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As filed with the Securities and Exchange Commission on July 9, 1999
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SONIC AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in Its Charter)
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Delaware 5511 56-2010790
<S> <C> <C>
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
Telephone (704) 532-3320
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
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Mr. O. Bruton Smith
Chairman and Chief Executive Officer
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
Telephone (704) 532-3320
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copies to:
Peter J. Shea, Esq.
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telephone (704) 372-9000
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Title of Each Class Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Price Aggregate Amount of
be Registered Registered (1) Per Unit(2) Offering Price(1)(2) Registration Fee
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$0.01 per share................... 1,056,839 $ 14.25 $ 15,059,955.75 $ 4,200.00
</TABLE>
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(1) Includes the registration for resale of the following securities of the
Registrant issued in certain transactions not involving a public offering:
(i) all shares of Class A Common Stock issuable upon conversion of 3,750
shares of the Registrant's Class A Convertible Preferred Stock, Series II,
and (ii) 807,463 shares of Class A Common Stock. Estimated solely for
purposes of calculating the registration fee in connection with this
Registration Statement; assumes that the 3,750 shares of the Registrant's
Class A Convertible Preferred Stock are converted into shares of Class A
Common Stock based on a market price of $13.6625 per share of Class A
Common Stock (the average of the daily closing prices of the Class A
Common Stock on the New York Stock Exchange for the 20 consecutive trading
days ending one trading day prior to July 8, 1999).
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee. The average of the high and low prices
reported on the New York Stock Exchange was $14.25 on July 8, 1999.
The Registrant hereby amends this Registration Statement on such dates as
may be necessary to delay its effective date until the Registrant shall file a
further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
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<PAGE>
Information contained in this prospectus is not complete and may be changed.
The selling stockholders may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not soliciting an
offer to buy these securities in any state where the offer or sale is not
permitted.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 9, 1999
PROSPECTUS
1,056,839 Shares*
[GRAPHIC OMITTED]
Class A Common Stock
---------------
The selling stockholders who are identified in this prospectus may offer
and sell all of the shares of Class A common stock of Sonic Automotive, Inc.
offered hereby from time to time. We previously issued the shares either in
connection with our recent acquisition of the selling stockholders' businesses
or have or will have issued the shares upon the selling stockholders'
conversion of our preferred stock previously issued in connection with our
business acquisitions.
We are registering the offer and sale of the shares to satisfy our
contractual obligations to provide the selling stockholders with freely
tradable shares. Sonic will not receive any of the proceeds from the sale of
the shares offered hereby. We do not know when the proposed sale of the shares
by the selling stockholders will occur.
The Class A common stock is traded on the New York Stock Exchange under
the symbol "SAH." The last sale price of the Class A common stock on the New
York Stock Exchange on July 8, 1999 was $14 1/8 per share. You are urged to
obtain current market data.
Investing in the Class A common stock involves risks which are described
in the "Risk Factors" section beginning on page 4 of this prospectus.
- ---------
* The shares offered hereby include the resale of 807,463 shares of Class A
common stock and a presently indeterminate number of shares of Class A common
stock issuable upon the conversion of 3,750 shares of Sonic's Class A
convertible preferred stock, Series II. The total number of shares of Class A
common stock indicated to be offered for resale by the selling stockholders
is an estimate based upon July 8, 1999 being the date of conversion of the
3,750 shares of preferred stock into shares of Class A common stock. This
estimate is subject to adjustment and could be materially less or more than
this estimated amount depending upon factors we cannot now predict, including
the future market price of the Class A common stock and the decision by the
holder of the preferred stock as to when to convert these shares. If the date
of July 8, 1999 was used as the date of conversion for the 3,750 shares of
preferred stock, then Sonic would be obligated to issue a total of
approximately 249,376 shares of Class A common stock to the holder of this
preferred stock.
You should not use the foregoing discussion as a prediction of the future
market price of the Class A common stock or the date when holders will
elect to convert preferred stock into shares of Class A common stock.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
The date of this prospectus is , 1999
<PAGE>
TABLE OF CONTENTS
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Page
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Cautionary Notice Regarding Forward-Looking
Statement......................................... 2
Summary .......................................... 4
Risk Factors ..................................... 4
Where You Can Find More Information about Sonic .. 16
Use of Proceeds .................................. 17
Selling Stockholders ............................. 17
Plan of Distribution ............................. 18
Material Changes ................................. 19
Description of Capital Stock ..................... 19
Certain Manufacturer Restrictions ................ 23
Legal Matters .................................... 24
Experts .......................................... 24
</TABLE>
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, its supplements and documents incorporated by reference
into it contain statements that constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Litigation Securities Reform Act of 1995, and we are including
this statement for purposes of complying with these safe harbor provisions.
These statements appear in a number of places in this prospectus and include
statements regarding our intent, belief or current expectations, or of our
directors or officers, with respect to, among other things:
(1) our potential acquisitions;
(2) our financing plans;
(3) trends affecting our financial condition or results of operations; and
(4) our business and growth strategies.
You are cautioned that these forward-looking statements are not guarantees
of future performance and involve risks and uncertainties. Actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors, including:
o local and regional economic conditions in the areas we serve;
o the level of consumer spending;
o our relationships with manufacturers;
o high competition;
o site selection and related traffic and demographic patterns;
o inventory management and turnover levels;
o realization of cost savings; and
o our success in integrating recent and potential future acquisitions.
Additional factors that could negatively affect our future financial
condition and operations are discussed under the heading "Risk Factors" and in
other parts of this prospectus. We urge you to consider these factors carefully
before investing in our Class A common stock.
All forward-looking statements made by us in this prospectus, its
supplements and documents incorporated by reference into it are qualified by
the cautionary statement above.
2
<PAGE>
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the selling stockholders have
not, authorized any other person to provide you with different information. If
anyone provides you with different or inconsistent information, you should not
rely on it. We are not, and the selling stockholders are not, making an offer
to sell these securities (1) in any jurisdiction where the offer or sale is not
permitted, (2) where the person making the offer is not qualified to do so, or
(3) to any person who can not legally be offered the securities. You should
assume that the information appearing in this prospectus is accurate only as of
the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that
date.
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SUMMARY
Sonic is one of the top ten automotive retailers in the United States, as
measured by total revenue, operating dealerships and collision repair centers
in several metropolitan areas of the southeastern, midwestern and southwestern
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 for our automotive customers.
Sonic has implemented a "hub and spoke" acquisition strategy. Generally,
when we enter a new geographic market, we first seek to acquire a well
performing dealership with an excellent management team. We then capitalize on
management's operating experience and knowledge of the surrounding markets to
identify and acquire additional dealerships. In addition to indentifying,
consummating and integrating attractive acquisitions, we continually focus on
improving our existing dealership operations.
The Class A common stock is traded on the New York Stock Exchange under
the trading symbol "SAH." Our principal executive offices are located at 5401
East Independence Blvd., Charlotte, North Carolina 28212, Telephone (704)
532-3320.
RISK FACTORS
You should carefully consider and evaluate all of the information in this
prospectus, including the risk factors set forth below, before investing in the
shares being offered.
Automobile Manufacturers Exercise Significant Control Over Sonic's Operations
and Sonic Is Dependent on Them to Operate its Business
Each of Sonic's dealerships operates pursuant to a franchise agreement
with the applicable automobile manufacturer or manufacturer authorized
distributor. Sonic is dependent to a significant extent on its relationships
with such manufacturer. Without a franchise agreement, we cannot obtain new
vehicles from a manufacturer.
Vehicles manufactured by the following manufacturers accounted for the
indicated approximate percentage of our 1998 new vehicle revenue:
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Percentage of Our
Manufacturer 1998 New Vehicle Revenues
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<S> <C>
Ford Motor Company 44.0%
Daimler-Chrysler Corporation 19.0%
Toyota Motor Sales (U.S.A.) 10.7%
General Motors Corporation 6.2%
BMW 5.3%
</TABLE>
No other manufacturer accounted for more than 5% of our new vehicle sales
during 1998. A significant decline in the sale of Ford, Daimler-Chrysler,
Toyota, GM or BMW new vehicles could have a material adverse effect on our
revenues and profitability.
Manufacturers exercise a great degree of control over the operations of
Sonic's dealerships. Each of our franchise agreements provides for termination
or non-renewal for a variety of causes, including any unapproved change of
ownership or management and other material breaches of the franchise
agreements. Manufacturers may also have a right of first refusal if we seek to
sell our dealerships. We believe that we will be able to renew all of our
existing franchise agreements upon expiration.
o We cannot assure you that any of our franchise agreements will be renewed
or that the terms and conditions of such renewals will be favorable to us.
o If a manufacturer is allowed under state franchise laws to terminate or
decline to renew one or more of Sonic's significant franchise agreements,
this action could have a material adverse effect on our results of
operations.
o Actions taken by manufacturers to exploit their superior bargaining
position in negotiating the terms of renewals of our franchise agreements
or otherwise could also have a material adverse effect on our results of
operations.
Manufacturers allocate their vehicles among dealerships generally based on
the sales history of each dealership. Consequently, we also depend on the
manufacturers to provide us with a desirable mix of popular new vehicles. These
popular vehicles produce the highest profit margins and tend to be the most
difficult to obtain from the manufacturers.
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o Sonic's dealerships depend on the manufacturers for certain sales
incentives, warranties and other programs that are intended to promote and
support dealership new vehicle sales. Manufacturers have historically made
many changes to their incentive programs during each year. A reduction or
discontinuation of a manufacturer's incentive programs may materially
adversely affect our profitability.
