the rate of $1,000 per whole share of Preferred Stock. The
Preferred Stock shall have such rights and preferences as are set forth
in the Certificate of Designation, Preferences and Rights of Class A
Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATION") referred
to in the Statement of Rights and Preferences.
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(d) Buyer will use its best reasonable efforts to include
all of the shares of Common Stock issuable upon conversion of the
Preferred Stock, plus any
4
<PAGE>
Special Additional Shares (as defined and as provided in Subsection
2.2(g) below (collectively, the "PIGGYBACK COMMON SHARES")), in an
underwritten public offering of Buyer's Common Stock (the "PUBLIC
OFFERING") in accordance with the Securities Act of 1933, as amended
(the "SECURITIES ACT"), on a "piggyback" registration basis on or prior
to April 30, 1999. Seller shall sell in the Public Offering all
Piggyback Common Shares which Buyer is able to register in the Public
Offering, unless the managing or lead managing underwriter in the Public
Offering requires that Seller sell fewer than all of the Piggyback
Common Shares or Buyer and Seller mutually agree that a fewer number of
Piggyback Common Shares will be registered and sold.
(e) If requested by the managing or lead managing
underwriter in the Public Offering, Seller and the Stockholder shall
execute and deliver such customary documentation as is utilized by such
underwriter for selling stockholders in underwritten public offerings
including, without limitation, an underwriting agreement and a "lock-up"
agreement with the managing or lead managing underwriter in such forms
as are customarily used by such underwriter. In connection with any such
registration, Seller and the Stockholder shall supply to Buyer such
information as may be reasonably requested by Buyer in connection with
the preparation and filing of a registration statement with the
Securities and Exchange Commission (the "SEC"). Seller and the
Stockholder shall not supply any information to Buyer for inclusion in
such registration statement that will, taken as a whole, at the time the
registration statement becomes effective under the Securities Act,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading. Buyer shall pay all expenses of
registration of the Piggyback Common Shares except for the fees and
expenses of separate counsel, if any, engaged by Seller, underwriter
discounts and allowances for the sale of such Shares, and blue sky fees
to the extent the applicable state laws require payment by Seller.
(f) Any of the Piggyback Common Shares which have not been
registered and sold pursuant to the Public Offering by April 30, 1999
(other than as a result of a failure by Seller to participate in the
Public Offering) will be registered by Buyer in a "shelf" registration
statement (including any required post-effective amendment) under the
Securities Act as promptly as possible after April 30, 1999 but in no
event later than May 31, 1999; provided, however, Buyer may either (i)
delay the effectiveness of any such shelf registration statement until
the expiration of any "lock-up" period required by the underwriters in
the Public Offering or (ii) not delay such effectiveness, in which case
Seller hereby agrees to be bound by any such "lock-up" as fully as if
Seller had signed the applicable lock-up agreement required by such
underwriters. Upon notice by Buyer to Seller that such shelf
registration statement is effective (including any required
post-effective amendment) and that any such "lock-up" has expired,
Seller shall have a period of ten (10) days from the
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date of such notice (the "SHELF REGISTRATION CONVERSION PERIOD") to
surrender to Buyer for conversion into shares of Common Stock up to all
shares of Preferred Stock held by Seller, and such shares of Common
Stock issued upon such conversion shall be included in such shelf
registration. Any shares of Common Stock issued upon conversion of
shares of Preferred Stock which are surrendered for conversion after the
expiration of the Shelf Registration Conversion Period shall not be
included in such shelf registration. All shares of Common Stock which
are included in such "shelf" registration in accordance with the
foregoing provisions, as well as any Special Additional Shares issued
pursuant to Subsection 2.2(g) below are hereinafter collectively called
the "REGISTERED COMMON SHARES".
(g) (i) Seller shall not be obligated to convert any
shares of the Preferred Stock until either (A) in the case of the Public
Offering, Seller is notified by Buyer that such conversion is necessary
in order for Seller to participate in the Public Offering (which notice
Buyer agrees to give to Seller in a timely fashion to enable Seller to
convert the applicable number of shares of Preferred Stock), or (B) in
the case of a "shelf" registration statement under Subsection 2.2(f)
above, the time required by said Subsection 2.2(f). If Seller elects to
convert any shares of Preferred Stock prior to the time(s) required in
clauses (A) or (B) of the immediately preceding sentence or after the
expiration of the Shelf Registration Conversion Period, the provisions
of this Subsection 2.2(g) shall not apply with respect to such shares of
Preferred Stock so elected to be converted.
(ii) With respect to any shares of Preferred
Stock as to which the provisions of this Subsection 2.2(g) shall apply,
Seller shall receive the number of shares of Common Stock issuable upon
conversion of such shares of Preferred Stock in accordance with
Subsection 2(a)(iv) of the Certificate of Designation, subject to the
following:
(A) If, as a result of the provisions of
the third sentence of Subsection 2(a)(iv) of the Certificate of
Designation, the number of shares of Common Stock to be issued
upon conversion of each of such shares of Preferred Stock would
be less than the Series III Conversion Amount (as defined in said
Subsection 2(a)(iv)) as of the date of issuance of such shares of
Preferred Stock (the "ORIGINAL CONVERSION AMOUNT"), Buyer shall
issue to Seller, at no additional cost to Seller, such number of
additional shares of Common Stock, if any, which, when added to
the number of shares of Common Stock to be issued upon such
conversion, will result in Seller receiving, in connection with
such conversion, the number of shares of Common Stock Seller
would have received had the number of shares of Common Stock
issued upon such conversion been determined solely based upon the
Original Conversion Amount;
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(B) With respect to any shares of Preferred
Stock converted by Seller in order for Seller to participate in
the Public Offering (the "PUBLIC OFFERING PREFERRED STOCK"), if
the closing price for a share of Common Stock on the New York
Stock Exchange for the trading day immediately preceding the date
of the effectiveness of the registration statement in the Public
Offering (the "PUBLIC OFFERING REGISTRATION PRICE") is less than
the Market Price (as hereinafter defined) as of the date of the
issuance of the shares of Public Offering Preferred Stock, then
Buyer shall issue and deliver to Seller, at no additional cost to
Seller, that number of additional shares of Common Stock, if any,
which, when added to the number of shares of Common Stock issued
or to be issued upon the conversion of the Public Offering
Preferred Stock, would result in Seller receiving, in connection
with such conversion, the number of shares of Common Stock Seller
would have received had the number of shares of Common Stock
issued upon such conversion of each share of Public Offering
Preferred Stock converted been determined by dividing $1,000 by
the Public Offering Registration Price. Any such additional
shares of Common Stock which are not included in the Public
Offering (other than as a result of a failure by Seller to
participate in the Public Offering) will be "Special Additional
Shares" for purposes of the "shelf" registration statement under
Subsection 2.2 (f) above.
(C) With respect to any shares of Preferred
Stock converted by Seller in connection with a "shelf"
registration statement under Subsection 2.2(f) above (the "SHELF
REGISTRATION PREFERRED STOCK"), if the closing price for a share
of Common Stock on the New York Stock Exchange for the trading
day immediately preceding the later of (x) the date of the
effectiveness of such "shelf" registration statement (including
any required post-effective amendment) or (y) the date of any
"lock-up" referred to in Subsection 2.2(f) (the "SHELF
REGISTRATION PRICE") is less than the Market Price as of the date
of the issuance of the shares of Shelf Registration Preferred
Stock, then Buyer shall issue and deliver to Seller, at no
additional cost to Seller, that number of additional shares of
Common Stock, if any, which, when added to the number of shares
of Common Stock issued or to be issued upon the conversion of the
Shelf Registration Preferred Stock, would result in Seller
receiving, in connection with such conversion, the number of
shares of Common Stock Seller would have received had the number
of shares of Common Stock issued upon such conversion of each
share of the Shelf Registration Preferred Stock converted been
determined by dividing $1,000 by the Shelf Registration Price.
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(iii) Any additional shares of Common Stock to be issued
and delivered by Buyer to Seller pursuant to Subsection 2.2(g)(ii) above
are herein referred to as the "SPECIAL ADDITIONAL SHARES".
(h) If Seller shall elect not to convert any shares of
Preferred Stock within the Shelf Registration Conversion Period, Buyer's sole
obligation with respect to such shares of Preferred Stock and the shares of
Common Stock issuable upon conversion of such shares of Preferred Stock (the
"UNREGISTERED COMMON SHARES") shall be (A) to use its best reasonable efforts to
make available current public information with respect to Buyer within the
meaning of Subsection (c)(1) of Rule 144 ("RULE 144") promulgated by the SEC to
the extent necessary to facilitate public resales by the Seller of the
Unregistered Common Shares, pursuant to Rule 144, and (B) to remove stop
transfer instructions and restrictive legends, as provided in subsection (j)
below.
(i) Buyer shall not exercise any rights of redemption it
has regarding the Preferred Stock, as such rights are more fully set forth in
the Certificate of Designation, until the later of (A) the closing of the Public
Offering, or (B) the expiration of the Shelf Registration Conversion Period.
(j) Buyer shall remove any and all stop transfer
instructions and shall remove any restrictive legend on the certificates with
respect to the Preferred Stock and any Unregistered Common Shares then owned by
Seller to the extent that either (A) such Preferred Stock or Unregistered Common
Shares may hereafter be registered under the Securities Act and under any
applicable state securities or blue sky laws, or (B) Buyer has received an
opinion of counsel, in form and substance reasonably satisfactory to the Buyer,
that such registration is not required. Upon receipt of reasonable evidence that
the requirements of Rule 144(k) have been complied with (including an opinion of
counsel reasonably satisfactory to Buyer to such effect), Buyer shall remove any
and all stop transfer instructions and shall remove any restrictive legend on
such certificates."
(e) The term "$1,000,000, equal to five (5)", as the same appears
in the first sentence, second line, of Section 2.3(a) of the Asset Purchase
Agreement, is hereby amended to read "$2,000,000, equal to ten (10)".
(f) The number "$1,000,000", as the same appears in the
"provided, however," clause at the end of Section 2.3(b) of the Asset Purchase
Agreement, is hereby amended to read "$2,000,000".
(g) The number "$1,000,000", as the same appears in Section
2.3(c) of the Asset Purchase Agreement, is hereby amended to read "$2,000,000".
(h) Section A of Exhibit A to the Asset Purchase Agreement is
hereby amended
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by deleting the existing Section A in its entirety and inserting in lieu thereof
the following:
"A. General
The Preferred Stock will consist of that number of whole shares
of the Buyer's Class A Convertible Preferred Stock, Series III, having a
par value of $.10 per share (the "Preferred Stock"), obtained by (a)
multiplying (I) 452,778, as proportionately increased for any increase
after November 25, 1998 and prior to the Closing in the number of
outstanding shares of Common Stock by way of stock dividend, stock
distribution or subdivision or as proportionately decreased for any
decrease after November 25, 1998 and prior to the Closing in the number
of outstanding shares of Common Stock by way of combination,
consolidation, reclassification or otherwise, by (II) the Market Price
(as defined below) as of the Closing Date, and (b) dividing the product
obtained from such multiplication by $1,000."
(i) The definition of "Market Price", as the same appears in the
sixth paragraph of Section C of Exhibit A to the Asset Purchase Agreement, is
hereby amended by deleting such paragraph in its entirety and inserting in lieu
thereof the following:
"The "Market Price" will be defined as the average closing price
per share of Common Stock on the New York Stock Exchange for the twenty
trading days immediately preceding the date of determination, adjusted
(as reported by the New York Stock Exchange) for any increase in the
number of outstanding shares of Common Stock by way of stock dividend,
stock distribution or subdivision or any decrease in the number of
outstanding shares of Common Stock by way of combination, consolidation,
reclassification or otherwise."
3. ADDITIONAL TERMS RELATING TO THE REGISTERED COMMON SHARES. The
parties agree, with respect to the issuance and delivery of the Registered
Common Shares to Seller, as follows:
(a) Buyer shall have no obligation to maintain the currency of
any prospectus, permit the use of any prospectus or maintain the effectiveness
of any registration statement for the resale of the Registered Common Shares
once all of the Registered Common Shares that remain unsold may be sold without
restriction pursuant to Rule 144.
(b) Seller and the Stockholder agree and acknowledge, with regard
to the offer or resale by either of them of any of the Registered Common Shares,
that:
(i) Seller and the Stockholder agree that they shall
effect each resale of Registered Common Shares only pursuant to a current
prospectus or supplements thereto that is a part of the shelf registration
statement under Subsection 2.2(f) above (the "RESALE PROSPECTUS");
(ii) Any offering of any of the Registered Common Shares
under the
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Resale Prospectus by either of them will be effected in an orderly manner
through a securities dealer, acting as broker or dealer, selected by Seller or
the Stockholder and reasonably acceptable to Buyer (the "DESIGNATED BROKER");
(iii) Seller and the Stockholder will make resales of
Registered Common Shares only by one or more methods described in the Resale
Prospectus, as appropriately supplemented or amended when required;
(iv) Since the Registered Common Shares are "restricted
securities" within the meaning of Rule 145 promulgated by the SEC under the
Securities Act, the certificates representing the Registered Common Shares will
be issued by Buyer with such legends as Buyer may reasonably require until such
shares are offered pursuant to the foregoing terms under the Resale Prospectus,
at which time such certificates shall be tendered to Buyer and a new certificate
or certificates without legends shall be issued by Buyer to the Designated
Broker in order to settle any resales by Seller or the Stockholder;
(v) Seller and the Stockholder shall provide Buyer, in
writing, with all information concerning Seller and the Stockholder and their
resale of the Registered Common Shares as may reasonably be requested by Buyer
in order to comply with the Securities Act, and the Seller and the Stockholder
shall indemnify Buyer for any liabilities (the "SELLER'S LIABILITIES") arising
under the Securities Act, the Securities Exchange Act of 1934 or any state
securities or blue sky laws resulting from any material misstatements in, or
omissions of material information from, such information provided by Seller and
the Stockholder to Buyer pursuant to this clause (v); and
(vi) Seller and the Stockholder shall pay any and all
expenses directly related to the resale of the Registered Common Shares,
including, but not limited to, the commissions or fees of the Designated Broker.