Adverse Conditions Affecting One or More Manufacturers May Negatively Impact
Sonic's Profitability
The success of each of Sonic's dealerships depends to a great extent on
the manufacturers':
o financial condition;
o marketing;
o vehicle design;
o production capabilities; and
o management.
Events such as strikes and other labor actions by unions, or negative
publicity concerning a particular manufacturer or vehicle model, may materially
and adversely affect our results of operations. Similarly, the delivery of
vehicles from manufacturers later than scheduled, which may occur particularly
during periods when new products are being introduced, can reduce our sales.
Although, we have attempted to lessen our dependence on any one manufacturer by
establishing dealer relationships with a number of different domestic and
foreign automobile manufacturers, adverse conditions affecting manufacturers,
Ford, Daimler-Chrysler, Toyota or GM in particular, could have a material
adverse effect on our results of operations. For instance, workers at a
Chrysler engine plant went on strike in April 1997 for 29 days. The strike by
the United Auto Workers caused Chrysler's vehicle production to drop during the
Spring of 1997, especially for production of its most popular truck and van
models. This strike materially affected Sonic due to Chrysler's inability to
provide us with a sufficient supply of new vehicles and parts during the
strike. In addition, in June 1998, the United Auto Workers went on strike at
two GM facilities in Flint, Michigan. The strike lasted 53 days, causing 27 GM
manufacturing facilities to shut down during the strike and severely affecting
production of GM vehicles during the strike. In the event of another strike,
Sonic may need to purchase inventory from other automobile dealers at prices
higher than it would be required to pay to the affected manufacturer in order
to carry an adequate level and mix of inventory. Consequently, strikes or other
adverse labor actions could materially adversely affect our profitability.
Manufacturer Stock Ownership/Issuance Limits Limit Sonic's Ability to Issue
Additional Equity to Meet Its Financing Needs
Standard automobile franchise agreements prohibit transfers of any
ownership interests of a dealership and its parent, such as Sonic, and,
therefore, often do not by their terms accommodate public trading of the
capital stock of a dealership or its parent. Our manufacturers have agreed to
permit trading in the Class A common stock. A number of manufacturers impose
restrictions upon the transferability of the Class A common stock.
o Ford may cause us to sell or resign from one or more of our Ford
franchises if any person or entity (other than the current holders of our
Class B common stock, and their lineal descendants and affiliates
(collectively, the "Smith Group")) acquires 15% or more of our voting
securities.
o General Motors, Toyota and Nissan Motor Corporation In U.S.A.
("Infiniti") may force the sale of their respective franchises if 20% of
more of our voting securities are similarly acquired.
o American Honda Co., Inc. may force the sale of our Honda franchise if any
person or entity, excluding members of the Smith Group, acquires 5% of the
common stock (10% if such entity is an institutional investor), and Honda
deems such person or entity to be unsatisfactory.
o Volkswagen of America, Inc. requires prior approval of any change in
voting or managerial control of Sonic that would affect Sonic's control or
management of its Volkswagen franchise subsidiaries.
o Chrysler requires prior approval of any future sales that would result in
a change in voting or managerial control of Sonic.
o Mercedes requires 60 days notice to approve the acquisition of securities
representing 20% or more of the voting rights of Sonic.
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In addition, other manufacturers may seek to impose other similar restrictions.
In a similar manner, Sonic's lending arrangements require that the Smith
Group maintain voting control over Sonic. Any transfer of shares of common
stock, including a transfer by members of the Smith Group, will be outside our
control. If such transfer results in a change in control of Sonic, it could
result in the termination or non-renewal of one or more of our franchise
agreements and a default under our credit arrangements. Moreover, these
issuance limitations may impede Sonic's ability to raise capital through
additional equity offerings or to issue Sonic stock as consideration for future
acquisitions. The restrictions under Sonic's franchise agreements or lending
arrangements also may prevent or deter prospective acquirors from acquiring
control of Sonic and adversely impact the price of Sonic's Class A common
stock.
Manufacturers' Restrictions on Acquisitions Could Limit Sonic's Future Growth
We are required to obtain the consent of the applicable manufacturer
before the acquisition of any additional dealership franchises. We cannot
assure you that manufacturers will grant such approvals, although the denial of
such approval may be subject to certain state franchise laws. In the course of
acquiring Jaguar franchises associated with dealerships in Chattanooga,
Tennessee and Greenville, South Carolina, Jaguar declined to consent to Sonic's
proposed 1997 acquisitions of those franchises.
Obtaining manufacturer consent for acquisitions could also take a
significant amount of time. Obtaining manufacturer approval for our 1997 and
1998 acquisitions, other than Jaguar, which was not obtained, took
approximately five months. We believe that manufacturer approvals of subsequent
acquisitions from manufacturers with which Sonic has previously completed
applications and agreements may take less time, although we cannot provide you
with assurances to that effect.
If we experience delays in obtaining, or fail to obtain, manufacturer
approvals for dealership acquisitions, our growth strategy could be materially
adversely affected. In determining whether to approve an acquisition, the
manufacturers may consider many factors, including the moral character,
business experience, financial condition, ownership structure and customer
satisfaction index scores ("CSI scores") of Sonic and its management. In
addition, under an applicable franchise agreement or under state law a
manufacturer may have a right of first refusal to acquire a dealership in the
event we seek to acquire a dealership franchise.
In addition, a manufacturer may seek to limit the number of its
dealerships that may be owned by Sonic, Sonic's national market share of that
manufacturer's products or the number of dealerships Sonic may own in a
particular geographic area. These restrictions may not be enforceable under
state franchise laws.
o Ford currently limits us to no more than the lesser of (1) 15 Ford and 15
Lincoln Mercury dealerships or (2) that number of Ford and Lincoln Mercury
dealerships accounting for 2% of the preceding year's retail sales of
those brands in the United States. Ford also limits us to owning only one
Ford dealership in any Ford-defined market area having three or fewer Ford
dealerships in it and no more than 25% of the Ford dealerships in a market
area having four or more Ford dealerships.
o Toyota currently restricts the number of dealerships that may be owned by
any one group to seven Toyota and three Lexus dealerships nationally and
restricts the number of dealerships that may be owned to (1) the greater
of one dealership, or 20% of the Toyota dealer count in a Toyota-defined
"Metro" market, (2) the lesser of five dealerships or 5% of the Toyota
dealerships in any Toyota region (currently 12 geographic regions), and
(3) two Lexus dealerships in any one of the four Lexus geographic areas.
Toyota further requires that at least nine months elapse between
acquisitions.
o In late 1998, Honda announced its revised policy that it will enter into
a "framework agreement" with any publicly-owned Honda dealer entity. The
purpose of this agreement is primarily to set specific limitations on the
number of Honda and Acura dealerships nationally, in each Honda- and
Acura-defined geographic zones and in each Honda- and Acura-defined
"Metro" market. Honda has not yet provided us with such a framework
agreement. Presently, Honda restricts us from holding more than seven
Honda or more than three Acura franchises nationally and restricts the
number of franchises to (1) one Honda dealership in a Honda-defined
"Metro" market with two to 10 Honda dealerships, (2) two Honda dealerships
in a Metro market with 11 to 20 Honda dealerships, (3) three Honda
dealerships in a Metro market with 21 or more Honda dealerships, (4) no
more than 4% of the Honda dealerships in any one of 10 Honda-defined
geographic zones, (5) one Acura dealership in a Metro market, and (6) two
Acura dealerships in any one of the six Acura-defined geographic zones.
o Mercedes restricts any company from owning that number of Mercedes
dealerships with sales of more than 3% of total sales of Mercedes vehicles
in the U.S. during the previous calendar year. In addition, Mercedes has
limited Sonic from acquiring more than four additional Mercedes
dealerships until November 1999. During this period,
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Mercedes will evaluate the performance of our acquired Mercedes
dealerships before permitting us to acquire additional Mercedes
dealerships.
o GM limited the number of GM dealerships that we may acquire during the
period from September 15, 1997 to June 10, 2000 to 15 additional GM
dealership locations. We currently own and have agreements to acquire a
total of 15 GM dealerships. GM currently limits the maximum number of GM
dealerships that we may acquire to 50% of the GM dealerships, by franchise
line, in a GM-defined geographic market area having multiple GM dealers.
o Toyota and Honda also prohibit ownership of contiguous dealerships.
o Subaru limits us to no more than two Subaru dealerships within certain
designated market areas, four Subaru dealerships within the Mid-America
region and twelve dealerships within Subaru's entire area of distribution.
o Toyota, Honda and Mercedes also prohibit the coupling of a franchise
with any other brand without their consent.
As a condition to granting their consent to our 1997 acquisitions, a
number of manufacturers forced Sonic to agree to additional restrictions. These
agreements principally restrict (1) material changes in Sonic or extraordinary
corporate transactions such as a merger, sale of a material amount of assets or
change in the Board of Directors or management of Sonic that could have a
material adverse effect on the manufacturer's image or reputation or could be
materially incompatible with the manufacturer's interests; (2) the removal of a
dealership general manager without the consent of the manufacturer; and (3) the
use of dealership facilities to sell or service new vehicles of other
manufacturers. If we are unable to comply with these restrictions, we generally
must (1) sell the assets of the dealerships to the manufacturer or to a third
party acceptable to the manufacturer, or (2) terminate the dealership
agreements with the manufacturer. Other manufacturers may impose other and more
stringent restrictions in connection with future acquisitions.