(c) Buyer agrees that:
(i) Buyer shall use its best reasonable efforts to list
the Registered Common Shares for trading on the New York Stock Exchange;
(ii) Buyer shall pay all expenses, including legal and
accounting fees, in connection with the preparation, filing and maintenance of
the shelf registration statement under Subsection 2.2(f) above, including
amendments thereto, the Resale Prospectus, including supplements thereto, the
issuance of certificates representing the Registered Common Shares, and other
expenses incurred by Buyer in meeting its obligations set forth in Section
2.2(c) of the Asset Purchase Agreement, as amended hereby, and in this Section
3; and
(iii) Buyer shall indemnify Seller and the Stockholder for
any liabilities arising under the Securities Act, the Securities Exchange Act of
1934 or any state securities or blue sky laws resulting from any material
misstatements in, or omissions of material information from, the Resale
Prospectus or the shelf registration statement under Subsection 2.2(f) above,
including
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the information incorporated by reference therein, except for the Seller's
Liabilities.
(d) Notwithstanding any provision of the Asset Purchase
Agreement, as amended hereby, to the contrary, Seller and the Stockholder shall
not have any right to take any action (and Seller and the Stockholder hereby
agree that neither of them shall take any action) to restrain, enjoin or
otherwise delay any registration as a result of any controversy that might arise
with respect to the interpretation or implementation of the Asset Purchase
Agreement, as amended hereby. Nothing contained in this Section 3(d) shall
prevent the making of a claim for monetary relief.
4. ASSET PURCHASE AGREEMENT CONFIRMED. Except as provided in this
Amendment, the Asset Purchase Agreement is hereby confirmed, as amended hereby,
and shall continue in full force and effect.
[SIGNATURES ON NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
--------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
SELLER: GLOBAL IMPORTS, INC.
By: /s/ William Morris Whitmire
--------------------------------
Name: William Morris Whitmire
Title: President
THE STOCKHOLDER: /s/ William Morris Whitmire (SEAL)
------------------------------------
Name: William Morris Whitmire
12
Exhibit 10.37
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "AGREEMENT") is made this 26th day
of February, 1999 by and among SONIC AUTOMOTIVE, INC., a Delaware corporation
("BUYER"), LUTE RILEY MOTORS, INC., a Texas corporation ("SELLER"), and L. S.
RILEY ("STOCKHOLDER").
WITNESSETH:
WHEREAS, Seller is engaged in the business (the "BUSINESS") of owing and
operating a Honda automobile dealership business at 1331 N. Central Expressway,
Richardson, Texas and 330 Melrose, Richardson, Texas and an automobile repair
body shop located at 2345 West Mockingbird, Dallas, Texas;
WHEREAS, Seller desires to sell and Buyer desires to buy, or to cause
one or more subsidiaries or affiliates of Buyer to buy, certain assets
pertaining to the Business, subject to the terms and conditions of this
Agreement;
WHEREAS, contemporaneously with the execution of this Agreement, Buyer
has entered into a Contract to Purchase and Sell Property (the "REAL PROPERTY
PURCHASE AGREEMENT") with L. S. Riley, R. Leona Riley and the Lucien S. Riley
and R. Leona Riley Family Partnership, Ltd., a Texas limited partnership (the
"OWNERS"), whereby Buyer has agreed to buy, and the Owners have agreed to sell
the Real Property (used herein as defined in the Real Property Purchase
Agreement); and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Real Property Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the receipt and legal sufficiency of which are hereby
acknowledged, and intending to be legally bound, the parties hereby agree as
follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1 "ASSETS" shall mean: the New Vehicles (as defined in Section 3.1);
the Demonstrators (as defined in Section 3.2); the Used Vehicles (as defined in
Section 3.5), if any; the Parts (as defined in Section 4.3); the Miscellaneous
Inventories (as defined in Section 5.1); the Work in Progress (as defined in
Section 5.3(a)); the Prepaid Expenses (as defined in Section
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5.3(b)); the Fixtures and Equipment (as defined in Section 5.4); the
Miscellaneous Assets (as defined in Section 5.5); and the goodwill of the
Business.
1.2 "CLOSING DATE" shall mean the date, not later than the Closing Date
Deadline (as hereinafter defined), of the closing of the purchase and sale of
the Assets (the "CLOSING") which shall be a date designated by Buyer, after
receipt by Buyer of the approvals, and the satisfaction of the other conditions,
set forth in Sections 8.8, 8.13 and 8.16, or such other date as is mutually
agreed upon by the parties hereto. The Closing shall be held at the offices of
Parker, Poe, Adams & Bernstein L.L.P., 2500 Charlotte Plaza, Charlotte, North
Carolina, at 9:00 a.m. on the Closing Date.
1.3 "CLOSING DATE DEADLINE" shall mean the date that is the ninetieth
(90th) day after the date of this Agreement first set forth above; provided,
however, if, as of such date, the approvals set forth in Sections 8.8, 8.13 and
8.16 of this Agreement shall not have been obtained and/or audited financial
statements contemplated by Section 8.18 hereof shall not have been completed,
Buyer may elect to extend the Closing Date Deadline for an additional thirty
(30) days. In addition to the foregoing, if Seller shall have failed to furnish
to Buyer the due diligence materials set forth in Schedule 10.5 and in Paragraph
7(a) of the Real Property Agreement by the eighth (8th) day after the date of
this Agreement (the "Due Diligence Delivery Date"), Buyer may also elect to
extend (or further extend) the Closing Date Deadline one (1) additional day for
each day after the Due Diligence Delivery Date the Seller fails to send such
materials to Buyer. In addition to the foregoing, Buyer may also elect to extend
(or further extend) the Closing Date Deadline in accordance with Paragraph 7(d)
of the Real Property Purchase Agreement. Any reference herein to the term
"Closing Date Deadline" shall mean the Closing Date Deadline, as the same may
have been so extended.
1.4 "INVENTORY DATE" shall mean the close of business on the date of
completion of the Inventory (as defined in Section 4.1), which date shall not be
more than three (3) days prior to the Closing Date, or such later date prior to
the Closing as is mutually agreed by Seller and Buyer.
1.5 "LIABILITIES" shall mean (i) all obligations of Seller, arising in
the ordinary course of business after the Closing Date, and not as a result of
any breach or default, under (A) each contract or lease of Seller set forth on
Annex A of Schedule 2.4 attached hereto, and (B) each other contract or lease of
Seller that is entered into in connection with the Business in the ordinary
course of business at any time after the date hereof and on or prior to the
Closing Date, but only if, in the case of clauses (A) and (B), Buyer has agreed
to assume such contract or lease pursuant to the Assumption Agreement (as
defined in Section 2.4 below); (ii) Seller's chargeback liability to Honda Auto
Credit for losses on applicable finance chargebacks, including with respect to
the cancellation of any extended warranties issued by Honda; and (iii) the
Inducement Fee as provided in Section 2.5 hereof.
1.6 "MANUFACTURER" shall mean American Honda Motor Co., Inc.
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ARTICLE II
SALE AND PURCHASE OF THE ASSETS
2.1 SALE AND PURCHASE. Upon the terms and subject to the conditions
hereinafter set forth, at the Closing, Seller will sell, transfer and convey the
Assets to Buyer and Buyer will purchase the Assets from Seller for the
consideration set forth in this Agreement. The sale, transfer and conveyance of
the Assets will be made by execution and delivery at the Closing of a bill of
sale in a form reasonably satisfactory to Buyer's counsel (the "BILL OF SALE")
and such other instruments of assignment, transfer and conveyance as Buyer shall
reasonably request. Except to the extent specifically included within the
Assets, Seller will not sell, and Buyer will not purchase, any other tangible or
intangible assets of Seller.
2.2 PURCHASE PRICE. The aggregate purchase price (the "PURCHASE PRICE")
to be paid for the Assets shall consist of Forty-Two Million One Hundred
Thousand Dollars ($42,100,000), as the purchase price for the Business and
intangible assets included in the Assets (the "BUSINESS AND INTANGIBLE ASSETS
PURCHASE PRICE"), plus the sum of: (a) the New Vehicle Purchase Price (as
defined in Section 3.1); (b) the Demonstrator Purchase Price (as defined in
Section 3.2); (c) the Used Vehicle Purchase Price (as defined in Section 3.5),
if applicable; (d) the Parts Purchase Price (as defined in Section 4.4); (e) the
Miscellaneous Inventories Purchase Price (as defined in Section 5.1); (f) the
Work in Progress and Prepaid Expenses Purchase Price (as defined in Section
5.3(a)); and (g) the Fixtures and Equipment Purchase Price (as defined in
Section 5.4). The parties acknowledge that the New Vehicle Purchase Price, the
Parts Purchase Price and the Miscellaneous Inventories Purchase Price will be
based upon information contained in Schedule 3.1 and the Inventory (as defined
in Section 4.1), all of which are to be delivered prior to the Closing Date. The
parties also acknowledge that adjustments to those categories of Assets will
have to be made to reflect ordinary course increases or decreases in those
assets between the time of delivery of such Schedule 3.1 and the Inventory and
the Closing Date, and that the related components of the Purchase Price will
have to be adjusted to reflect any such adjustments to those Assets. All of the
foregoing adjustments (with appropriate payments by the parties in cash) will be
made as promptly as possible after the Closing. Each party will use the Purchase
Price allocation described in Schedule 2.2 in all reporting to, and tax returns
filed with, the Internal Revenue Service and other state and local taxing
authorities.
2.3 PAYMENT. At the Closing, Buyer shall pay the Purchase Price as
follows:
(a) The Buyer shall deliver to Seller cash, by a certified check
or by wire transfer, to an account or accounts designated by Seller one Business
Day prior to Closing, in an amount equal to 75% of the Purchase Price. As used
herein, the term "BUSINESS DAY" is a day other than a Saturday, a Sunday or a
day on which banks are required to be closed in the State of Texas.
(b) In payment of the balance of the Purchase Price, Buyer shall
issue and deliver to Seller, that number of whole shares (the "SHARES") of
Buyer's Class A Convertible Preferred Stock, Series III (the "PREFERRED STOCK"),
obtained by dividing such balance of the Purchase Price
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by $1,000. No fractional shares of Preferred Stock shall be issued; any such
fraction of a share of Preferred Stock shall be paid in cash at the rate of
$1,000 per whole share of Preferred Stock. The Shares shall be convertible into
shares of Buyer's Class A Common Stock, par value $.01 per share (the "COMMON
STOCK"), and shall have such other rights and preferences as are set forth in
the Statement of Rights and Preferences of Preferred Stock attached hereto as
Exhibit A. After the Closing, Buyer's sole obligation with respect to the Shares
and the Common Stock issuable upon conversion thereof (the "CONVERSION STOCK")
shall be as follows:
(i) Buyer shall use its best reasonable efforts to make
available "current public information" about itself within the meaning of
subsection (c)(1) of Rule 144 promulgated by the SEC under the Securities Act
("RULE 144") to the extent necessary to facilitate resales of the Conversion
Stock pursuant to Rule 145(d) of the Securities Act of 1933, as amended (the
"SECURITIES ACT"); and
(ii) Buyer shall remove stock transfer instructions on and
restrictive legends from certificates representing the Conversion Stock to the
extent that either (A) the offer and sale of the Shares or the Conversion Stock
may hereafter be registered under the Securities Act and under any applicable
state securities laws or (B) Buyer has received an opinion of counsel, in form
and substance reasonably satisfactory to Buyer, that registration of such offer
and sale is not required.
2.4 ASSIGNMENT AND ASSUMPTION. At the Closing, Seller will assign to
Buyer its Liabilities, and Buyer will assume and agree to perform and discharge
the Liabilities pursuant to an assignment and assumption agreement in a form
reasonably acceptable to Seller's counsel (the "ASSUMPTION AGREEMENT").
Notwithstanding anything herein to the contrary, except as expressly provided in
this Section 2.4 and elsewhere in this Agreement and in the Assumption
Agreement, Buyer does not and will not assume or become liable for any
obligations or liabilities of Seller, of any kind whatsoever, fixed or
contingent, known or unknown (collectively, the "RETAINED LIABILITIES"), as a
result of the transactions contemplated in this Agreement. Seller shall retain
and agrees to satisfy and discharge all of the Retained Liabilities, including
the Retained Liabilities set forth on Part II of Schedule 2.4.