We own the following number of franchises for the following manufacturers:
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Number Number
Manufacturer of Franchises Manufacturer of Franchises
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<S> <C> <C> <C>
BMW 7 Volkswagon 3
Ford 7 Volvo 3
Chevrolet 7 GMC 2
Cadillac 6 Hyundai 2
Chrysler 6 Infiniti 2
Oldsmobile 6 Lincoln 2
Plymouth 6 Nissan 2
Dodge 4 Acura 1
Jeep 4 Audi 1
Isuzu 3 Buick 1
KIA 3 Honda 1
Mercedes 3 Lexus 1
Mercury 3 Pontiac 1
Mitsubishi 3 Porsche 1
Toyota 3 Range Rover 1
Subaru 1
</TABLE>
Jaguar Has Not Consented to Two Acquisitions
In the course of seeking to acquire Jaguar franchises in Chattanooga,
Tennessee and Greenville, South Carolina, Jaguar declined to consent to Sonic's
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.
Sonic's Failure to Meet A Manufacturer's Consumer Satisfaction Requirements May
Adversely Affect Our Ability to Acquire New Dealerships
Many manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems which vary from
manufacturer to manufacturer but which are generally known as "CSI." These
manufacturers may use a dealership's CSI scores as a factor in evaluating
applications for additional dealership acquisitions. The components of CSI have
been modified by various manufacturers from time to time in the past, and we
cannot assure you that these components will not be further modified or
replaced by different systems in the future. To
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date, we have not been materially adversely affected by these standards and
have not been denied approval of any acquisition based on low CSI scores,
except for Jaguar's refusal to approve our acquisition of a Chattanooga Jaguar
franchise in 1997. See " -- Jaguar Has Not Consented to Two Acquisitions."
However, we cannot assure you that Sonic will be able to comply with these
standards in the future. A manufacturer may refuse to consent to an acquisition
of one of its franchises if it determines our dealerships do not comply with
the manufacturer's CSI standards. This could adversely affect our acquisition
strategy.
Limitations on Sonic's Financial Resources Available for Acquisitions
We intend to finance our acquisitions with cash on hand, through issuances
of our stock or debt securities and through borrowings under credit
arrangements.
o We cannot assure you that we will be able to obtain additional financing
by issuing our stock or debt securities.
o Using issuances of our stock to complete acquisitions could
significantly dilute our existing stockholders.
o Using cash to complete acquisitions could substantially limit our
operating or financial flexibility.
o If we are unable to obtain financing on acceptable terms, we may be
required to reduce the scope of our presently anticipated expansion, which
could materially adversely affect our growth strategy.
In addition, Sonic is dependent to a significant extent on its ability to
finance its inventory. Automotive retail inventory financing involves
significant sums of money in the form of "floor plan financing." Floor plan
financing is how a dealership finances its purchase of new vehicles from a
manufacturer. The dealership borrows money to buy a particular vehicle from the
manufacturer and pays off the loan when it sells that particular vehicle,
paying interest during this period. As of March 31, 1999, Sonic had
approximately $264.8 million of floor plan indebtedness outstanding, all of
which is under Sonic's floor plan credit facility (the "Floor Plan Facility")
with Ford Motor Credit. Substantially all the assets of our dealerships are
pledged to secure such indebtedness, which may impede our ability to borrow
from other sources. Ford Motor Credit is associated with Ford. Consequently,
any deterioration of our relationship with Ford could adversely affect our
relationship with Ford Motor Credit and vice-versa. In addition, Sonic must
obtain new floor plan financing or obtain consents to assume such financing in
connection with its acquisition of dealerships.
O. Bruton Smith, our Chief Executive Officer and Chairman of the Board,
initially guaranteed the obligations of Sonic under Sonic's unsecured
acquisition line of credit (the "Revolving Facility") with Ford Motor Credit.
Such obligations were further secured with a pledge of shares of common stock
of Speedway Motorsports, Inc. owned by Sonic Financial Corporation, a
corporation controlled by Mr. Smith, having an estimated value at the time of
pledge of approximately $50.0 million (the "Revolving Pledge"). When the
Revolving Facility's borrowing limit was increased to $75.0 million in 1997,
Mr. Smith's personal guarantee of Sonic's obligations under the Revolving
Facility was released, although the Revolving Pledge remained in place. Mr.
Smith was also required by Ford Motor Credit to lend $5.5 million (the
"Subordinated Smith Loan") to Sonic to increase Sonic's capitalization because
the net proceeds from Sonic's November 1997 initial public offering were
significantly less than expected by Sonic and Ford Motor Credit. In August
1998, Ford Motor Credit released the Revolving Pledge. In December 1998, Ford
Motor Credit agreed to increase the borrowing limit under the Revolving
Facility to $100.0 million, and in June 1999, Ford Motor Credit agreed to
further increase the borrowing limit under the Revolving Facility to $150.0
million. Mr. Smith may be unwilling to make any such commitments in the future
if such commitments are needed.
Leverage
As of March 31, 1999, Sonic's long-term debt was 51.5% of its total
capitalization. As of March 31, 1999, Sonic's total consolidated long-term
indebtedness (including certain affiliated payables) was $189.4 million, its
total consolidated short-term indebtedness (including floor plan notes payable)
was $266.0 million and its total stockholders' equity was $178.6 million. In
addition, the indenture relating to our senior subordinated notes and other
debt instruments of Sonic and its subsidiaries allow Sonic and its subsidiaries
to incur additional indebtedness, including secured indebtedness.
The degree to which Sonic is leveraged could have important consequences
to the holders of our securities, including the following:
o our ability to obtain additional financing for acquisitions, capital
expenditures, working capital or general corporate purposes may be
impaired in the future;
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o a substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our senior subordinated notes,
borrowings under the revolving facility, a standardized floor plan credit
facility with Ford Motor Credit for each of our dealership subsidiaries
and other indebtedness, thereby reducing the funds available to us for our
operations and other purposes;
o certain of our borrowings are and will continue to be at variable rates
of interest, which exposes us to the risk of increased interest rates;
o the indebtedness outstanding under our credit facilities is secured by a
pledge of substantially all the assets of our dealerships; and
o we may be substantially more leveraged than certain of our competitors,
which may place us at a relative competitive disadvantage and make us more
vulnerable to changing market conditions and regulations.
In addition, our debt agreements contain numerous covenants that will
limit the discretion of Sonic's and its subsidaries' management with respect to
business matters, including mergers or acquisitions, paying dividends,
incurring additional debt, making capital expenditures or disposing assets.
Automobile Retailing Is A Mature Industry With Limited Growth Potential in New
Vehicle Sales and Sonic's Acquisition Strategy Will Affect Its Revenues and
Earnings
The United States automobile dealership industry is considered a mature
industry in which minimal growth is expected in unit sales of new vehicles. As
a consequence, growth in our revenues and earnings is likely to be
significantly affected by our success in acquiring and integrating dealerships
and the pace and size of such acquisitions.
High Competition in Automobile Retailing Reduces Sonic's Profit Margins on
Vehicle Sales
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of
1998. Our competition includes:
o Franchised automobile dealerships selling the same or similar makes of
new and used vehicles we offer in our markets and sometimes at lower
prices than us. Some of these dealer competitors may be larger and have
greater financial and marketing resources than Sonic;
o Other franchised dealers;
o Private market buyers and sellers of used vehicles;
o Used vehicle dealers;
o Service center chain stores; and
o Independent service and repair shops.
Gross profit margins on sales of new vehicles have been declining since
1986. The used car market faces increasing competition from untraditional
outlets such as used-vehicle "superstores." Many used-vehicle superstores use
sales techniques, such as one price shopping, that are untraditional and
appealing to certain consumers. Presently, only one of Sonic's dealerships uses
one price shopping techniques. Several groups have begun to establish
nationwide networks of used-vehicle superstores. Used-vehicle superstores
compete with us in many of the markets where we have significant operations.
"No negotiation" sales methods are also being tried for new cars by at least
one of these superstores and by dealers for Saturn and other dealerships. Some
of our competitors may be capable of operating on smaller gross margins than
us, and may have greater financial, marketing and personnel resources than us.
The Internet is becoming a significant part of the sales process in our
industry. Customers are using the Internet to compare pricing for cars and
related finance and insurance services which may further reduce margins for new
cars and profits for related finance and insurance services.
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 has announced its intention to acquire its dealerships. In addition,
other manufacturers may directly enter the retail market in the future. Our
revenues and profitability could be materially adversely affected by
manufacturers' direct retailing efforts.
The increased popularity of short-term vehicle leasing also has resulted,
as these leases expire, in a large increase in the number of late model
vehicles available in the market, which puts added pressure on new vehicle
margins. As Sonic
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seeks to acquire dealerships in new markets, it may face increasingly
significant competition as it strives to gain market share through acquisitions
or otherwise. This competition includes other large dealer groups and dealer
groups that have publicly-traded equity.
Our franchise agreements do not grant us the exclusive right to sell a
manufacturer's product within a given geographic area. Our revenues or
profitability could be materially adversely affected if any of our
manufacturers award franchises to others in the same markets where we operate,
although certain state franchise laws may limit such activities by the
manufacturers. A similar adverse affect could occur if existing competing
franchised dealers increase their market share in our markets. Our gross
margins may decline over time as we expand into markets where we do not have a
leading position. These and other competitive pressures could materially
adversely affect Sonic's results of operations.
The Cyclical and Local Nature of Automobile Sales May Adversely Affect Sonic's
Profitability
The automobile industry is cyclical and historically has experienced
periodic downturns characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
credit availability. For the year ended December 31, 1998, industry retail unit
sales increased 2.9% as a result of retail car unit sales declines of 1.1%
offset by retail truck unit sales gains of 7.7% from the same period in 1997.
Future recessions may have a material adverse effect on our business.
Local economic, competitive and other conditions also affect the
performance of dealerships. Sonic's dealerships currently are located in the
Atlanta, Birmingham, Charlotte, Chattanooga, Columbus, Dallas, Daytona Beach,
Greenville/Spartanburg, Houston, Montgomery, Nashville and Tampa/Clearwater
markets. We intend to pursue acquisitions outside of these markets, but our
operational focus is on our current markets. As a result, Sonic's results of
operations depend substantially on general economic conditions and consumer
spending habits in the Southeast and, to a lesser extent, in the Houston and
Columbus markets. Sonic's results of operations also depend on other factors,
such as tax rates and state and local regulations specific to Alabama, Florida,
Georgia, North Carolina, Ohio, South Carolina, Tennessee and Texas. Sonic may
not be able to expand geographically and any such expansion may not adequately
insulate it from the adverse effects of local or regional economic conditions.
Risks of Consolidating Operations as a Result of Recent Acquisitions May
Adversely Affect Sonic's Future Operating Results
We acquired 19 dealerships in 1998. These dealerships were operated and
managed independently from Sonic until we acquired them. Sonic's future
operating results will depend on our ability to integrate the operations of
these businesses and manage the combined enterprise. We cannot assure you that
we will be able to effectively and profitably integrate in a timely manner any
of the dealerships included in our 1998 acquisitions or any future
acquisitions, or to manage the combined entity without substantial costs,
delays or other operational or financial problems. Our inability to do so could
have a material adverse effect on Sonic's business, financial condition and
results of operations.
Risks Associated with Acquisitions May Hinder Sonic's Ability to Increase
Revenues and Earnings
The retail automobile industry is considered a mature industry in which
minimal growth is expected in industry unit sales. Accordingly, our future
growth depends in large part on our ability to acquire additional dealerships
as well as on our ability to manage expansion, control costs in our operations
and consolidate dealership acquisitions, including our 1998 and completed 1999
acquisitions, into existing operations. In pursuing a strategy of acquiring
other dealerships, we face risks commonly encountered with growth through
acquisitions. These risks include, but are not limited to:
o incurring significantly higher capital expenditures and operating
expenses;
o failing to assimilate the operations and personnel of the acquired
dealerships;
o disrupting Sonic's ongoing business;
o diverting Sonic's limited management resources;
o failing to maintain uniform standards, controls and policies;
o impairing relationships with employees and customers as a result of
changes in management;
o causing increased expenses for accounting and computer systems, as well
as integration difficulties; and
o failure to obtain a manufacturer's consent to one of its dealership
franchises.
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Failure to retain qualified management personnel at any acquired
dealership may increase the risk associated with integrating the acquired
dealership. Installing new computer systems has in the past disrupted existing
operations as management and salespersons adjust to new technologies. We cannot
assure you that we will be successful in overcoming these risks or any other
problems encountered with our acquisitions, including our 1998 and completed
1999 acquisitions.
Although there are many potential acquisition candidates that fit our
acquisition criteria, we cannot assure you that we will be able to consummate
any such transactions in the future or identify those candidates that would
result in the most successful combinations, or that future acquisitions will be
able to be consummated at acceptable prices and terms. In addition, increased
competition for acquisition candidates could result in fewer acquisition
opportunities for us and higher acquisition prices. The magnitude, timing and
nature of future acquisitions will depend upon various factors, including:
o the availability of suitable acquisition candidates;
o competition with other dealer groups for suitable acquisitions;
o the negotiation of acceptable terms;
o Sonic's financial capabilities;
o the availability of skilled employees to manage the acquired companies;
and
o general economic and business conditions.
In addition, Sonic's future growth as a result of our acquisition of
automobile dealerships will depend on our ability to obtain the requisite
manufacturer approvals. We cannot assure you that we will be able to obtain
such consents in the future.
We may be required to file applications and obtain clearances under
applicable federal antitrust laws before completing an acquisition. These
regulatory requirements may restrict or delay our acquisitions, and may
increase the cost of completing acquisitions.
The Operating Condition of Acquired Businesses Cannot Be Determined Accurately
Until Sonic Assumes Control
Although we have conducted what we believe to be a prudent level of
investigation regarding the operating condition of the businesses we purchase
in light of the circumstances of each transaction, certain unavoidable levels
of risk remain regarding the actual operating condition of these businesses.
Until we actually assume operating control of such assets, we may not be able
to ascertain the actual value of the acquired entity.
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Potential Adverse Market Price Effect of Additional Shares Eligible for Future
Sale
The market price of our Class A common stock could be adversely affected
by the availability for public sale of up to 20,077,396 shares held or issuable
on July 8, 1999, including:
<TABLE>
<CAPTION>
Number of Shares of
Class A Common Stock Manner of Holding and/or Issuance
- ------------------------ --------------------------------------------------------------
<S> <C>
12,300,000(1) Issuable on conversion of 12,300,000 shares of our Class B
common stock owned by existing stockholders of Sonic.
These shares of Class A common stock are subject to
certain piggyback registration rights.
242,782(1) Issuable on exercise of warrants issued in our business
acquisitions.
2,200,076(1)(2) Issued or issuable on conversion of outstanding shares of
our Class A convertible preferred stock that were issued in
our business acquisitions.
1,440,022 Issued in our business acquisitions and currently registered
for sale under the Securities Act pursuant to a shelf
registration.
3,427,798 Issuable on exercise of options granted under our 1997
Stock Option Plan. All such shares are registered for sale
under the Securities Act.
396,718 Issuable on exercise of options granted under our employee
stock purchase plans. All such shares are registered for sale
under the Securities Act.
70,000 Issuable on exercise of options granted under our Directors
Formula Stock Option Plan. All such shares are registered
for sale under the Securities Act.
</TABLE>
- ---------
(1) All such shares are "restricted securities" as defined in Rule 144 under
the Securities Act and may be resold in compliance with Rule 144.
(2) The number of shares of Class A common stock issuable upon conversion of
outstanding shares of our preferred stock is an estimate based on the
assumption that the average of the daily closing prices for the Class A
common stock on the NYSE for the 20 consecutive trading days ending one
trading day before such conversion was $13.6625 per share. This number
is subject to adjustment based on the common stock price on the date of
conversion and could be materially more or less than this estimated
amount depending on factors that we cannot presently determine. These
factors include the future market price of the Class A common stock and
the decisions of the holders of the preferred stock as to when to
convert their shares of preferred stock. Generally, such issuances of
Class A common stock will vary inversely with the market price of the
Class A common stock.
In connection with pending acquisitions, Sonic has agreed to issue
approximately $24.0 million in Class A common stock. All of these shares have
registration rights. Sonic intends in its business acquisitions to issue
additional shares of equity securities that may have registration rights as
well as be eligible for resale under Rule 144. The resale of substantial
amounts of Class A common stock, or the perception that such resales may occur,
could materially and adversely affect the prevailing market prices for the
Class A common stock and the ability of Sonic to raise equity capital in the
future.
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Sonic also has registration rights agreements with holders of:
o 500,833 shares of Class A common stock, and
o 4,750 shares of preferred stock, which are convertible into 318,430 shares
of Class A common stock if such conversion was based on $13.6625 being the
20-day average closing price of our Class A common stock.
Potential Conflicts of Interest Between Sonic and Its Officers Could Adversely
Affect Our Future Performance
Bruton Smith serves as the chairman and chief executive officer of
Speedway Motorsports, Inc. and as the chairman of Mar Mar Realty Trust, a real
estate investment trust that is specializing in the acquisition and leasing of
the real estate of automobile dealerships and automotive related businesses.
Accordingly, Sonic competes with Speedway Motorsports and Mar Mar for the
management time of Mr. Smith. Under his employment agreement with Sonic, Mr.
Smith is required to devote approximately 50% of his business time to our
business. The remainder of his business time may be devoted to other entities
including Speedway Motorsports and Mar Mar.
We have in the past and will likely in the future enter into transactions
with entities controlled by Mr. Smith or other affiliates of Sonic. Sonic has
entered into certain property transactions with Mar Mar or its affiliates. We
believe that all of our existing arrangements with affiliates, including those
with Mar Mar, are favorable to us and are as if the arrangements were
negotiated between unaffiliated parties. Since no independent appraisals were
obtained, we cannot assure you that our transactions with Mar Mar are on terms
no less favorable than could have been obtained from unaffiliated third
parties. Potential conflicts of interest could also arise in the future between
Sonic and these affiliated parties in connection with the enforcement,
amendment or termination of these arrangements.
On June 30, 1999, Mr. Smith and other affiliates of Mar Mar signed an
agreement to sell the ownership of MMR Holdings to an affiliate of Capital
Automotive REIT, which is unaffiliated with Sonic, Mar Mar or Mr. Smith. MMR
Holdings, which is owned directly or indirectly by Mr. Smith, owns or will own
after the closing of our previously announced acquisitions, 52 properties
leased or to be leased to us. We anticipate that the sale of MMR Holdings will
close in the third quarter of 1999. In a separate transaction, Sonic entered
into an agreement with Capital Automotive whereby Capital Automotive agreed to
provide Sonic with up to $75,000,000 in real estate financing through December
31, 1999. When the agreement for the sale of MMR Holdings was signed, we, Mar
Mar and MMR Holdings terminated our strategic alliance agreement whereby Mar
Mar had provided Sonic with real estate financing, acquisition referral and
related services. After MMR Holdings is sold, Mar Mar and its affiliates will
cease their present operations. See "Material Changes."