2.5 INDUCEMENT FEE. As an inducement to Buyer to negotiate and enter
into this Agreement and to undertake the further cost and expense of conducting
its due diligence investigation and preparing to satisfy its obligations at the
Closing, Seller hereby agrees to pay to Buyer not later than July 15, 1999 the
sum of $500,000 (the "INDUCEMENT FEE"). The Inducement Fee will be included in
the Liabilities and will become an obligation of Buyer or any other person
(including any holder of a right of first refusal, preemptive right or other
similar right), with respect to any of the Assets who purchases the Assets, or
any portion thereof, as a result of the execution and delivery by Seller of this
Agreement. The Inducement Fee will be canceled if this Agreement is terminated
for any reason other than the exercise of a right of first refusal, preemptive
right or other similar right, by an applicable automobile manufacturer or
distributor or any person claiming by, through or under it.
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2.6 NON-COMPETITION AGREEMENT. At the Closing, Seller and L. S. Riley
shall enter into a non-competition agreement with Buyer in substantially the
form of Exhibit B attached hereto (the "NON-COMPETITION AGREEMENT"). $10,000 of
the Business and Intangible Assets Purchase Price shall be allocated to the
non-compete covenant set forth in the Non-Competition Agreement.
ARTICLE III
NEW VEHICLES; DEMONSTRATORS AND USED VEHICLES
3.1 NEW VEHICLES. At the Closing, Buyer shall purchase all of Seller's
untitled new 1999 and 1998 motor vehicles in Seller's stock and unsold by Seller
as of the Closing Date and which are listed on Schedule 3.1 hereto, which Seller
shall deliver to Buyer not more than three (3) days prior to the Closing (all
such vehicles are collectively referred to hereinafter as the "NEW VEHICLES").
The purchase price to be paid by Buyer for each New Vehicle shall be the price
at which the New Vehicle was invoiced to Seller by the Manufacturer, as adjusted
pursuant to this Article III (the sum of all such amounts to be paid for New
Vehicles as determined by this Article III is herein referred to as the "NEW
VEHICLE PURCHASE PRICE"). Schedule 3.1 shall set forth the model, invoice cost,
and all other information necessary to calculate the New Vehicle Purchase Price
with respect to each New Vehicle listed in such Schedule 3.1. At the Closing,
Seller shall assign to Buyer, and Buyer shall assume, without any additional
consideration therefor, by appropriate documents reasonably satisfactory to
Buyer, all unfilled retail orders and deposits made thereon. Any profits or
proceeds derived from such unfilled retail orders shall belong to Buyer. In the
event any such retail order shall be canceled or terminated, Buyer shall be
responsible for refunding any deposit made thereon provided such deposit has
been assigned to Buyer.
3.2 DEMONSTRATORS. At the Closing, Buyer shall purchase all of Seller's
untitled 1999 and 1998 motor vehicles in Seller's stock and unsold by Seller as
of the Closing Date which are used in the ordinary course of business for the
purpose of demonstration and that are listed on Schedule 3.2, which Seller shall
deliver to Buyer no more than three (3) days prior to the Closing (all such
vehicles are collectively referred to herein as the "DEMONSTRATORS"). For
purposes of this Agreement, any motor vehicle with more than 6,000 miles on its
odometer shall be deemed to be "used" rather than a "Demonstrator." The purchase
price to be paid by Buyer for each Demonstrator shall be the price at which the
Demonstrator was invoiced to Seller by the Manufacturer, as adjusted pursuant to
this Article III, and as reduced by an amount equal to ten cents ($.10)
multiplied by the amount equal to (i) the total mileage on such odometer, less
(ii) 200 miles (the sum of all such amounts to be paid for Demonstrators
hereunder is herein referred to as the "DEMONSTRATOR PURCHASE PRICE"). Schedule
3.2 shall set forth each Demonstrator's model, invoice cost, odometer reading
and all other information necessary to calculate the Demonstrator Purchase Price
with respect to such Demonstrator.
3.3 ADJUSTMENT OF NEW VEHICLE AND DEMONSTRATOR PURCHASE PRICE. The
purchase price paid for each New Vehicle and each Demonstrator purchased under
this Article III shall be: (a) increased by the dealer cost (including labor) of
any equipment and accessories which have been installed by Seller; and (b)
decreased by (i) the dealer cost (including labor) of any equipment and
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accessories which have been removed from such vehicles, (ii) all paid or unpaid
rebates, discounts, holdback for dealer account and other factory incentives
with respect to such New Vehicle or Demonstrator (including without limitation
rebates applied for and paid but not earned, incentive monies claimed on
pre-reported units and carryover allowances on 1997 models), and (iii) all
refundable advertising allowances, if any.
3.4 DAMAGED OR REPAIRED NEW VEHICLES AND DEMONSTRATORS. In the event any
New Vehicle or Demonstrator shall have been damaged prior to the Closing Date
which is not reflected on Schedule 3.1 or Schedule 3.2, or is otherwise in a
condition such that it cannot reasonably be presented as being in a first class
saleable condition, Seller and Buyer will attempt to agree on the cost to cover
such repairs or some other equitable reduction in value to reflect such
condition, which amount shall be deducted from the price to be paid for such New
Vehicle or Demonstrator. In the event Buyer and Seller cannot agree on the cost
of repairs or the amount of reduction, Buyer shall have no obligation to
purchase any such damaged New Vehicle or Demonstrator. With respect to any New
Vehicle or Demonstrator which shall have been damaged and repaired prior to the
Closing Date, Seller and Buyer will attempt to agree on an adjustment to the
price to reflect the decrease, if any, in the wholesale value of such New
Vehicle or Demonstrator resulting from such damage and repair, which amount
shall be deducted from the price to be paid for such New Vehicle or
Demonstrator. In the event Buyer and Seller cannot agree on such adjustment,
Buyer shall have no obligation to purchase such New Vehicle or Demonstrator.
Seller shall notify Buyer on or prior to the Closing Date if any New Vehicles or
Demonstrators shall have suffered any damage which is not reflected on Schedules
3.1 and 3.2.
3.5 USED VEHICLES. Buyer shall have no obligation to purchase any
vehicle from Seller other than its obligation hereunder to purchase the New
Vehicles and the Demonstrators. Seller and Buyer shall perform an inventory of
Seller's motor vehicles that are not New Vehicles or Demonstrators as of the
Inventory Date (including, without limitation, Seller's "rental fleet"), and, in
connection with such inventory, Seller and Buyer shall attempt to assign a
mutually agreed price to each such vehicle owned by Seller as of the Closing
Date. Any such vehicles as to which Seller or Buyer are unable to agree upon a
price shall not be purchased by Buyer in connection herewith. Any such vehicles
as to which Seller and Buyer shall agree upon a price are collectively referred
to herein as the "USED VEHICLES" and shall be purchased by Buyer at the Closing.
The sum of all prices assigned to such Used Vehicles to be purchased by Buyer
pursuant to the terms of this Section 3.5 shall be referred to herein as the
"USED VEHICLE PURCHASE PRICE."
ARTICLE IV
PARTS/ACCESSORIES
4.1 THE INVENTORY. Buyer and Seller shall engage a mutually acceptable
third party engaged in the business of appraising, valuing and preparing
inventories for automobile dealerships (hereinafter referred to as the
"INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the parts
and accessories, as well as the Miscellaneous Inventories, and either used or
held for use
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by, Seller in the Business. The Inventory (insofar as it relates to parts and
accessories) shall be posted to the Manufacturer's approved system of inventory
control. The cost of the Inventory shall be borne by Buyer. The Inventory shall
be completed by the Inventory Date. The Inventory shall identify each part and
accessory and its purchase price.
4.2 RETURNABLE AND NON-RETURNABLE PARTS AND ACCESSORIES. The Inventory
shall classify parts and accessories as "returnable" or "nonreturnable." For
purposes of this Agreement, the terms "returnable parts" and "returnable
accessories" shall describe and include only those new parts and new accessories
for vehicles which are listed (coded) in the latest current Master Parts Price
List Suggested List Prices and Dealer Prices, or other applicable similar price
lists, of the Manufacturer, with supplements or the equivalent in effect as of
the Inventory Date (the "MASTER PRICE LIST"), as returnable to the Manufacturer
at not less than the purchase price reflected in the Master Price List. The
purchase price for each "returnable part" and "returnable accessory" will be the
price listed in the Master Price List. All parts and accessories listed (coded)
in the Master Price List as non-returnable to the Manufacturer shall be
classified as "nonreturnable." The purchase price for each "nonreturnable" part
and accessory, of which type Seller has made no sales during the ninety (90) day
period prior to the Inventory Date, shall be sixty percent (60%) of the price
listed therefor in the Master Price List. The purchase price for each
"nonreturnable" part and accessory, of which type Seller has made retail sales
to one or more customers during the ninety (90) day period prior to the
Inventory Date, shall be one hundred percent (100%) of the price therefor listed
in the Master Price List. The purchase price for all "Jobber" and/or "NPN" parts
shall be equal to Seller's original cost of such parts. The purchase price for
all nuts, bolts and any other parts not addressed in this Section 4.2 shall
equal the fair market value thereof as determined by the Inventory Service.
4.3 PARTS. At the Closing, Buyer shall purchase all parts and
accessories owned by Seller at the Closing Date and listed on the Inventory (the
"PARTS") provided, however, that Buyer shall not be obligated to purchase any
damaged parts or accessories, parts and accessories with component parts
missing, superseded or otherwise obsolete parts or accessories, or used parts or
accessories. Seller agrees that if parts and accessories that Buyer is not
obligated to purchase hereunder are not removed from the Real Property within
sixty (60) days after the Closing Date, they shall become the property of Buyer
without the payment of any consideration in addition to the consideration
otherwise provided herein. Buyer agrees to provide access to Seller for the
purpose of removing such property during such sixty (60) day period.
4.4 PARTS AND PURCHASE PRICE. The purchase price for the Parts will
equal the value of such items shown on the Inventory (the "PARTS PURCHASE
PRICE").
4.5 PARTS RETURN PRIVILEGES. Seller shall assign to Buyer at Closing any
net parts return privileges under the Manufacturer's Parts Return Plans that may
have accrued to Seller prior to the Closing in respect of the Parts (and any
other special parts return authorizations in respect of the Parts which may have
been granted to Seller by the Manufacturer).
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ARTICLE V
MISCELLANEOUS INVENTORIES; WORK IN PROGRESS; FIXTURES
AND EQUIPMENT
5.1 MISCELLANEOUS INVENTORIES. At the Closing, Buyer shall purchase all
useable gas, oil and grease, all undercoat material and body materials in
unopened cans and such other miscellaneous useable and saleable articles in
unbroken lots (including office supplies) which (i) are on the dealership
premises, (ii) are owned by Seller on the Closing Date, (iii) do not represent
more than a sixty (60) day supply of the item(s) in question, and (iv) are
identified in the Inventory taken by the Inventory Service on the Inventory Date
(collectively referred to herein as the "MISCELLANEOUS INVENTORIES"). The
purchase price for the Miscellaneous Inventories shall be equal to the
replacement cost of the Miscellaneous Inventories as determined by the Inventory
Service and set forth on the Inventory (the sum of all prices of the
Miscellaneous Inventories pursuant to the terms of this Section 5.1 shall be
referred to herein as the "MISCELLANEOUS INVENTORIES PURCHASE PRICE").
5.2 MISCELLANEOUS ITEMS NOT INCLUDED IN THE INVENTORY. Buyer shall have
no obligation to purchase any such miscellaneous items that are not included in
the Miscellaneous Inventories. Seller agrees that any miscellaneous items that
are not included in the Miscellaneous Inventories and are not removed from the
Real Property within sixty (60) days after the Closing Date shall become the
property of Buyer without the payment of any consideration in addition to the
consideration otherwise provided herein. Buyer agrees to provide access to
Seller for the purpose of removing such property during such sixty (60) day
period.
5.3 WORK IN PROGRESS AND PREPAID EXPENSES.
(a) At the Closing, Buyer shall buy at Seller's actual cost for
parts and labor such shop labor and sublet repairs as Seller shall have caused
to be performed on any repair orders which are in process at the close of
business on the Closing Date for which there are adequate credit arrangements
(the "WORK IN PROGRESS") (the sum of all costs of Seller for the Work in
Progress pursuant to the terms of this Section 5.3(a) and the book value of all
Prepaid Expenses (as defined in Subsection 5.3(b) below) shall be referred to
herein as the "WORK IN PROGRESS AND PREPAID EXPENSES PURCHASE PRICE"). Buyer
shall complete such repair work and shall be entitled to the entire proceeds to
be collected for such services.
(b) At the Closing, Buyer shall purchase from Seller, at Seller's
book value therefor, all bona fide prepaid expenses of Seller, provided that
such expenses are in respect of obligations to non-affiliated parties in the
ordinary course of business and will inure to the benefit of Buyer, as set forth
in Schedule 5.3(b) hereto to be delivered to Buyer not later than five (5) days
prior to the Closing (the "PREPAID EXPENSES").
5.4 FIXTURES AND EQUIPMENT. At the Closing, Buyer shall purchase all
fixtures, machinery, equipment (including special tools and shop equipment),
furniture and all signs and
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office equipment owned by Seller and used or held for use in connection with the
Business, including the items listed on Schedule 5.4 hereto (which Seller shall
deliver to Buyer not later than five (5) days prior to the Closing) but
excluding the items set forth on Schedule 5.4(a) (collectively referred to
herein as the "FIXTURES AND EQUIPMENT"). The purchase price for the Fixtures and
Equipment shall be Seller's depreciated book value thereof, as reflected in said
Schedule 5.4 attached hereto (the "FIXTURES AND EQUIPMENT PURCHASE PRICE").