Under Delaware law generally, a corporate insider is precluded from acting
on a business opportunity in his individual capacity if that opportunity is (a)
one which the corporation is financially able to undertake, (b) is in the line
of the corporation's business, (c) is of practical advantage to the corporation
and (d) is one in which the corporation has an interest or reasonable
expectancy. Accordingly, our corporate insiders are generally prohibited from
engaging in new business opportunities outside of Sonic unless a majority of
our disinterested directors decide that such opportunities are not in our best
interest.
Our charter contains provisions providing that transactions between Sonic
and its affiliates must be no less favorable to Sonic than would be available
in similar transactions with an unrelated third party. Moreover, any such
transactions involving aggregate payments in excess of $500,000 must be
approved by a majority of our directors and a majority of our independent
directors. Otherwise, Sonic must obtain an opinion as to the financial fairness
of the transaction to be issued by an investment banking or appraisal firm of
national standing. In addition, the terms of the Revolving Facility and our
senior subordinated notes restrict transactions with affiliates in a manner
similar to our charter restrictions.
Lack of Majority of Independent Directors Could Result in Conflicts with
Management and Majority Stockholders That May Reduce Sonic's Future Performance
Independent directors do not constitute a majority of the Board, and our
Board may not have a majority of independent directors in the future. Without a
majority of independent directors, our executive officers, principal
stockholders and directors could establish policies and enter into transactions
without independent review and approval, subject to certain restrictions under
our charter. These policies and transactions could present the potential for a
conflict of interest between Sonic and its minority stockholders and the
controlling officers, stockholders or directors.
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The Loss of Key Personnel and the Limited Management and Personnel Resources of
Sonic Could Adversely Affect Sonic's Operations and Growth
Our success depends to a significant degree upon the continued
contributions of our management team (particularly its senior management) and
service and sales personnel. Additionally, manufacturer franchise agreements
require the prior approval of the applicable manufacturer before any change is
made in franchise general managers. For instance, Volvo has required that
Richard Dyer maintain a 20% interest in, and be the general manager of, Sonic's
Volvo dealerships formerly owned by him. In addition, Mercedes requires that
the individual dealer operator of our Mercedes dealerships own at least a 20%
interest in our Mercedes dealerships. We do not have employment agreements with
many of our dealership managers and other key dealership personnel.
Consequently, the loss of the services of one or more of these key employees
could have a material adverse effect on our results of operations.
In addition, as we expand we may need to hire additional managers and will
likely be dependent on the senior management of any businesses acquired. The
market for qualified employees in the industry and in the regions in which
Sonic operates, particularly for general managers and sales and service
personnel, is highly competitive and may subject Sonic to increased labor costs
during periods of low unemployment. The loss of the services of key employees
or the inability to attract additional qualified managers could have a material
adverse effect on our results of operations. In addition, the lack of qualified
management or employees employed by our potential acquisition candidates may
limit our ability to consummate future acquisitions.
Seasonality of the Automotive Retail Business Adversely Affects First Quarter
Revenues
Our business is seasonal, with a disproportionate amount of revenues
received in the second, third and fourth fiscal quarters.
Imported Product Restrictions and Foreign Trade Risks May Impair Sonic's
Ability to Sell Foreign Vehicles Profitably
Some of the vehicles and major components of vehicles we sell are
manufactured in foreign countries. Accordingly, we are subject to the import
and export restrictions of various jurisdictions and are dependent to some
extent upon general economic conditions in, and political relations with, a
number of foreign countries, particularly Germany, Japan and Sweden.
Fluctuations in currency exchange rates may also adversely affect our sales of
vehicles produced by foreign manufacturers. Imports into the United States may
also be adversely affected by increased transportation costs and tariffs,
quotas or duties.
Governmental Regulation and Environmental Regulation Compliance Costs May
Adversely Affect Sonic's Profitability
We are subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, and consumer protection
laws. The violation of these laws and regulations can result in civil and
criminal penalties against us or in a cease and desist order against our
operations if we are not in compliance. Our future acquisitions may also be
subject to regulation, including antitrust reviews. We believe that we comply
in all material respects with all laws and regulations applicable to our
business, but future regulations may be more stringent and require us to incur
significant additional costs.
Our facilities and operations are also subject to federal, state and local
laws and regulations relating to environmental protection and human health and
safety, including those governing wastewater discharges, air emissions, the
operation and removal of underground and aboveground storage tanks, the use,
storage, treatment, transportation, release and disposal of solid and hazardous
materials and wastes and the clean up of contaminated property or water. We may
be required by these laws to pay the full amount of the costs of investigation
and/or remediation of contaminated properties, even if we are not at fault for
the materials disposed or if such disposal was legal at the time. People who
may be found liable under these laws and regulations include the present or
former owner or operator of a contaminated property and companies that
generated, disposed of or arranged for the disposal of hazardous substances
found at the property.
Our past and present business operations are subject to environmental laws
and regulations governing the use, storage, handling and disposal of hazardous
or toxic substances such as new and waste motor oil, oil filters, transmission
fluid, antifreeze, freon, new and waste paint and lacquer thinner, batteries,
solvents, lubricants, degreasing agents, gasoline and diesel fuels. We are also
subject to laws and regulations because of underground storage tanks that exist
or used to exist at many of our properties. Sonic, like many of its
competitors, has incurred, and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations. In
addition, soil and groundwater
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contamination exists at certain of our properties. We cannot assure you that
our other properties have not been or will not become similarly contaminated.
In addition, we could become subject to new or unforeseen environmental costs
or liabilities because of our acquisitions.
Environmental laws and regulations, including those governing air
emissions and underground storage tanks, require compliance with new or more
stringent standards that are imposed in the future. We cannot predict what
other environmental legislation or regulations will be enacted in the future,
how existing or future laws or regulations will be administered or interpreted
or what environmental conditions may be found to exist in the future.
Consequently, we may be required to make substantial expenditures in the
future.
Concentration of Voting Power and Antitakeover Provisions of Our Charter May
Reduce Stockholder Value in Any Potential Change of Control of Sonic
Our common stock is divided into two classes with different voting rights.
This dual class stock ownership allows the present holders of the Class B
common stock to control Sonic. Holders of Class A common stock have one vote
per share on all matters. Holders of Class B common stock have ten votes per
share on all matters, except that they have only one vote per share on any
transaction proposed by the Board of Directors or a Class B common stock holder
or otherwise benefitting the Class B common stock holders constituting a:
(a) "going private" transaction;
(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.
The holders of Class B common stock currently hold less than a majority of
Sonic's outstanding common stock, but a majority of Sonic's voting power. This
may prevent or discourage a change of control of Sonic even if such action were
favored by holders of Class A common stock.
Our charter and bylaws make it more difficult for our stockholders to take
certain corporate actions. See "Description of Capital Stock -- Delaware Law,
Certain Charter and Bylaw Provisions and Certain Franchise Agreement
Provisions." Options under our 1997 Stock Option Plan become immediately
exercisable on a change in control of Sonic. These agreements, corporate
documents and laws, as well as provisions of our franchise agreements
permitting manufacturers to terminate such agreements upon a change of control
and provisions of our lending arrangements creating an event of default on a
change in control, may have the effect of delaying or preventing a change in
control of Sonic or preventing stockholders from realizing a premium on the
sale of their shares upon an acquisition of Sonic.
Year 2000 Computer Problems May Create Costs and Problems Adversely Affecting
Sonic's Profitability
We recognize the need to ensure that our operations will not be adversely
impacted by Year 2000 computer software failures. We have completed an
assessment of our operations in this regard and have determined that our
systems are either currently Year 2000 compliant or that the costs associated
with making our systems Year 2000 compliant are immaterial. However, many of
our lenders, suppliers, including manufacturers and suppliers of finance and
insurance products, and other third parties with whom our dealerships regularly
conduct business may be significantly impacted by Year 2000 complications.
Approximately half of our dealerships have received written verification
from their respective manufacturer that their 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 reports used in service departments, is Year 2000 compliant. We have
asked the remaining manufacturers to inform us of their DCS Year 2000 compliance
status.
Other than automobile manufacturers, we are primarily concerned with Year
2000 failures with banks and other financial service providers, companies
providing financing and insurance to our customers and utilities providing
electricity and water to our dealerships. We have received verification from
our primary banks and lenders that their systems are Year 2000 compliant and
that service is not expected to be interrupted by Year 2000 problems. We have
contacted other key vendors and suppliers and are awaiting their responses
concerning their Year 2000 remediation efforts.
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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
assure you that Year 2000 problems will not have a material adverse effect on
our results of operations or financial condition. In a most reasonably likely
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.
Amortization of Goodwill From Acquisitions Could Change, Resulting in
Significant Reduction in Earnings for Future Periods
Goodwill represented approximately 31.3% of our total assets and 126.4% of
our stockholders' equity as of December 31, 1998, and 33.3% of our total assets
and 129.7% of our stockholders' equity as of March 31, 1999. Goodwill arises
when an acquiror pays more for a business than the fair value of the tangible
and separately measurable intangible net assets. Generally accepted accounting
principles require that this and all other intangible assets be amortized over
the period benefited. We determined that the period benefited by all of the
goodwill will be no less than 40 years. Accordingly, we amortize goodwill over
a 40 year period. Earnings reported in periods immediately following the
acquisition would be overstated if Sonic attributed a 40 year benefit period to
an intangible asset that should have had a shorter benefit period. In later
years, we 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. Earnings in later years also could be significantly
affected if management determined then that the remaining balance of goodwill
was impaired. We periodically compare the carrying value of goodwill with
anticipated undiscounted future cash flows from operations of the businesses we
have acquired to evaluate the recoverability of goodwill. We have concluded
that the anticipated future cash flows associated with intangible assets
recognized in the acquisitions will continue indefinitely, and there is no
persuasive evidence that any material portion will dissipate over a period
shorter than 40 years. Sonic will incur additional goodwill in its future
acquisitions.
WHERE YOU CAN FIND MORE INFORMATION ABOUT SONIC
Sonic files annual, quarterly and special reports, proxy statements and
other information with the SEC. These reports and information relate to Sonic's
business, financial condition and other matters. You may read and copy these
reports, proxy statements and other information at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may obtain information on the operation of the SEC's Public Reference Room
in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Copies may be
obtained from the SEC by paying the required fees. The SEC maintains an
internet web site that contains reports, proxy and information statements and
other information regarding Sonic and other registrants that file
electronically with the SEC. The SEC's web site is located at
http://www.sec.gov. This information may also be read and copied at the offices
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring to documents we have previously filed with the SEC. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supercede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act, until the selling stockholders sell
all the shares offered by this prospectus or we decide or terminate this
offering earlier:
(1) Sonic's Annual Report on Form 10-K for its fiscal year ended December
31, 1998 (File No. 1-13395);
(2) Sonic's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1999;
(3) Sonic's Definitive Proxy Materials dated May 19, 1999;
(4) The unaudited pro forma consolidated financial data of Sonic
Automotive, Inc., the combined financial statements of Williams Automotive
Group, the financial statements of Economy Cars, Inc., the financial
statements of Global Imports, Inc., the combined financial statements of
Newsome Automotive Group, the combined financial statements of Lloyd
Automotive Group and the financial statements of Lute Riley Motors, Inc.,
included in Sonic's Registration Statement on Form S-3 (Registration No.
333-71803);
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(5) The combined financial statements of Hatfield Automotive Group, the
financial statements of Casa Ford of Houston, Inc. and the combined
financial statements of Higginbotham Automotive Group, included in Sonic's
Registration Statement on Form S-4 (Registration Nos. 333-64397 and
333-64397-001 through 333-64397-044); and
(6) The description of Sonic's Class A common stock contained in Sonic's
Registration Statement on Form 8-A, as amended, filed with the SEC pursuant
to the Securities Exchange Act.
We will provide upon request a free copy of any or all of the documents
incorporated by reference in this prospectus (excluding exhibits to such
documents unless such exhibits are specifically incorporated by reference) to
anyone who receives this prospectus. Written or telephone requests should be
directed to Mr. Todd Atenhan, Director of Investor Relations, P.O. Box 18747,
Charlotte, North Carolina, 28218, Telephone (888) 766-4218.
This prospectus is a part of a registration statement on Form S-3 filed
with the SEC by Sonic. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits to the registration
statement. Statements about the contents of contracts or other documents
contained in this prospectus or in any other filing to which we refer you are
not necessarily complete. You should review the actual copy of these documents
filed as an exhibit to the registration statement or such other filing. You may
obtain a copy of the registration statement and the exhibits filed with it from
the SEC at any of the locations listed above.
USE OF PROCEEDS
Sonic will not receive any proceeds from the sale by the selling
stockholders of the shares offered hereby. The proceeds from the sales of
shares offered hereby shall be retained solely for the account of the selling
stockholders.
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the
beneficial ownership of the shares to be offered hereby as of July 8, 1999, and
as adjusted to reflect the sale of the securities offered hereby by the selling
stockholders. Except as otherwise indicated, to the knowledge of Sonic, all
persons listed below have sole voting and investment power with respect to
their securities, except to the extent that authority is shared by spouses
under applicable law or as otherwise noted below. The information in the table
concerning the selling stockholders who may offer Class A common stock
hereunder from time to time is based on information provided to Sonic by such
stockholders, except for the assumed conversion ratio of shares of preferred
stock into Class A common stock, which is based solely on the assumptions
discussed or referenced in footnote (2) to the table. Information concerning
such selling stockholders may change from time to time and any changes of which
Sonic is advised will be set forth in a prospectus supplement to the extent
required. See "Plan of Distribution." To the knowledge of Sonic, none of the
selling stockholders has had within the past three years any material
relationship with Sonic or any of its predecessors or affiliates, except as set
forth in the footnotes to the following table.
<TABLE>
<CAPTION>
Shares Shares
Beneficially Shares Beneficially
Owned Prior to to be Sold Owned After
the Offering in the Offering the Offering
---------------- ----------------- -----------------
Name of Selling Stockholder Number Number Number Percent
- ------------------------------------- ---------------- ----------------- -------- --------
<S> <C> <C> <C> <C>
John H. Newsome, Jr.(1) ............ 425,406(2) 425,406(2) 0 *
Aldo B. Paret(3) ................... 306,630 306,630 0 *
Thomas P. Williams, Sr.(4) ......... 267,619 267,619 0 *
Charles Clark Williams(4) .......... 25,018 25,018 0 *
Thomas P. Williams, Jr.(4) ......... 25,018 25,018 0 *
Catherine D. Ward .................. 7,148 7,148 0 *
</TABLE>
- ---------
*Represents less than 1% of the outstanding Class A common stock.
(1) Mr. Newsome is currently employed by Sonic pursuant to an employment
agreement entered into in May 1999. Prior to joining Sonic, Mr. Newsome owned a
controlling interest in, and served as the president of, Newsome Chevrolet
World, Inc., Newsome Autoworld, Inc., JN Management Co., Imports of Florence,
L.L.C. and Newsome Automotive, L.L.C., each of which was acquired by Sonic in
May, 1999.
(2) Mr. Newsome currently beneficially owns 176,030 shares of Class A common
stock and 3,750 shares of Class A convertible preferred stock, Series II. The
total number of shares of Class A common stock shown above as being
beneficially owned by Mr. Newsome represents an estimate of the number of
shares of Class A common stock issuable upon conversion of his 3,750 shares of
preferred stock assuming July 8, 1999 is the conversion date for his preferred
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<PAGE>
stock. The average of the daily closing prices of the Class A common stock on
the New York Stock Exchange for the 20 consecutive trading days ending on the
trading day immediately before such date was used to determine the number of
shares of Class A common stock issuable upon conversion of his preferred stock.
The actual number of shares of Class A common stock offered hereby is subject
to adjustment and could be materially less or more than the estimated amount
indicated depending upon factors which cannot be predicted by Sonic at this
time, including, among others, application of the conversion provisions based
on market prices prevailing at the actual date of conversion. You should not
use the foregoing information as a prediction of the future market price of the
Class A common stock or the date when Mr. Newsome will elect to convert his
shares of preferred stock into shares of Class A common stock. These shares of
preferred stock were issued to Mr. Newsome in a private placement transaction
that was exempt from the registration requirements of the Securities Act.
(3) Mr. Paret is currently employed by Sonic's subsidiary, Casa Ford of
Houston, Inc., pursuant to an employment agreement entered into in July 1998.
Prior to joining Sonic, Mr. Paret owned a controlling interest in, and served
as the president of, Casa Ford of Houston, Inc., which was acquired by Sonic in
July, 1998.
(4) Each of Messrs. Thomas P. Williams, Sr., Charles Clark Williams and Thomas
P. Williams, Jr. is currently employed by Sonic pursuant to employment
agreements entered into in March 1999. Prior to joining Sonic, each of these
individuals were stockholders and officers of Tom Williams Buick, Inc.,
Williams Cadillac, Inc., Tom Williams Imports, Inc., Tom Williams Motors, Inc.
and Williams Cadillac Company, Inc., each of which was acquired by Sonic in
March, 1999.
PLAN OF DISTRIBUTION
The selling stockholders may sell or distribute some or all of the shares
from time to time through dealers or brokers or other agents or directly to one
or more purchasers, including pledgees, in a variety of ways, including:
o transactions (which may involve crosses and block transactions) on the
New York Stock Exchange or other exchanges on which the Class A common
stock may be listed for trading;
o privately negotiated transactions (including sales pursuant to pledges);
o in the over-the-counter market;
o in brokerage transactions; or
o in a combination of these types of transactions.
These transactions may be effected by the selling stockholders at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
Brokers, dealers, or other agents participating in these transactions as agent
may receive compensation in the form of discounts, concessions or commissions
from the selling stockholders (and, if they act as agent for the purchaser of
such shares, from such purchaser). These discounts, concessions or commissions
as to a particular broker, dealer, or other agent might be in excess of those
customary in the type of transaction involved. This prospectus also may be
used, with Sonic's consent, by donees of the selling stockholders, or by other
persons, including pledgees, acquiring the shares and who wish to offer and
sell their shares under circumstances requiring or making desirable its use. To
the extent required, Sonic will file, during any period in which offers or
sales are being made, one or more supplements to this prospectus to set forth
the names of donees or pledgees of selling stockholders and any other material
information with respect to the plan of distribution not previously disclosed.