5.5 MISCELLANEOUS ASSETS. At the Closing, and without payment of any
additional consideration, Buyer shall purchase all of Seller's (i) unused shop
repair orders, parts sales tickets, accounting forms, binders, office and shop
supplies and such shop reference manuals, parts reference catalogs,
non-accounting file copies for all sales of Seller for the three (3) years
preceding the Closing Date, (ii) copies of new and used car sales records and
specifically wholesale parts sales records, new and used parts sales records,
and service sales records for the three (3) years preceding the Closing Date,
(iii) product sales training material and reference books on hand as of the
Closing Date, (iv) customer and registration lists pertaining to the sale of
motor vehicles, service files, repair orders, owner follow-up lists and similar
records relating to the operation of the Business, (v) telephone numbers and
listings used by Seller in connection with the Business, (vi) names and
addresses of Seller's service customers and prospective purchasers, (vii) all
lawfully transferrable licenses and permits of the Business, (viii) Seller's
rights to the tradename[s] listed in Schedule 5.5 hereto and any similar
variations thereof, and (ix) all rights and claims of Seller under or arising
out of the contracts and leases included in the Liabilities (all of the
foregoing items collectively referred to herein as the "MISCELLANEOUS ASSETS").
5.6 CERTAIN RECORDS OF SELLER; ACCESS BY SELLER. Seller may retain all
corporate records, financial records and correspondence which are not necessary
for the continued operation of the Business by Buyer. For a period of three (3)
years following the Closing Date, Buyer will allow Seller, their authorized
agents and representatives access, upon reasonable notice during business hours,
to the books and records regarding post Closing adjustments arising during the
three day period prior to Closing.
5.7 WARRANTY OBLIGATIONS OF SELLER. To the extent that Seller may have
issued warranties on the vehicles sold by Seller on or prior to the Closing Date
and to the extent such warranties are not included in the Work in Progress,
Buyer shall have no responsibility to perform any services required under such
warranties, unless authorized in writing by Seller accompanied by arrangements
in writing satisfactory to Buyer to assure Buyer of payment for all work
performed by Buyer, and, if such warranty services are so authorized by Seller,
Seller shall reimburse Buyer for all of Buyer's costs for parts and labor in
connection therewith at Buyer's actual cost for parts and labor. At the Closing
Date, Seller shall supply Buyer with a list to which such warranties and
guaranties, if any, are applicable, which list shall include the names of the
purchasers, the make and year model of the vehicles purchased and the date of
purchase. Seller shall also supply to Buyer at or prior to the Closing Date an
address for and a designation of the person who will be responsible for
authorizing Buyer to perform any services under such warranties, if any, issued
by Seller on vehicles sold by it on or prior to the Closing Date. Seller shall
reimburse Buyer promptly upon
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demand for all sums due or payable by Seller to Buyer hereunder and submission
of adequate supporting documentation.
5.8 ACCOUNTS RECEIVABLE. Seller shall retain all accounts receivable
arising out of the operation of the Business by Seller prior to the Closing Date
and Buyer shall retain all accounts receivable arising out of sales and/or
services of the Business after the Closing Date. After the Closing Date, Buyer
shall cooperate with Seller and shall use reasonable efforts to assist Seller in
Seller's efforts to collect Seller's accounts receivable for a period of six (6)
months after the Closing. Buyer shall accept payment of Seller's accounts
receivable, at no charge to Seller for a period of six (6) months after the
Closing, and shall forward to Seller, promptly upon receipt, all the money so
received on said accounts. Notwithstanding anything to the contrary, Buyer shall
have no responsibility to actually collect any of Seller's accounts receivable.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and the Stockholder as follows:
6.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, is duly qualified to do business and is in good
standing in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. The Board of Directors of Buyer has duly approved this
Agreement, all other agreements, certificates and documents executed or to be
executed by Buyer in connection herewith, and the transactions contemplated
hereby and thereby. Buyer has full corporate power and authority to execute and
deliver this Agreement and all other agreements, certificates and documents
executed or to be executed by Buyer in connection herewith, to consummate the
transactions contemplated hereby and thereby and to perform its obligations
hereunder and thereunder. This Agreement, and all other agreements, certificates
and documents executed or to be executed by Buyer in connection herewith,
constitute or, when executed and delivered, will constitute legal, valid and
binding agreements of Buyer enforceable against Buyer in accordance with their
respective terms.
6.2 NO VIOLATION. Except as set forth on Schedule 6.2 attached hereto,
the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of Buyer's restated certificate of incorporation or by-laws, each as amended, or
any resolution of the Board of Directors or the stockholders of Buyer, (b)
violate any law, ordinance, rule or regulation or any judgment, order, writ,
injunction or decree or similar command of any court, administrative or
governmental agency or other body applicable to Buyer, (c) violate or conflict
with or result in a breach of, or constitute a default under, any material
instrument, agreement or indenture or any mortgage, deed of trust or similar
contract to which Buyer is a party or by which
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Buyer is bound or affected, or (d) require the consent, authorization or
approval of, or notice to, or filing or registration with, any governmental body
or authority, or any other third party.
6.3 LITIGATION. There are no actions, suits or proceedings pending, or,
to the knowledge of Buyer, threatened against or affecting Buyer which might
adversely affect the power or authority of Buyer to carry out the transactions
to be performed by it hereunder.
6.4 NO MISSTATEMENTS OF OMISSIONS. To the knowledge of Buyer, no
representation or warranty made by Buyer in this Agreement, and no statement
contained in any agreement, instrument, certificate or schedule furnished or to
be furnished by Buyer pursuant hereto, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make such representation or warranty or such statement not
misleading.
6.5 BROKER'S AND FINDER'S FEES. Buyer has not incurred any liability to
any broker, finder or agent or any other person or entity for any fees or
commissions with respect to the transactions contemplated by this Agreement,
other than as set forth in Schedule 6.5.
6.6 CAPITALIZATION. The authorized capital stock of the Buyer, as of
February 1, 1999, consists of:
(a) 3,000,000 shares of Preferred Stock, par value $0.10 per
share, of which 300,000 shares are designated Class A Convertible Preferred
Stock and are, in turn, divided into 100,000 shares of Series I, 100,000 shares
of Series II and 100,000 shares of Series III; of which approximately 19,500
shares of Series I Preferred Stock were issued and outstanding and /or were
committed to be issued by the Buyer, approximately 20,238 shares of Series II
Preferred Stock were issued and outstanding and/or are committed to be issued by
the Buyer, and approximately 31,922 shares of Series III Preferred Stock were
issued and outstanding and/or committed to be issued by the Buyer.
(b) 50,000,000 shares of Class A Common Stock, par value $0.01
per share, of which 11,461,118 shares are issued and outstanding; and
(c) 15,000,000 shares of Class B Common Stock, par value $0.01
per share, of which 12,400,000 shares are issued and outstanding.
All outstanding capital stock of the Buyer is duly authorized, validly issued,
fully paid and non-assessable.
6.7 DISCLOSURE MATERIALS. The Buyer has delivered to Seller copies of
(a) the Prospectus dated November 10, 1997 (the "PROSPECTUS"), (b) Buyer's
Annual Report on Form 10-K for the Fiscal Year ended December 31, 1997, (c)
Buyer's Quarterly Report on Form 10-Q for the three-month period ended March 31,
1998, June 30, 1998 and September 30, 1998 and (d) any Current Reports on Form
8-K, filed in 1998, each in the form (excluding exhibits) filed with the SEC
(collectively, such Forms 10-K, 10-Q and 8-K being hereinafter referred to as
its "REPORTS").
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Neither the Prospectus nor any of the Reports contained, at the time of filing
thereof with the SEC, any untrue statement of any material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading.
6.8 AUTHORIZATION OF SHARES. The issuance of the Shares has been or
prior to Closing shall have been, duly authorized by all necessary corporate
action of the Buyer. Upon the issuance of Shares pursuant to this Agreement,
such Shares shall be validly issued, fully paid and non-assessable.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES OF SELLER AND THE STOCKHOLDER
Seller and the Stockholder, jointly and severally, represent and warrant
to Buyer, as follows:
7.1 ORGANIZATION; POWER AND AUTHORITY; AUTHORIZATION. Seller is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, is duly qualified to do business and is in good standing
in every jurisdiction in which the nature of its business makes such
qualification necessary and has full corporate power and authority to own or use
the properties it purports to own and use and to carry on its business as now
being conducted. Except for the Stockholder, no person or entity has a
beneficial or legal ownership interest in Seller. Seller has full corporate
power and authority to execute and deliver this Agreement and all other
agreements, certificates and documents executed or to be executed by Seller in
connection herewith, to consummate the transactions contemplated hereby and
thereby and to perform its obligations hereunder and thereunder. The Stockholder
has full capacity, power and authority to execute and deliver this Agreement and
all other agreements, certificates and documents executed or to be executed by
the Stockholder in connection herewith, to consummate the transactions
contemplated hereby and hereby and to perform his obligations hereunder and
thereunder. This Agreement, and all other agreements, certificates and documents
executed or to be executed by Seller in connection herewith, have been duly
authorized by all necessary corporate action and constitute or, when executed
and delivered, will constitute legal, valid and binding agreements of Seller
enforceable against Seller in accordance with their respective terms. This
Agreement, and all other agreements, certificates and documents executed or to
be executed by the Stockholder in connection herewith, constitute or, when
executed and delivered, will constitute legal, valid and binding agreements of
the Stockholder enforceable against the Stockholder in accordance with their
respective terms. Seller has never operated the Business under any tradenames
other than the tradenames listed in Section 5.5.
7.2 NO VIOLATION; CONSENTS. Except as set forth in Schedule 7.2 attached
hereto, the execution and delivery of this Agreement, the consummation of the
transactions contemplated by this Agreement and compliance with the provisions
hereof do not and will not: (a) conflict with or violate any of the provisions
of Seller's articles of incorporation and bylaws, each as amended, or any
resolution of the Directors of Seller, (b) violate any law, ordinance, rule or
regulation or any
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judgment, order, writ, injunction or decree or similar command of any court,
administrative or governmental agency or other body applicable to any of Seller,
the Assets, the Business or the Liabilities, (c) violate or conflict with or
result in a breach of, or constitute a default under, or an event giving rise to
a right of termination of, any Contract (as defined in Section 7.10), any
material instrument, agreement or indenture or any mortgage, deed of trust or
similar contract to which Seller or the Stockholder is a party or by which any
of Seller, the Stockholder or any of the Assets are bound or affected, (d)
result in the creation or imposition of any Encumbrance upon any of the Assets,
or (e) require the consent, authorization or approval of, or notice to, or
filing or registration with, any governmental body or authority, or any other
third party.
7.3 LIABILITIES. There are no actions, suits or proceedings pending or,
to the knowledge of Seller and the Stockholder, threatened against Seller or the
Stockholder which might adversely affect the power or authority of either of
them to carry out the transactions to be performed by such party hereunder.
There are no actions, suits or proceedings pending, or, to the knowledge of
Seller and the Stockholder, threatened against or affecting Seller, other than
those adequately covered by insurance, and those disclosed on Schedule 7.3
attached hereto, and none of the actions, suits or proceedings described on
Schedule 7.3, if determined adversely to Seller, will have, or could reasonably
be expected to have, a material adverse effect upon the Assets or the
Liabilities or the business, prospects, properties, earnings, results of
operations or condition (financial or otherwise) of the Business.
7.4 TITLE TO ASSETS; ENCUMBRANCES. Except as disclosed on Schedule 7.4
attached hereto, Seller has good title to the Assets, free and clear of all
liens (including tax liens), security interests, encumbrances, actions, claims,
payments or demands of any kind and character (collectively, "ENCUMBRANCES"),
except Encumbrances disclosed on Schedule 7.4 hereto and Encumbrances for ad
valorem personal property taxes not yet due and payable. All of the Assets to be
transferred hereunder conform, as to condition and character, to the
descriptions of such Assets contained herein and will be transferred at the
Closing free and clear of all Encumbrances, except Encumbrances for ad valorem
personal property taxes not yet due and payable and Encumbrances to be satisfied
and released at the Closing. To the knowledge of Seller and the Stockholder, the
ownership and use of the Assets, and the operation of the Business, do not
infringe upon the intellectual property rights of any other person or entity.
7.5 PERMITS AND APPROVALS. Except as disclosed on Schedule 7.5 attached
hereto, there are no permits or approvals used or obtained for use by Seller
which are required under applicable law in connection with the ownership or
operation of the Business.
7.6 FINANCIAL STATEMENTS.
(a) Seller has delivered to Buyer the financial statements of
Seller described in Schedule 7.6 attached hereto (the "FINANCIAL STATEMENTS").
Except as set forth on Schedule 7.6(a), the Financial Statements have been
prepared in accordance with generally accepted accounting principles
consistently applied. Each balance sheet included in the Financial Statements
fairly presents the financial condition of Seller as of the date thereof and all
debts and liabilities of Seller,
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fixed or contingent, as of the date thereof, and each related statement of
income included in the Financial Statements fairly presents the results of the
operations of Seller and the changes in its financial position for the period
indicated, all in accordance with generally accepted accounting principles
consistently applied. To the knowledge of Seller and the Stockholder, the
Financial Statements contain adequate reserves for all reasonably anticipated
claims relating to matters with respect to which Seller is self-insured. The
Financial Statements fairly present the financial condition of Seller for the
dates and periods indicated and are in accordance with the books and records of
Seller, which books and records are true, correct and complete.