The selling stockholders and any such brokers, dealers or other agents
that participate in such distribution may be deemed to be "underwriters" within
the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such brokers, dealers or other agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
Neither Sonic nor the selling stockholders can presently estimate the amount of
such compensation. Sonic knows of no existing arrangements between any selling
stockholder and any other selling stockholder, broker, dealer or other agent
relating to the sale or distribution of the shares.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in a distribution of any of the shares may not
simultaneously engage in market activities with respect to the Class A common
stock for the applicable period under Regulation M prior to the commencement of
such distribution. In addition and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Securities
Exchange Act and the rules and regulations thereunder, including without
limitation Rule 10b-5 and Regulation M, which provisions may limit
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<PAGE>
the timing of purchases and sales of any of the shares by the selling
stockholders. All of the foregoing may affect the marketability of the Class A
common stock.
Sonic will pay substantially all of the expenses incident to this offering
of the shares by the selling stockholders to the public other than commissions,
concessions and discounts of brokers, dealers or other agents. Each selling
stockholder may indemnify any broker, dealer, or other agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. Sonic may agree to
indemnify the selling stockholders and any such statutory "underwriters" and
controlling persons of such "underwriters" against certain liabilities,
including certain liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers.
MATERIAL CHANGES
Jeffrey C. Rachor, Sonic's Vice President of Retail Operations, was
elected as a director of Sonic effective May 31, 1999. Pursuant to authority
granted to Sonic's Board of Directors under Sonic's bylaws, the Board of
Directors increased the number of directors of Sonic from seven to eight and
appointed Mr. Rachor to fill the vacancy created by this increase.
On June 8, 1999, the stockholders of Sonic a
pproved an amendment to
Sonic's charter increasing the number of shares of Class A common stock
authorized for issuance from 50,000,000 to 100,000,000 and the number of shares
of Class B common stock authorized for issuance from 15,000,000 to 30,000,000.
This charter amendment was filed with the Delaware Secretary of State on June
17, 1999.
On June 30, 1999, Sonic entered into an agreement with Capital Automotive
REIT whereby Capital Automotive agreed to provide Sonic with up to $75,000,000
in real estate financing through December 31, 1999. In a separate transaction,
Capital Automotive agreed to purchase all of the ownership interests of MMR
Holdings, LLC, which owns or will own after the closing of Sonic's previously
announced acquisitions, 52 properties leased or to be leased by Sonic. MMR
Holdings currently is owned directly or indirectly by Bruton Smith, Sonic's
Chairman and Chief Executive Officer. It is anticipated that Capital
Automotive's acquisition of MMR Holdings will be completed in the third quarter
of 1999. In addition, when the agreement for the sale of MMR Holdings was
signed, Sonic, Mar Mar Realty Trust and MMR Holdings terminated the strategic
alliance agreement whereby Mar Mar had provided Sonic with real estate
financing, acquisition referral and related services.
The historical audited financial statements of certain businesses acquired
by Sonic since December 31, 1998 and the pro forma financial statements of
Sonic for these acquisitions are hereby incorporated by reference to the
Unaudited Pro Forma Consolidated Financial Data of Sonic, the Combined
Financial Statements of Williams Automotive Group, the Financial Statements of
Economy Cars, Inc., the Financial Statements of Global Imports, Inc., the
Combined Financial Statements of Newsome Automobile Group, the Combined
Financial Statements of Lloyd Automotive Group and the Financial Statements of
Lute Riley Motors, Inc., included in our final prospectus dated April 29, 1999
that was filed with the SEC pursuant to Rule 424(b) under the Securities Act
and that was a part of Sonic's Registration Statement on Form S-3 (No.
333-71803), which was declared effective by the SEC on April 29, 1999. The
historical audited financial statements of certain businesses acquired by Sonic
since December 31, 1997 are hereby incorporated by reference to the Combined
Financial Statements of Hatfield Automotive Group, the Financial Statements of
Casa Ford of Houston, Inc., and the Combined Financial Statements of
Higginbotham Automotive Group, included in our Registration Statement on Form
S-4 (Nos. 333-64397 and 333-64397-001 through 333-64397-044) dated November 3,
1998.
Except as described above, there have been no material changes in Sonic's
affairs which have occurred since the end of the latest fiscal year for which
certified financial statements were included in the latest annual report to
security holders and which have not been described in a report on Form 10-Q or
Form 8-K under the Securities Exchange Act.
DESCRIPTION OF CAPITAL STOCK
Sonic's authorized capital stock consists of (a) 100,000,000 shares of
Class A common stock, $.01 par value, (b) 30,000,000 shares of Class B common
stock, $.01 par value, and (c) 3,000,000 shares of preferred stock, $.10 par
value (of which 300,000 shares have been designated as Class A convertible
preferred stock). As of July 8, 1999, Sonic had 21,872,215 outstanding shares
of Class A common stock, 12,300,000 outstanding shares of Class B common stock
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<PAGE>
and 30,458 outstanding shares of Class A convertible preferred stock. In
connection with pending acquisitions, Sonic has agreed to issue approximately
$24.0 million in Class A common stock.
The following summary description of Sonic's capital stock does not
purport to be complete and is qualified in its entirety by reference to Sonic's
Amended and Restated Certificate of Incorporation (which was filed as an
exhibit to Sonic's Registration Statement on Form S-1 (File No. 333-33295)),
Sonic's amendment to its Amended and Restated Certificate of Incorporation
(which is filed as an exhibit to the registration statement on Form S-3 of
which this prospectus forms a part), Sonic's Certificate of Designations
relating to the Class A convertible preferred stock (the "Designation") (which
was filed as an exhibit to Sonic's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998), and to Delaware law. Reference is made to such
exhibits and to Delaware law for a detailed description of the provisions
thereof summarized below.
Common Stock
Sonic's Class A common stock and Class B common stock are equal in all
respects except for voting rights, conversion rights of the Class B common
stock and as required by law, as discussed more fully below.
Voting Rights; Conversion of Class B Common Stock to Class A Common Stock
The voting powers, preferences and relative rights of the Class A common
stock and the Class B common stock are subject to the following provisions.
Holders of Class A common stock have one vote per share on all matters
submitted to a vote of the stockholders of Sonic. Holders of Class B common
stock are entitled to ten votes per share except as described below. Holders of
all classes of common stock entitled to vote will vote together as a single
class on all matters presented to the stockholders for their vote or approval
except as otherwise required by Delaware Law. There is no cumulative voting
with respect to the election of directors.
In the event any shares of Class B common stock held by a member of the
Smith Group are transferred outside of the Smith Group, such shares will
automatically be converted into shares of Class A common stock. In addition, if
the total number of shares of common stock held by members of the Smith Group
is less than 15% of the total number of shares of common stock outstanding, all
of the outstanding shares of Class B common stock automatically will be
reclassified as Class A common stock. In any merger, consolidation or business
combination, the consideration to be received per share by holders of Class A
common stock must be identical to that received by holders of Class B common
stock, except that in any such transaction in which shares of common stock are
distributed, such shares may differ as to voting rights to the extent that
voting rights now differ between the classes of common stock.
Notwithstanding the foregoing, the holders of Class A common stock and
Class B common stock vote as a single class, with each share of each class
entitled to one vote per share, with respect to any transaction proposed or
approved by the Board of Directors of Sonic or proposed by or on behalf of
holders of the Class B common stock or as to which any member of the Smith
Group or any affiliate thereof has a material financial interest other than as
a then existing stockholder of Sonic constituting a
o "going private" transaction,
o sale or other disposition of all or substantially all of Sonic's assets,
o sale or transfer which would cause the nature of Sonic's business to be
no longer primarily oriented toward automobile dealership operations and
related activities, or
o merger or consolidation of Sonic in which the holders of the common stock
will own less than 50% of the common stock following such transaction.
A "going private" transaction is defined as any "Rule 13e-3 Transaction,"
as such term is defined in Rule 13e-3 promulgated under the Securities Exchange
Act of 1934. An "affiliate" is defined as (a) any individual or entity who or
that, directly or indirectly, controls, is controlled by, or is under common
control with any member of the Smith Group, (b) any corporation or organization
(other than Sonic or a majority-owned subsidiary of Sonic) of which any member
of the Smith Group is an officer, partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of voting securities, or in which
any member of the Smith Group has a substantial beneficial interest, (c) a
voting trust or similar arrangement pursuant to which any member of the Smith
Group generally controls the vote of the shares of common stock held by or
subject to such trust or arrangement, (d) any other trust or estate in which
any member of the Smith Group has a substantial beneficial interest or as to
which any member of the Smith Group serves as trustee or in a
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<PAGE>
similar fiduciary capacity, or (e) any relative or spouse of any member of the
Smith Group or any relative of such spouse, who has the same residence as any
member of the Smith Group.
As used in this prospectus, the term the "Smith Group" consists of the
following persons:
o Mr. Smith and his guardian, conservator, committee, or attorney-in-fact;
o William S. Egan and his guardian, conservator, committee, or
attorney-in-fact;
o each lineal descendant of Messrs. Smith and Egan (a "Descendant") and
their respective guardians, conservators, committees or attorneys-in-fact;
and
o each "Family Controlled Entity."
The term "Family Controlled Entity" means (a) any not-for-profit
corporation if at least 80% of its board of directors is composed of Mr. Smith,
Mr. Egan and/or Descendants; (b) any other corporation if at least 80% of the
value of its outstanding equity is owned by members of the Smith Group; (c) any
partnership if at least 80% of the value of the partnership interests are owned
by members of the Smith Group; and (d) any limited liability or similar company
if at least 80% of the value of the company is owned by members of the Smith
Group. For a discussion of the effects of the disproportionate voting rights of
the common stock, see "Risk Factors -- Concentration of Voting Power and
Antitakeover Provisions of our Charter May Reduce Stockholder Value in Any
Potential Change of Control of Sonic."