(b) Seller has no outstanding material claims, liabilities,
obligations or indebtedness of any nature, fixed or contingent, except as set
forth in the Financial Statements, or in the Schedules to this Agreement, and
except for liabilities incurred in the ordinary course of business and of the
kind and type reflected in the Financial Statements.
7.7 BROKERS AND FINDER. Except as set forth on Schedule 6.5, neither
Seller nor the Stockholder has engaged any broker or any other person or entity
who would be entitled to any brokerage commission or finder's fee in respect of
the execution of this Agreement and/or the consummation of the transactions
contemplated hereby, other than such fee or commission the entire cost of which
will be borne by Seller.
7.8 COMPLIANCE WITH LAWS.
(a) Except as set forth on Schedule 7.8 (a) attached hereto, the
Assets and the Real Property comply in all material respects with, and the
Business has been conducted in all material respects in compliance with, all
laws, rules and regulations (including all worker safety and all Environmental
Laws (as hereinafter defined)), applicable zoning and other laws, ordinances,
regulations and building codes, and neither Seller nor the Stockholder has
received any notice of any violation thereof which has not been remedied.
(b) Except as set forth on Schedule 7.8(b) attached hereto, (i)
Seller has not at any time generated, used, treated or stored Hazardous
Materials (as hereinafter defined) on, or transported Hazardous Materials to or
from, the Real Property or any property adjoining or adjacent to the Real
Property and, to the knowledge of Seller and the Stockholder, no party other
than Seller has taken such actions on or with respect to the Real Property,
provided, however, certain petroleum products are stored and handled by Seller
in the ordinary course of business in compliance in all material respects with
all Environmental Laws, (ii) Seller has not at any time released or disposed of
Hazardous Materials on the Real Property or any property adjoining or adjacent
to the Real Property, and, to the knowledge of Seller and the Stockholder, no
party other than Seller has taken any such actions on the Real Property, (iii)
Seller has at all times been in compliance in all material respects with all
Environmental Laws and the requirements of any permits issued under such
Environmental Laws with respect to the Real Property, the Assets and the
operation of the Business, except where failure to comply has not had and will
not have, and could not reasonably be expected to have, a material adverse
effect on the Assets or the Liabilities or the prospects, properties, earnings,
results of operations or condition (financial or otherwise) of the Business,
(iv) there are
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no past, pending or, to the knowledge of Seller and the Stockholder, threatened
environmental claims against Seller, the Real Property, the Assets or the
Business, (v) to the knowledge of Seller and the Stockholder, there are no facts
or circumstances, conditions or occurrences regarding Seller, the Real Property,
the Assets or the Business that could reasonably be anticipated to form the
basis of an environmental claim against Seller, the Real Property, the Assets or
the Business or to cause the Real Property, the Assets or the Business to be
subject to any restrictions on its ownership, occupancy, use or transferability
under any Environmental Law, (vi) there are not now and, to the knowledge of
Seller and the Stockholder, never have been, any underground storage tanks
located on the Real Property, (vii) Seller has not transported or arranged for
the transportation of any Hazardous Materials to any site other than the Real
Property, and (viii) except as set forth on Schedule 7.8(b), neither Seller nor
the Stockholder has operated the Business at any location other than the Real
Property. As used herein, the term "ENVIRONMENTAL LAWS" means all present
federal, state and local laws, statutes, regulations, rules, ordinances and
common law, and all judgments, decrees, orders, agreements or permits, issued,
promulgated, approved or entered thereunder by any governmental authority
relating to pollution or Hazardous Materials or protection of human health or
the environment, including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), as amended. As used herein,
the term "HAZARDOUS MATERIALS" means any waste, pollutant, chemical, hazardous
substance, toxic substance, hazardous waste, special waste, solid waste,
petroleum or petroleum-derived substance or waste, or any constituent or
decomposition product of any such pollutant, material, substance or waste,
regulated under or as defined by any presently existing environmental law.
(c) Neither Seller nor the Stockholder or any director, officer,
agent or employee of Seller or, to the knowledge of Seller and the Stockholder,
any other person or entity associated with or acting for or on behalf of Seller,
has, directly or indirectly: made any contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity,
regardless of form, whether in money, property or services: (i) to obtain
favorable treatment in securing business, (ii) to pay for favorable treatment
for business secured or (iii) to obtain special concessions or for special
concessions already obtained, for or in respect of Seller.
7.9 FIXTURES AND EQUIPMENT; REAL PROPERTY. The Fixtures and Equipment
constitute in the aggregate all of the fixtures, machinery, equipment,
furniture, signs and office equipment used or intended for use by Seller in the
Business and are in good operating condition, normal wear and tear excepted. All
Demonstrators have been operated in the ordinary course of business, are
operated with dealer tags and have not had certificates of title issued with
respect to them. The structures and building systems included in the Real
Property are in good condition, maintenance and repair, normal wear and tear
excepted.
7.10 CONTRACTS. Except as disclosed on Schedule 7.10, Seller has in all
material respects performed all of its obligations required to be performed by
it to the date hereof, and is not in default or alleged to be in default in any
material respect, under any of the contracts and leases set forth on or referred
to in Part I of Schedule 2.4 (collectively, the "Contracts"), including without
limitation any contract or lease to be assumed by Buyer hereunder, and there
exists no event, condition or occurrence which, after notice or lapse of time or
both, would constitute such a default. To the
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knowledge of Seller and the Stockholder, no other party to any Contract is in
default in any respect of any of its obligations thereunder. Each of the
Contracts is valid and in full force and effect and enforceable against Seller
in accordance with their respective terms, and, to the knowledge of Seller and
the Stockholder, enforceable against the other parties thereto in accordance
with their respective terms.
7.11 ADEQUACY OF ASSETS. Except for Seller's cash and accounts
receivable, and except for any of Seller's used vehicles, miscellaneous
inventories or parts which Buyer elects not to purchase hereunder, and Seller's
rights under its dealership agreements with the Manufacturer, the Assets,
together with the Real Property and the Contracts (including all equipment
leased pursuant to the equipment leases included in the Contracts), comprise all
of the assets, properties, contracts, leases and rights necessary for Buyer to
operate the Business substantially in the manner operated by Seller prior to the
Closing. The failure by Seller to satisfy and discharge in full any of the
Retained Liabilities will not have, and could not reasonably be expected to
have, a material adverse effect upon the Assets or the Liabilities or the
prospects, properties, earnings, results of operations or condition (financial
or otherwise) of the Business.
7.12 TAXES. Seller has filed all federal, state and local governmental
tax returns required to be filed by it in accordance with the provisions of law
pertaining thereto and has paid all taxes and assessments (including, without
limitation of the foregoing, income, excise, unemployment, social security,
occupation, franchise, property and import taxes, duties or charges and all
penalties and interest in respect thereof) required by such tax returns or
otherwise to have been paid to date.
7.13 EMPLOYEES. Schedule 7.13 attached hereto discloses, as of the date
hereof, all of Seller's employees, as well as each employee's compensation
(including, separately, base pay and any incentive or commission pay), title,
length of employment, employment contract, if any, and accrued vacation time.
Except as disclosed on Schedule 7.13, Seller has no "employee benefit plan"
("EMPLOYEE BENEFIT PLAN") (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), including without
limitation, any bonus, deferred compensation, pension, profit-sharing, stock
option, employee stock purchase, secrecy agreement or covenant not to compete
with any employee. Seller is neither currently nor has ever been a party to any
collective bargaining agreement or other labor contract, and there has not been
nor is there pending or, to the knowledge of Seller and the Stockholder,
threatened any union organizational drive or application for certification of a
collective bargaining agent. Seller has been and is now in material compliance
with the "COBRA" health care continuation coverage requirements of Section 4980B
of the Internal Revenue Code of 1986, as amended, and Sections 601-608 of ERISA
and any applicable state health care continuation coverage requirements. Seller
has neither made any promises nor incurred any liability, pursuant to an
Employee Benefit Plan or otherwise, to provide medical or other welfare benefits
to retired or former employees of the Seller (other than COBRA or state mandated
continuation coverage, where applicable). Except as disclosed on Schedule 7.13,
none of Seller's employees or former employees has elected COBRA continuation
coverage or has incurred a COBRA qualifying event since June 1, 1996.
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7.14 YEAR 2000. To the knowledge of Seller and Stockholder, without any
independent investigation, no area within its business and operations (including
those affected by the Manufacturer, suppliers, vendors and customers) will be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by Seller may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999).
7.15 NO MISSTATEMENTS OR OMISSIONS. No representation or warranty made
by Seller or the Stockholder in this Agreement, and no statement contained in
any agreement, instrument, certificate or schedule furnished or to be furnished
by Seller or the Stockholder pursuant hereto, contains or will contain any
untrue statement of a material fact or omits or will omit to state a material
fact necessary in order to make such representation or warranty or such
statement not misleading.
ARTICLE VIII
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to perform this Agreement at the Closing are
subject to the following conditions precedent which shall be fully satisfied at
or before the Closing, unless waived in writing by Buyer.
8.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Seller and the Stockholder herein contained shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of the Closing Date, and Buyer shall have received a certificate from the
Stockholder and a duly authorized officer of Seller, dated the Closing Date, to
such effect.
8.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by Seller or the
Stockholder at or before the Closing shall have been duly performed or complied
with in all material respects, and Buyer shall have received a certificate from
the Stockholder and a duly authorized officer of Seller, dated the Closing Date,
to such effect.
8.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any other third party to prohibit or
restrain the sale contemplated by this Agreement or otherwise challenge the
power and authority of the parties to enter into this Agreement or to carry out
their obligations hereunder or the legality or validity of the sale contemplated
by this Agreement.
8.4 INVENTORY. The Inventory shall have been completed.
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8.5 CORPORATE ORGANIZATION; ENCUMBRANCES. Seller shall have furnished to
Buyer: (a) a certificate of good standing of Seller issued by the Comptroller of
Public Accounts of the State of Texas dated no earlier than fifteen (15)
business days prior to the Closing Date; (b) a copy of the Articles of
Incorporation of Seller certified by the Secretary of State of the State of
Texas dated no earlier than fifteen (15) business days prior to the Closing
Date; (c) a certificate of Seller, dated the Closing Date, in form and substance
reasonably satisfactory to Buyer, certifying as to (i) no amendments to the
respective Articles of Incorporation of Seller since the date of the certificate
delivered in accordance with Section 8.5(b); (ii) the respective Bylaws of
Seller; and (iii) the incumbency and signatures of the officers of Seller
executing this Agreement and any other agreements, instruments or documents to
be executed by Seller in connection herewith; (d) UCC-11 search reports or other
evidence reasonably satisfactory to Buyer and its counsel that the Assets are
free and clear of all Encumbrances; and (e) such other documentation as Buyer
shall reasonably request.
8.6 BOARD RESOLUTIONS. Seller shall have furnished to Buyer a copy of
the resolutions duly adopted by the Board of Directors and the Stockholder of
Seller authorizing the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, certified by an authorized
officer of Seller as of the Closing Date.
8.7 NO DAMAGE. There shall have been no material adverse change or
development in the Assets, the Liabilities or in the prospects, properties,
earnings, results of operations or condition (financial or otherwise) of the
Business, and no event shall have occurred or circumstance shall exist that
will, or could reasonably be expected to, result in such a material adverse
change.
8.8 MOTOR VEHICLE LICENSES. Buyer shall have been licensed as a Motor
Vehicle Dealer under applicable Texas motor vehicle dealer registration laws and
shall have obtained all other authorizations, consents, licenses and permits
from applicable governmental agencies having or asserting jurisdiction, which
Buyer deems necessary or appropriate to conduct business as an automobile dealer
at each dealership location included in the Real Property.
8.9 CONSENTS AND APPROVALS. Seller shall have obtained all other
authorizations, consents and approvals from third persons and entities as are
(a) required to assign those material contracts and leases that Buyer is to
assume at Closing or (b) otherwise required of Seller to consummate the
transactions contemplated hereby.
8.10 CERTIFICATES OF ORIGIN; ETC. Seller shall have transferred to Buyer
certificates of title or origin for all New Vehicles, Demonstrators and, if
applicable, Used Vehicles and all of its registration lists, owner follow-up
lists and service files on hand as of the Closing Date with respect to the
Business.
8.11 TERMINATION OF SELLER'S AGREEMENTS WITH MANUFACTURER. Seller shall
have terminated in writing Seller's dealer agreement and any other applicable
sales and service agreements with the Manufacturer.
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8.12 BILL OF SALE; ETC. Seller shall have executed, as appropriate, and
delivered to Buyer the Bill of Sale, other documents of transfer of title
contemplated hereby and any and all other documents necessary or desirable in
connection with the transfer of the Assets, which documents shall warrant title
to Buyer consistent with this Agreement and shall in all respects be in such
form as may be reasonably required by Buyer and its counsel.
8.13 MANUFACTURER APPROVAL. The Manufacturer shall have approved Buyer
or Buyer's affiliate as an authorized dealer and O. Bruton Smith or O. Bruton
Smith's designee, as the authorized Dealer Operator, and the Manufacturer shall
have executed a dealer agreement, and any other applicable sales and service
agreements, on terms reasonably satisfactory to Buyer.
8.14 OTHER BASIC AGREEMENTS. All conditions to Buyer's obligations under
the Real Property Purchase Agreement shall have been satisfied or fulfilled
unless waived in writing by Buyer.
8.15 CHANGE OF NAME. Seller shall have delivered to Buyer all documents,
including, without limitation, resolutions of the Board of Directors and the
Stockholder of Seller, necessary to effect a change of name of Seller after the
Closing to names other than the corporate name and trade names referred to in
Section 5.5 hereof or any variation thereof.
8.16 HSR. All applicable waiting periods, if any, under the HSR Act (as
defined in Section 10.16 below) shall have expired without any indication by the
Antitrust Division (as defined in Section 10.16 below) or the FTC (as defined in
Section 10.16 below) that either of them intends to challenge the transactions
contemplated hereby or, if any such challenge or investigation is made or
commenced, there shall have occurred the conclusion of such challenge or
investigation which permits the transactions contemplated hereby in all material
respects.
8.17 NON-COMPETITION AGREEMENT. Seller and L. S. Riley shall have
executed and delivered the Non-Competition Agreement to Buyer.
8.18 AUDITED FINANCIAL STATEMENTS OF BUYER. Buyer shall have completed
preparation of such audited financial statements of Seller as may be required by
applicable regulations of the Securities and Exchange Commission or by Buyer's
lenders.
8.19 OPINION OF COUNSEL. Buyer shall have received an opinion of Robert
D. Remy, Esq., counsel to Seller and the Stockholder, dated the Closing Date, in
form and substance reasonably satisfactory to Buyer and its counsel.
8.20 EMPLOYMENT AGREEMENT. Rene Isip shall have executed and delivered
to Buyer an Employment Agreement upon terms satisfactory to Buyer and Rene Isip.
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ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AND THE STOCKHOLDER
The obligations of Seller and the Stockholder to perform this Agreement
at the Closing are subject to the following conditions precedent which shall be
fully satisfied at or before the Closing, unless waived in writing by Seller:
9.1 REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties of Buyer herein contained shall be true and correct in all material
respects on and as of the Closing Date as if made on and as of the Closing Date,
and Seller shall have received a certificate from a duly authorized officer of
Buyer, dated the Closing Date, to such effect.
9.2 COMPLIANCE WITH AGREEMENTS. Each of the agreements or obligations
required by this Agreement to be performed or complied with by Buyer at or
before the Closing shall have been duly performed or complied with in all
material respects, and Seller shall have received a certificate from a duly
authorized officer of Buyer, dated the Closing Date, to such effect.
9.3 NO LITIGATION. No action, suit or proceeding shall have been
instituted by a governmental agency or any third party to prohibit or restrain
the sale contemplated by this Agreement or otherwise challenge the power and
authority of the parties to enter into this Agreement or to carry out their
obligations hereunder or the legality or validity of the sale contemplated by
this Agreement.
9.4 INVENTORY. The Inventory shall have been completed.
9.5 CORPORATE ORGANIZATION; BOARD RESOLUTIONS. Buyer shall have
furnished to Seller and the Stockholder: (a) a certificate of good standing of
Buyer issued by the Secretary of State of the State of Delaware dated no earlier
than fifteen (15) business days prior to the Closing Date; and (b) a certificate
of Buyer, dated the Closing Date, in form and substance reasonably satisfactory
to Seller, certifying as to (i) the Certificate of Incorporation of Buyer; (ii)
the By-laws of Buyer; (iii) the incumbency and signatures of the officers of
Buyer executing this Agreement and any other agreements, instruments or
documents to be executed by Buyer in connection herewith; (iv) the resolutions
of the Board of Directors of Buyer authorizing the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby; and
(v) Certificate of Designation for Class A Preferred Stock Series III.
9.6 PAYMENT OF PURCHASE PRICE; ASSUMPTION AGREEMENTS. Buyer shall have
tendered to Seller the Purchase Price in accordance with Section 2.3 and shall
have executed and delivered the Assumption Agreement to Seller.
9.7 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
Owner under the Real Property Purchase Agreement shall have been satisfied or
fulfilled, unless waived in writing by the Owner.
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9.8 HSR. All applicable waiting periods, if any, under the HSR Act shall
have expired without any indication of the Antitrust Division or the FTC that
either of them intends to challenge the transactions contemplated hereby, or, if
any such challenge or investigation is made or commenced, there shall have
occurred the conclusion of such challenge or investigation which permits the
transactions contemplated hereby in all material respects.
9.9 OPINION OF COUNSEL. Seller shall have received an opinion of Parker,
Poe, Adams & Bernstein, L.L.P., counsel to Buyer, dated the Closing Date, in
form and substance reasonably satisfactory to Seller and its counsel.
ARTICLE X
COVENANTS AND AGREEMENTS
10.1 [INTENTIONALLY LEFT BLANK]
10.2 FURTHER ASSURANCES. Seller and the Stockholder agree that they
will, at any time and from time to time, after the Closing, upon request of
Buyer, do, execute, acknowledge and deliver all such further acts, deeds,
assignments, transfers, conveyances, powers of attorney and assurances, in a
form reasonably satisfactory to Buyer's counsel, as may be reasonably required
to convey and transfer to and vest in Buyer, and protect its rights, title and
interest in and enjoyment of, all the Assets.
10.3 SATISFACTION OF CLOSING CONDITIONS. The parties hereto shall use
their reasonable best efforts to obtain, and to cooperate with each other in
obtaining, all authorizations, approvals, licenses, permits and other consents
contemplated by Articles VIII and IX.
10.4 NO MATERIAL ADVERSE CHANGES. During the period from the date of
this Agreement through the Closing Date, Seller will operate the Business only
in the ordinary course of business and in accordance with past practices. Seller
shall promptly notify Buyer of any material adverse change or development in the
Assets, the Liabilities or in the prospects, properties, earnings, results of
operations or condition (financial or otherwise) of the Business, and of the
occurrence of any event or circumstance that will, or could reasonably be
expected to, result in such a material adverse change.
10.5 ACCESS; ENVIRONMENTAL AUDIT. Until the Closing Seller shall afford
to Buyer, its attorneys, accountants and such other representatives of Buyer as
Buyer shall designate to Seller, free and full access at all reasonable times,
and upon reasonable prior notice, to the Assets and the properties, books and
records of Seller, and to interview personnel, suppliers and customers of
Seller, in order that Buyer may have full opportunity to make such due diligence
investigation as it shall reasonably desire of the Assets, the Liabilities and
the Business. Seller and the Stockholder shall, promptly after the date hereof,
furnish to Buyer the due diligence materials set forth in Schedule 10.5 hereto.
Seller shall allow an environmental consulting firm selected by Buyer (the
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"ENVIRONMENTAL AUDITOR") to have prompt access to the Real Property in order to
conduct an environmental investigation satisfactory to Buyer in scope and
reasonably acceptable to Seller (such scope being sufficient to result in a
Phase I environmental audit report and a Phase II environmental audit report, if
desired by Buyer) of, and to prepare a report with respect to, the Real Property
(the "ENVIRONMENTAL AUDIT"). Seller shall provide to the Environmental Auditor:
(a) reasonable access to all of its existing records concerning the matters
which are the subject of the Environmental Audit; and (b) reasonable access to
the employees of Seller and the last known addresses of former employees of
Seller who are most familiar with the matters which are the subject of the
Environmental Audit (Seller agreeing to use reasonable efforts to have such
former employees respond to any reasonable requests or inquiries by the
Environmental Auditor). The Environmental Auditor shall coordinate all visits to
the Real Property and conversations with employees of Seller with the
Stockholder or their designee and shall use reasonable efforts to minimize any
disruption of Seller's business in performing such investigations. Seller shall
otherwise cooperate with the Environmental Auditor in connection with the
Environmental Audit. Buyer shall bear the costs, fees and expenses in connection
with the Environmental Audit. Buyer shall bear the costs, fees and expenses in
connection with any financial audit.
10.6 INDEMNIFICATION BY SELLERS AND THE STOCKHOLDER.
(a) All representations and warranties of Seller and the
Stockholder contained herein, or in any agreement, certificate or document
executed by Seller or the Stockholder in connection herewith, shall survive the
Closing for a period of two (2) years, with the exception of the representations
and warranties contained in Section 7.12, which shall survive the Closing for
the applicable tax statutes of limitation plus 60 days and the representations
and warranties contained in Sections 7.4 and 7.8 which shall survive the Closing
indefinitely. The foregoing limitations of survival shall not in any way reduce
Seller's obligations with respect to the Retained Liabilities. All information
contained in any Schedule furnished hereunder by Seller shall be deemed a
representation and warranty by Seller and the Stockholder made in this Agreement
as to the accuracy of such information in all material respects.
(b) Seller and the Stockholder, jointly and severally, agree to
indemnify and hold harmless Buyer and its stockholders, officers, directors,
employees and agents, and their respective successors and assignees, from and
against any and all out-of-pocket (net of insurance proceeds) losses, damages,
liabilities, obligations, assessments, suits, actions, proceedings, claims or
demands, including costs, expenses and fees (including reasonable attorneys'
fees and expert witness fees) (collectively, the "LOSSES") incurred in
connection therewith, suffered by any of them or asserted against any of them or
the Assets, arising out of or based upon (i) the breach or failure of any
representation or warranty of Seller or the Stockholder contained herein, or in
any agreement, certificate or document executed by Seller or the Stockholder in
connection herewith, to be true and correct, (ii) the breach of any covenant or
agreement of Seller or the Stockholder contained in this Agreement, (iii) the
Retained Liabilities or any liability or obligation of the Stockholder, or (iv)
any arrangements or agreements made or alleged to have been made by Seller or
the Stockholder with any broker, finder or other agent in connection with the
transactions contemplated hereby (other than as described in Schedule 6.5).
Neither Seller nor the Stockholder shall be required to indemnify
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under clause (i) of this Section 10.6(b) unless the amount of all indemnified
liabilities (including claims for indemnified liabilities) under said clause (i)
exceeds a cumulative aggregate total of $100,000, at which time rights to
indemnification for indemnified liabilities may be asserted for any amounts in
excess of such cumulative aggregate total of $100,000. The aggregate amount of
indemnification obligations of Seller and the Stockholder under clauses (i) or
(ii) of this Section 10.6(b) shall not exceed the Purchase Price.
10.7 INDEMNIFICATION BY BUYER.
(a) All representations and warranties of Buyer contained herein,
or in any agreement, certificate or document executed by Buyer in connection
herewith, shall survive the Closing for a period of two (2) years. The foregoing
limitation of survival shall not in any way reduce Buyer's obligations with
respect to the Liabilities. All information contained in any Schedule furnished
hereunder by Buyer shall be deemed a representation and warranty by Buyer made
in this Agreement as to the accuracy of such information in all material
respects.
(b) Buyer agrees to indemnify and hold harmless Seller and its
Stockholder, officers, managers, employees, agents, successors and assigns, from
and against any and all out-of-pocket (net of insurance proceeds) Losses
incurred in connection with, suffered by any of them, or asserted against any of
them, arising out of or based upon (i) the breach or failure of any
representation or warranty of Buyer contained herein, or in any agreement,
certificate or document executed by Buyer in connection herewith, to be true and
correct, (ii) the breach of any covenant or agreement of Buyer contained in this
Agreement, (iii) Buyer's failure to discharge the Liabilities, or (iv) any
arrangements or agreements made or alleged to have been made by Buyer with any
broker, finder or other agent in connection with the transactions contemplated
hereby. The aggregate amount of indemnification obligations under clauses (i) or
(ii) of this Section 10.7(b) shall not exceed the Purchase Price.
10.8 INDEMNIFICATION PROCEDURES. The indemnification provisions of
Sections 10.6 and 10.7 shall be subject to the following additional rules:
(a) Provided that the Closing shall have been completed, the
provisions of Sections 10.6 and 10.7 shall be the exclusive remedy of the
parties hereto with respect to the performance or breach of any covenant,
representation, or warranty under this Agreement or any of the documents herein
contemplated, whether based in contract, tort or otherwise. In no event shall
any party hereto be liable for punitive or exemplary damages as the result of
any matter or occurrence in connection herewith or the transactions contemplated
or permitted hereby or therein. Notwithstanding the foregoing, nothing contained
herein is intended to or shall be construed to impair or restrict each party's
right to sue the other party for fraud or to seek equitable relief in any court
of competent jurisdiction.
(b) Each party agrees that, promptly after it becomes aware of
facts giving rise to a claim by it for indemnification pursuant to Section 10.6
or Section 10.7, as the case may be, such party will provide notice (a "CLAIM
NOTICE") thereof in writing to the each indemnifying party,
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specifying the nature and basis for such claim and a copy of all papers served
with respect to such claim (if any). An indemnified party's failure to send or
delay in sending a Claim Notice shall not relieve an indemnifying party from
liability hereunder with respect to such claim except to the extent and only to
the extent the indemnifying party is prejudiced by such failure or delay.
(c) Any indemnifying party or parties may elect to compromise or
contest, at its own expense and by its own counsel, any liability asserted by a
third party so long as (i) the matter involves solely a claim for money, (ii)
the indemnifying party shall first acknowledge and agree in writing that the
indemnifying party is obligated to indemnify the indemnified party for such
matter hereunder, and (iii) counsel to the indemnifying party shall be
reasonably acceptable to the indemnified party. If the indemnifying party or
parties elect to compromise or contest such asserted liability, they shall
within thirty (30) days (or sooner, if the nature of the asserted liability so
requires) notify the indemnified party or parties of its intent to do so by
sending a notice to the indemnified party or parties, and each indemnified party
shall cooperate in the compromise or contest of such asserted liability. If the
indemnifying party or parties elect not to compromise or contest the asserted
liability, fails to notify the indemnified party or parties of its election as
herein provided or contests its obligation to indemnify under this Agreement,
any indemnified party (upon further notice to the indemnifying party or parties
and any other indemnified party) shall have the right to pay, compromise or
contest such asserted liability on behalf of and for the account and risk of the
indemnifying party or parties. Anything in this Section 10.8 to the contrary,
notwithstanding items (i) through (iii) above in this paragraph (c), no
indemnifying party shall, without each indemnified party's written consent,
which shall not be unreasonably withheld or delayed, settle or compromise any
asserted liability or consent to entry of any judgment which does not include an
unconditional term releasing the indemnified parties from all liability in
respect of such asserted liability. In any event, each indemnified party and
indemnifying party may participate, at their own expense, in the contest of any
asserted liability. If an indemnifying party chooses in accordance with the
provisions of this Section 10.8(c) to contest any asserted liability, the
indemnified parties shall make available to such indemnifying party any books,
records or other documents within its control that are necessary or appropriate
for, shall make its officers and employees available, on a basis reasonably
consistent with their other duties, in connection with, and shall otherwise
cooperate with, such defense.
(d) In the event that an indemnifying party shall be obligated to
indemnify an indemnified party pursuant to Sections 10.6 or 10.7, the
indemnifying party shall, upon payment of such indemnity in full, be subrogated
to all rights of the indemnified party with respect to the loss to which such
indemnification relates.
10.9 CERTAIN TAXES. Personal property, use and intangible taxes and
assessments and utility charges with respect to the Assets shall be prorated on
a per diem basis and apportioned between Seller and Buyer as of the date of the
Closing. Seller shall be liable for that portion of such taxes and assessments
relating to, or arising in respect of, periods on or prior to the Closing Date,
and Buyer shall be liable for that portion of such taxes and assessments
relating to, or arising in respect of, any period after the Closing Date. Any
taxes attributable to the sale or transfer of the Assets to Buyer hereunder
shall be paid by Seller.
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10.10 PRESS RELEASES. Except as may be required by law or the rules of
the New York Stock Exchange or as necessary in connection with the transactions
contemplated hereby, no party hereto shall (a) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior approval of the other parties hereto or (b) otherwise
disclose the existence and nature of the transactions contemplated hereby to any
person or entity other than such party's accountants, attorneys, agents and
representatives, all of whom shall be subject to this nondisclosure obligation
as agents of such party. The parties shall cooperate with each other in the
preparation and dissemination of any public announcements of the transactions
contemplated by this Agreement.
10.11 NO NEGOTIATION OR DISCUSSIONS. Neither Seller nor the Stockholder
shall, directly or indirectly, at any time on or prior to the Closing Date or
the earlier termination of this Agreement, pursue, initiate, encourage or engage
in, any negotiations or discussions with, or provide any information to, any
person or entity (other than Buyer and its representatives and affiliates)
regarding the sale or possible sale to any such person or entity of any of the
Assets or capital stock of Seller or any merger or consolidation or similar
transaction involving Seller.
10.12 REGARDING THE MANUFACTURER. Seller shall promptly notify the
Manufacturer regarding the transactions contemplated by this Agreement. Buyer
shall promptly apply to the Manufacturer for, or cause an affiliate of Buyer to
apply to the Manufacturer for, the issuance of franchises to operate automobile
dealerships upon the Real Property. Effective as of the Closing, Seller shall
terminate its Dealer Sales and Service Agreements with the Manufacturer. Seller
shall fully cooperate with Buyer, and take all reasonable steps to assist Buyer,
in Buyer's efforts to obtain its own similar Dealer Sales and Service Agreements
with the Manufacturer. The parties acknowledge that Buyer's Dealer Agreements
are subject to the approval of the Manufacturer and that Buyer would be unable
to obtain its own, similar Dealer Sales and Service Agreements absent Seller's
termination of its agreements.
10.13 SELLER'S EMPLOYEES. Buyer shall have the right, but not the
obligation, to employ any or all of Seller's employees. If permitted by law and
applicable regulations, Seller shall, in consideration for the sale of
substantially all of such Seller's assets in bulk, assign and transfer to Buyer,
without additional charge therefor, the amount of reserve in such Seller's State
Unemployment Compensation Fund with respect to the Business and the
corresponding experience rate.
10.14 TERMINATION.
(a) Notwithstanding any other provision herein contained to the
contrary, this Agreement may be terminated at any time prior to the Closing:
(i) by the written mutual consent of the parties hereto
prior to the Closing Date Deadline;
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(ii) by Buyer prior to the Closing Date Deadline in the
event of any material breach by Seller or the Stockholder of any of their
respective representations, warranties, covenants or agreements contained
herein;
(iii) by Seller prior to the Closing Date Deadline in the
event of any material breach by Buyer of any of Buyer's representations,
warranties, covenants or agreements contained herein;
(iv) at any time after the Closing Date Deadline, by
written notice by Buyer or Seller (subject to Buyer's option to elect to extend
the Closing Date Deadline in accordance with Section 1.3) to the other parties
hereto if the Closing shall not have occurred on or before the Closing Date
Deadline (as the same may have been extended in accordance with Section 1.3);
(v) by Buyer (no later than the thirtieth (30th) day after
the later of (1) the date the parties have reached agreement with respect to
Schedule 2.4, Part I - Annex A, Schedule 5.4(a), Schedule 5.5 and all Schedules
to be delivered by Seller to Buyer pursuant to Article VII hereof, and (2) all
due diligence materials described on Schedule 10.5 have been furnished to Buyer)
if Buyer is not satisfied, in its sole discretion, with the results of its due
diligence investigation;
(vi) by Buyer, by written notice to Seller, in the event
that the Manufacturer, or any other person claiming by, through or under the
Manufacturer, shall exercise any right of first refusal, preemptive right or
other similar right, with respect to any of the Assets; or
(vii) by Buyer, by written notice to Seller if, after any
initial HSR Act filing, the FTC makes a "second request" for information, or if
the FTC or the Antitrust Division challenges the transactions contemplated
hereby;
provided, however, no party may terminate this Agreement pursuant to clauses
(ii), (iii), or (iv) above if such party is in material breach of any of its
representations, warranties, covenants or agreements contained herein.
(b) In the event of termination of this Agreement pursuant to
Section 10.14(a), this Agreement shall be of no further force or effect;
provided, however, that any termination pursuant to Section 10.14(a) (other than
10.14(a)(vi)) shall not relieve: (i) Buyer of any liability under Section
10.14(c) below; (ii) Seller and the Stockholder of any liability under Section
10.14(d) below; (iii) subject to Section 10.14(e) below, any party hereto of any
liability for breach of any representation, warranty, covenant or agreement
hereunder occurring prior to such termination; or (iv) any party hereto of its
or his obligations hereunder to pay the fees and expenses of third parties;
provided, further, that any termination pursuant to Section 10.14(a)(vi) shall
not relieve Seller and the Stockholder of any liability under Section 2.5 above
or any party hereto of its or his obligations hereunder to pay the fees and
expenses of third parties.
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(c) If this Agreement is terminated by Seller pursuant to Section
10.14(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to the Buyer's material breach of its representations,
warranties, covenants or agreements under this Agreement, then Buyer shall, upon
demand of Seller, promptly pay to Seller in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$2,500,000 (the "BUYER TERMINATION FEE").
(d) If this Agreement is terminated by Buyer pursuant to Section
10.14(a)(iv) hereof and the failure to complete the Closing on or before the
Closing Date Deadline (as the same may have been extended pursuant to Section
1.3) shall have been due to the Stockholder's or Seller's material breach of any
of their respective representations, warranties, covenants or agreements under
this Agreement, then Seller and the Stockholder, jointly and severally, shall,
upon demand of Buyer, promptly pay to Buyer in immediately available funds, as
liquidated damages for the loss of the transaction, a termination fee of
$2,500,000 (the "SELLER TERMINATION FEE").
(e) In the case of termination of this Agreement pursuant to
Section 10.14(a)(iv) hereof, the rights of the terminating party to be paid the
Seller Termination Fee or the Buyer Termination Fee, as the case may be, shall
be such party's sole and exclusive remedy for damages; in the event of such
termination by either party, such party shall have no right to equitable relief
for any breach or alleged breach of this Agreement, other than for specific
performance for the payment of the Seller Termination Fee or the Buyer
Termination Fee, as the case may be. Nothing contained in this Agreement shall
prevent any party from electing not to exercise any right it may have to
terminate this Agreement and, instead, seeking any equitable relief (including
specific performance) to which it would otherwise be entitled in the event of
breach of any other party hereto.
(f) Seller and the Stockholder acknowledge and agree that Buyer's
due diligence investigation of Seller and the Business, including without
limitation, its review of the Schedules attached hereto and the information and
documentation received from Seller, shall not constitute a waiver of, or
otherwise modify, Buyer's right to terminate this Agreement under Section
10.14(a)(v) hereof.
10.15 CONTEMPORANEOUS CLOSINGS. The parties hereto acknowledge and agree
that the consummation of the transactions contemplated by this Agreement is
subject to the consummation of the transactions contemplated by the Real
Property Purchase Agreement, and the parties intend that the closings of both
such transactions shall occur contemporaneously.
10.16 HSR. Subject to the determination by Buyer that compliance by
Seller and Buyer with the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR ACT"), is not required, Seller and Buyer shall each prepare
and file with the Federal Trade Commission (the "FTC") and the Antitrust
Division of the Department of Justice (the "ANTITRUST DIVISION"), and respond as
promptly as practicable to all inquiries received from the FTC or the Antitrust
Division for additional information or documentation. Buyer shall pay any HSR
Act filing fee.
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10.17 BUYER'S FINANCIAL STATEMENTS. Seller shall allow, cooperate with
and assist Buyer's accountants, and shall instruct Seller's accountants to
cooperate, in the preparation of audited financial statements of Seller as
necessary for any required filings by Buyer with the Securities and Exchange
Commission or as required by Buyer's lenders; provided, however, that the
expense of such audit shall be borne by Buyer.
10.18 BROKER'S COMMISSION. At the Closing, Buyer shall pay the fee to
Presidio Strategies as set forth on Schedule 6.5.
ARTICLE XI
MISCELLANEOUS
11.1 ASSIGNMENT. Except as provided in this Section, this Agreement
shall not be assignable by any party hereto without the prior written consent of
the other parties. Buyer may assign this Agreement, without the consent of the
other parties hereto, to a corporation, partnership, limited liability company
or other entity controlled by Buyer, including a corporation, partnership,
limited liability company or other entity to be formed at any time prior to the
Closing Date, and to any person or entity who shall acquire all or substantially
all of the assets of Buyer or of such corporation, partnership, limited
liability company or other entity, controlled by Buyer (including any such
acquisition by merger or consolidation); provided said assignment shall be in
writing and the assignee shall assume all obligations of Buyer hereunder,
whereupon the assignee shall be substituted in lieu of Buyer named herein for
all purposes, provided, however, that Buyer originally named herein shall
continue to be liable with respect to its obligations hereunder. Buyer may
assign this Agreement, without the consent of the other parties hereto, as
collateral security, and the other parties hereto agree to execute and deliver
any acknowledgment of such assignment by Buyer as may be required by any lender
to Buyer.
11.2 GOVERNING LAW. The interpretation and construction of this
Agreement, and all matters relating hereto, shall be governed by the laws of the
State of Texas.
11.3 ACCOUNTING MATTERS. Except as provided in Section 7.6(a) and
Schedule 7.6(a), all accounting matters required or contemplated by this
Agreement shall be in accordance with generally accepted accounting principles.
11.4 FEES AND EXPENSES. Except as otherwise specifically provided in
this Agreement, each of the parties hereto shall be responsible for the payment
of such party's fees, costs and expenses incurred in connection with the
negotiation and consummation of the transactions contemplated hereby.
11.5 AMENDMENTS; MERGER CLAUSE. This Agreement, including the
schedules and other documents referred to herein which form a part hereof,
contains the entire understanding of the parties hereto with respect to the
subject matter contained herein and therein. This Agreement may
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not be amended except by a writing executed by all of the parties hereto. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to such subject matter.
11.6 WAIVER. To the extent permitted by applicable law, no claim or
right arising out of this Agreement or the documents referred to in this
Agreement can be discharged by one party, in whole or in part, by a waiver or
renunciation of the claim or right unless in writing signed by the other party.
Any waiver by a party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any subsequent breach of such
provision or any other provision of this Agreement. Neither the failure nor any
delay by any party hereto in exercising any right or power under this Agreement
or the documents referred to in this Agreement will operate as a waiver of such
right or power, and no single or partial exercise of any such right or power
will preclude any other or further exercise of such right or power or the
exercise of any other right or power.
11.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally or sent by facsimile or by a nationally recognized overnight courier,
postage prepaid, and shall be deemed to have been duly given when so delivered
personally or by confirmed facsimile or one (1) business day after the date of
deposit with such nationally recognized overnight courier. All such notices,
claims, certificates, requests, demands and other communications shall be
addressed to the respective parties at the addresses set forth below or to such
other address as the person to whom notice is to be given may have furnished to
the others in writing in accordance herewith.
If to Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Telecopy No.: (704) 563-5116
Attention: Chief Financial Officer
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telecopy No.: (704) 334-4706
Attention: Edward W. Wellman, Jr.
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If to Seller or the Stockholder, to:
L. S. Riley
6210 Willow Lane
Dallas, Texas 75230
Telecopy No.: (972) 960-9919
With a copy to:
Robert D. Remy
Two Memorial City Plaza
820 Gessner, Suite 1360
Houston, Texas 77024
Telecopy No.: (713) 465-8018
11.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts. Each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
11.9 KNOWLEDGE. Whenever any representation or warranty of Seller or the
Stockholder contained herein or in any other document executed and delivered in
connection herewith is based upon the knowledge of Seller or the Stockholder,
(a) such knowledge shall be deemed to include (i) the best actual knowledge,
information and belief of Seller and the Stockholder and (ii) any information
which the Stockholder would reasonably be expected to be aware of in the prudent
discharge of his duties in the ordinary course of business (including
consultation with legal counsel) on behalf of Seller, and (b) the knowledge of
the Stockholder shall be deemed to be the knowledge of Seller.
11.10 ARBITRATION.
(a) Any dispute, claim or controversy arising out of or relating
to this Agreement or the interpretation or breach hereof shall be resolved by
binding arbitration under the commercial arbitration rules of the American
Arbitration Association (the "AAA RULES") to the extent such AAA Rules are not
inconsistent with this Agreement. Judgment upon the award of the arbitrators may
be entered in any court having jurisdiction thereof or such court may be asked
to judicially confirm the award and order its enforcement, as the case may be.
The demand for arbitration shall be made by any party hereto within a reasonable
time after the claim, dispute or other matter in question has arisen, and in any
event shall not be made after the date when institution of legal proceedings,
based on such claim, dispute or other matter in question, would be barred by the
applicable statute of limitations. The arbitration panel shall consist of three
(3) arbitrators, one of whom shall be appointed by each of Buyer and Seller
within thirty (30) days after any request for arbitration hereunder. The two
arbitrators thus appointed shall choose the third arbitrator within thirty (30)
days after their appointment; provided, however, that if the two arbitrators are
unable to agree on the appointment of the third arbitrator within thirty (30)
days after their appointment, either
30
<PAGE>
arbitrator may petition the American Arbitration Association to make the
appointment. The place of arbitration shall be Dallas, Texas. The arbitrators
shall be instructed to render their decision within sixty (60) days after their
selection and to allocate all costs and expenses of such arbitration (including
legal and accounting fees and expenses of the respective parties) to the parties
in the proportions that reflect their relative success on the merits (including
the successful assertion of any defenses).
(b) Nothing contained in this Section 11.10 shall prevent any
party hereto from seeking any equitable relief to which it would otherwise be
entitled from a court of competent jurisdiction.
11.11 PERMITTED SUCCESSORS; ASSIGNS; NO THIRD PARTY BENEFICIARIES.
Subject to Section 11.1, this Agreement shall be binding upon, inure to the
benefit of and be enforceable by the respective successors and assigns of the
parties hereto. Nothing in this Agreement, expressed or implied, is intended or
shall be construed to confer upon or give to any employee of Seller, or any
other person, firm, corporation or legal entity, other than the parties hereto
and their successors and permitted assigns, any rights, remedies or other
benefits under or by reason of this Agreement.
11.12 HEADINGS. The article headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
11.13 SEVERABILITY. In the event that any provision, or part thereof, of
this Agreement shall be held to be invalid, illegal or unenforceable, the
validity, legality and enforceability of the remaining provisions, or parts
thereof, shall not in any way be affected or impaired thereby.
11.14 TIME IS OF THE ESSENCE. Time is of the essence for all purposes in
this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
31
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed as of the day and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ Bryan Scott Smith
---------------------------
Its: President
--------------------------
SELLER: LUTE RILEY MOTORS, INC.
By: /s/ L.S. Riley
--------------------------
Its:
--------------------------
EXHIBIT 21.1
Subsidiaries
<TABLE>
<CAPTION>
Name of Entity State of Assumed Name
Incorporation
or Organization
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Capitol Chevrolet and Imports, Inc. Alabama
- ----------------------------------------------------------------------------------------
Casa Ford of Houston, Inc. Texas
- ----------------------------------------------------------------------------------------
Fort Mill Chrysler-Plymouth-Dodge Inc. South
Carolina
- ----------------------------------------------------------------------------------------
Fort Mill Ford, Inc. South
Carolina
- ----------------------------------------------------------------------------------------
Freedom Ford, Inc. Florida
- ----------------------------------------------------------------------------------------
Frontier Oldsmobile-Cadillac, Inc. North Frontier Hyundai
Carolina
- ----------------------------------------------------------------------------------------
Lone Star Ford, Inc. Texas
- ----------------------------------------------------------------------------------------
Marcus David Corporation North Town & Country Toyota
Carolina
- ----------------------------------------------------------------------------------------
Sonic Automotive of Chattanooga, LLC Tennessee Town and Country Volvo of
Chattanooga
BMW of Chattanooga
Volvo of Chattanooga
- ----------------------------------------------------------------------------------------
Sonic Automotive-Clearwater, Inc. Florida Clearwater Toyota
- ----------------------------------------------------------------------------------------
Sonic Automotive Collision Center of Florida
Clearwater, Inc.
- ----------------------------------------------------------------------------------------
Sonic Automotive Finance, LLC North
Carolina
- ----------------------------------------------------------------------------------------
Sonic Automotive of Georgia, Inc. Georgia
- ----------------------------------------------------------------------------------------
Sonic Automotive-Hwy. 153 at Shallowford Tennessee
Road, Chattanooga, Inc.
- ----------------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Name of Entity State of Assumed Name
Incorporation
or Organization
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Sonic Automotive of Nashville, LLC Tennessee BMW of Nashville
Town and Country Volkswagen of
Nashville
Volkswagen of Nashville
- ----------------------------------------------------------------------------------------------
Sonic Automotive of Nevada, Inc. Nevada
- ----------------------------------------------------------------------------------------------
Sonic Automotive of Tennessee, Inc. Tennessee
- ----------------------------------------------------------------------------------------------
Sonic Automotive of Texas, L.P. Texas
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 1307 N. Dixie Hwy., Florida Halifax Ford-Mercury
NSB, Inc. Halifax Ford Truck Center
- ----------------------------------------------------------------------------------------------
Sonic Automotive-1400 Automall Drive, Ohio
Columbus, Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive-1455 Automall Drive, Ohio
Columbus, Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive-1495 Automall Drive, Ohio
Columbus, Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive-1500 Automall Drive, Ohio
Columbus, Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 1720 Mason Ave., DB, Florida Higginbotham Automobiles
Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 1720 Mason Ave., DB, Florida Higginbotham Automobiles
LLC
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 1919 N. Dixie Hwy., Florida Higginbotham Chevrolet-Oldsmobile
NSB, Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 21699 U.S. Hwy 19 N., Florida Clearwater Mitsubishi
Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive - 241 Ridgewood Ave., HH, Florida
Inc.
- ----------------------------------------------------------------------------------------------
Sonic Automotive 2424 Laurens Rd., South
Greenville, Inc. Carolina
- ----------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Name of Entity State of Assumed Name
Incorporation
or Organization
- --------------------------------------------------------------------------------------------
<S> <C> <C>
Sonic Automotive - 2490 South Lee Highway, Tennessee Town and Country Honda of
LLC Cleveland
Racetrack Motors
Cleveland Honda
- --------------------------------------------------------------------------------------------
Sonic Automotive 2752 Laurens Rd., South Century BMW
Greenville, Inc. Carolina
- --------------------------------------------------------------------------------------------
Sonic Automotive - 3401 N. Main, TX, L.P. Texas Ron Craft Chevrolet-Cadillac-
Oldsmobile
- --------------------------------------------------------------------------------------------
Sonic Automotive-3700 West Broad Street, Ohio
Columbus, Inc.
- --------------------------------------------------------------------------------------------
Sonic Automotive - 3741 S. Nova Rd., PO, Florida
Inc.
- --------------------------------------------------------------------------------------------
Sonic Automotive-4000 West Broad Street, Ohio
Columbus, Inc.
- --------------------------------------------------------------------------------------------
Sonic Automotive - 4701 I-10 East, TX, L.P. Texas
- --------------------------------------------------------------------------------------------
Sonic Automotive - 5221 I-10 East, TX, L.P. Texas Ron Craft Chrysler Plymouth Jeep
- --------------------------------------------------------------------------------------------
Sonic Automotive 5260 Peachtree Industrial Georgia Dyer and Dyer
Blvd., LLC
- --------------------------------------------------------------------------------------------
Sonic Automotive-5585 Peachtree Industrial Georgia
Blvd., LLC
- --------------------------------------------------------------------------------------------
Sonic Automotive - 6008 N. Dale Mabry, FL, Florida Volvo of Tampa
Inc.
- --------------------------------------------------------------------------------------------
Sonic Automotive - 6008 N. Dale Mabry, FL, Florida
LLC
- ----------------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
Name of Entity State of Assumed Name
Incorporation
or Organization
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Sonic Automotive - 6025 International Drive, Tennessee Town and Country KIA of
LLC Chattanooga
Town and Country Volkswagen of
Chattanooga
Volkswagen of Chattanooga
KIA of Chattanooga
- -------------------------------------------------------------------------------------------
Sonic Automotive - 9103 E. Independence, North Infiniti of Charlotte
NC, LLC Carolina
- -------------------------------------------------------------------------------------------
Sonic Chrysler-Plymouth-Jeep-Eagle, LLC North Lake Norman Chrysler-Plymouth-
Carolina Jeep
- -------------------------------------------------------------------------------------------
Sonic Dodge, LLC North Lake Norman Dodge
Carolina
- -------------------------------------------------------------------------------------------
Sonic - Global Imports, L.P. Georgia
- -------------------------------------------------------------------------------------------
Sonic Peachtree Industrial Blvd., L.P. Georgia
- -------------------------------------------------------------------------------------------
Sonic of Texas, Inc. Texas
- -------------------------------------------------------------------------------------------
Sonic - Williams Buick, Inc. Alabama
- -------------------------------------------------------------------------------------------
Sonic - Williams Cadillac, Inc. Alabama
- -------------------------------------------------------------------------------------------
Sonic - Williams Imports, Inc. Alabama
- -------------------------------------------------------------------------------------------
Sonic - Williams Motors, LLC Alabama
- -------------------------------------------------------------------------------------------
Town and Country Chrysler-Plymouth-Jeep, Tennessee Cleveland Chrysler-Plymouth-Jeep
LLC
- -------------------------------------------------------------------------------------------
Town and Country Chrysler-Plymouth-Jeep of South
Rock Hill, Inc. Carolina
- -------------------------------------------------------------------------------------------
Town and Country Dodge of Chattanooga, Tennessee Dodge of Chattanooga
LLC
- -------------------------------------------------------------------------------------------
Town and Country Ford, Incorporated North
Carolina
- -------------------------------------------------------------------------------------------
Town and Country Ford of Cleveland, LLC Tennessee
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Name of Entity State of Assumed Name
Incorporation
or Organization
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Town and Country Jaguar, LLC Tennessee Town and Country Infiniti of
Chattanooga
Town and Country Jaguar of
Chattanooga
Jaguar of Chattanooga
Infiniti of Chattanooga
</TABLE>
5
THE STOCKHOLDER: /s/ L.S. Riley
--------------------------------
L. S. Riley
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
333-69901, 333-69899, 333-69907 and 333-65447 of Sonic Automotive, Inc. on
Form S-8 and No. 333-68183 of Sonic Automotive, Inc. on Form S-3 of our report
dated February 16, 1999, appearing in this Annual Report on Form 10-K of Sonic
Automotive, Inc. for the year ended December 31, 1998.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
March 31, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET, CONSOLIDATED STATEMENT OF INCOME AND
CONSOLIDATED STATEMENT OF CASH FLOWS INCLUDED IN THE COMPANY'S FORM 10-K
FOR THE YEAR ENDING DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 51,834
<SECURITIES> 0
<RECEIVABLES> 39,902
<ALLOWANCES> 700
<INVENTORY> 264,971
<CURRENT-ASSETS> 364,841
<PP&E> 26,250
<DEPRECIATION> 0
<TOTAL-ASSETS> 576,103
<CURRENT-LIABILITIES> 285,686
<BONDS> 131,337
0
20,431
<COMMON> 244
<OTHER-SE> 121,754
<TOTAL-LIABILITY-AND-EQUITY> 576,103
<SALES> 1,407,030
<TOTAL-REVENUES> 1,603,701
<CGS> 1,396,259
<TOTAL-COSTS> 1,396,259
<OTHER-EXPENSES> 154,737
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,491
<INCOME-PRETAX> 29,640
<INCOME-TAX> 11,083
<INCOME-CONTINUING> 18,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,557
<EPS-PRIMARY> 0.81
<EPS-DILUTED> 0.74
</TABLE>