Under Sonic's charter and Delaware law, the holders of Class A common
stock and/or Class B common stock are each entitled to vote as a separate
class, as applicable, with respect to any amendment to Sonic's Certificate that
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or
modify or change the powers, preferences or special rights of the shares of
such class so as to affect such class adversely.
Dividends
Holders of the Class A common stock and the Class B common stock are
entitled to receive ratably such dividends, if any, as are declared by our
Board of Directors out of funds legally available for that purpose. An
additional requirement is that dividends paid in shares of Class A common stock
shall be paid only to holders of Class A common stock, and dividends paid in
shares of Class B common stock shall be paid only to holders of Class B common
stock. Sonic's charter provides that if there is any dividend, subdivision,
combination or reclassification of either class of common stock, a
proportionate dividend, subdivision, combination or reclassification of the
other class of common stock must be made at the same time.
Other Rights
Stockholders of Sonic have no preemptive or other rights to subscribe for
additional shares. In the event of the liquidation, dissolution or winding up
of Sonic, holders of Class A common stock and Class B common stock are entitled
to share ratably in all assets available for distribution to holders of common
stock after payment in full of creditors. No shares of any class of common
stock are subject to a redemption or a sinking fund.
Transfer Agent and Registrar
First Union National Bank is the transfer agent and registrar for the
common stock.
Preferred Stock
Dividends. The preferred stock has no preferential dividends. Rather,
holders of preferred stock are entitled to participate in dividends payable on
the Class A common stock on an "as-if-converted" basis.
Voting Rights. Each share of preferred stock entitles its holder to a
number of votes equal to that number of shares of Class A Common Stock into
which it could be converted as of the record date for the vote.
Liquidation Rights. The preferred stock has a liquidation preference of
$1,000 per share.
Conversion Rights. Each share of preferred stock is convertible into
shares of Class A common stock at the holder's option at specified conversion
rates. After the second anniversary of the date of issuance, any shares of
preferred stock which have not been converted are subject to mandatory
conversion to Class A common stock at the option of Sonic. No
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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 share.
Generally, each share of preferred stock is convertible into that number
of shares of Class A common stock that has an aggregate Market Price at the
time of conversion equal to $1,000 (with certain adjustments for the Series II
and Series III preferred stock). 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. "Market Price" is defined as the average closing
price per share of Class A common stock on the New York Stock Exchange for the
twenty trading days immediately preceding the date of conversion. If the Class
A common stock is no longer listed on the New York Stock Exchange, then the
Market Price will be determined on the basis of prices reported on the
principal exchange on which the Class A common stock is listed, or if not so
listed, prices furnished by NASDAQ. If the Class A common stock is not listed
on an exchange or reported on by NASDAQ, then the Market Price will be
determined by Sonic's Board of Directors.
Before the first anniversary of the date of issuance of preferred stock,
each holder of preferred stock is unable to convert without first giving Sonic
ten business days' notice and an opportunity to redeem such preferred stock at
the then applicable redemption price.
Redemption. The preferred stock is redeemable at Sonic's option at any
time after the date of issuance. The redemption price for the Series I
preferred stock is $1,000 per share. The redemption price for the Series II
preferred stock and the Series III preferred stock is as follows: (a) 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 (b) after
the second anniversary of the date of issuance, the redemption price is the
aggregate Market Price of the Class A common stock into which it could be
converted at the time of redemption. There is no restriction on Sonic's ability
to redeem the preferred stock while there is an arrearage in payment of
dividends on such preferred stock.
Delaware Law, Certain Charter and Bylaw Provisions and Certain Franchise
Agreement Provisions
Certain provisions of Delaware Law and of Sonic's Charter and Bylaws,
summarized in the following paragraphs, may be considered to have an
antitakeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
Delaware Antitakeover Law. Sonic is subject to the provisions of Delaware
law, including Section 203. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (a) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (b) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or (c)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66 2/3% of the corporation's
outstanding voting stock, excluding shares owned by the interested stockholder.
For these purposes, the term "business combination" includes mergers, asset
sales and other similar transactions with an "interested stockholder." An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock. Although Section 203 permits a corporation to elect
not to be governed by its provisions, Sonic to date has not made this election.
Classified Board of Directors. Sonic's Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. Classification of the Board of Directors
expands the time required to change the composition of a majority of directors
and may tend to discourage a takeover bid for Sonic. Moreover, under Delaware
law, in the case of a corporation having a classified board of directors, the
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing only the board of directors to
fill vacant directorships, will preclude stockholders of Sonic from removing
incumbent directors without cause, simultaneously gaining control of the Board
of Directors by filing the vacancies with their own nominees.
Special Meetings of Stockholders. Sonic's Bylaws provide that special
meetings of stockholders may be called only by the Chairman or by the Secretary
or any Assistant Secretary at the request in writing of a majority of Sonic's
Board of
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Directors. Sonic's Bylaws also provide that no action required to be taken or
that may be taken at any annual or special meeting of stockholders may be taken
without a meeting; the powers of stockholders to consent in writing, without a
meeting, to the taking of any action is specifically denied. These provisions
may make it more difficult for stockholders to take action opposed by the Board
of Directors.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Sonic's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of Sonic, (a) in the case of an annual meeting that is called for a date that
is within 30 days before or after the anniversary date of the immediately
preceding annual meeting of stockholders, not less than 60 days nor more than
90 days prior to such anniversary date, and, (b) in the case of an annual
meeting that is called for a date that is not within 30 days before or after
the anniversary date of the immediately preceding annual meeting, or in the
case of a special meeting of stockholders called for the purpose of electing
directors, not later than the close of business on the tenth day following the
day on which notice of the date of the meeting was mailed or public disclosure
of the date of the meeting was made, whichever occurs first. The Bylaws also
specify certain requirements for a stockholder's notice to be in proper written
form. These provisions may preclude some stockholders from bringing matters
before the stockholders at an annual or special meeting or from making
nominations for directors at an annual or special meeting.
Conflict of Interest Procedures. Sonic's charter contains provisions
providing that transactions between Sonic and its affiliates must be no less
favorable to Sonic than would be available in transactions involving
arms'-length dealing with unrelated third parties. Moreover, any such
transaction involving aggregate payments in excess of $500,000 must be approved
by a majority of Sonic's directors and a majority of Sonic's independent
directors. Otherwise, Sonic must obtain an opinion as to the financial fairness
of the transactions to be issued by an investment banking or appraisal firm of
national standing.
Restrictions under Franchise Agreements. Sonic's franchise agreements
impose restrictions on the transfer of the common stock. A number of
Manufacturers prohibit transactions which affect changes in management control
of Sonic. For instance, Ford may cause Sonic to sell or resign from its Ford
franchises if any person or entity acquires 15% or more of Sonic's voting
securities. Likewise, GM, Toyota and Infiniti may force the sale of their
respective franchises if 20% or more of Sonic's voting securities are so
acquired. Honda may force the sale of Sonic's Honda franchise if any person or
entity, other than members of the Smith Group, acquires 5% of the Common Stock
(10% if such entity is an institutional investor), and Honda deems such person
or entity to be unsatisfactory. Volkswagen requires prior approval of any
change in voting or managerial control of Sonic that would affect Sonic's
voting or managerial control of its Volkswagen franchisee subsidiaries.
Chrysler also requires prior approval of any future sales that would result in
a change in voting or managerial control of Sonic. Such restrictions may
prevent or deter prospective acquirers from obtaining control of Sonic. See
"Risk Factors -- Manufacturer Stock Ownership/Issuance Limits Limit Sonic's
Ability to Issue Additional Equity to Meet Its Financing Needs."
CERTAIN MANUFACTURER RESTRICTIONS
Under agreements between Sonic and certain manufacturers, Sonic has agreed
to provide the statements provided below.
Sonic's agreements with Honda and Mercedes require that it provide the
following statement in this prospectus:
No automobile manufacturer has been involved, directly or indirectly, in
the preparation of this prospectus or in the offering being made hereby. No
automobile manufacturer has made any statements or representations in
connection with the offering or has provided any information or materials
that were used in connection with the offering, and no automobile
manufacturer has any responsibility for the accuracy or completeness of
this prospectus.
Under Sonic's Dealer Agreement with GM, Sonic has agreed, among other
things, to disclose the following provisions:
Sonic will deliver to GM copies of all Schedules 13D and 13G, and all
amendments thereto and terminations thereof, received by Sonic, within five
days of receipt of such Schedules. If Sonic is aware of any ownership of
its stock that should have been reported to it on Schedule 13D but that is
not reported in a timely manner, it will promptly give GM written notice of
such ownership, with any relevant information about the owner that Sonic
possesses.
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If Sonic, through its Board of Directors or through shareholder action,
proposes or if any person, entity or group sends Sonic a Schedule 13D, or
any amendments thereto, disclosing (a) an agreement to acquire or the
acquisition of aggregate ownership of more than 20% of the voting stock of
Sonic and (b) Sonic, through its Board of Directors or through shareholder
action, proposes or if any plans or proposals which relate to or would
result in the following: (i) the acquisition by any person of more than 20%
of the voting stock of Sonic other than for the purposes of ordinary
passive investment; (ii) an extraordinary corporate transaction, such as a
material merger, reorganization or liquidation, involving Sonic or a sale
or transfer of a material amount of assets of Sonic and its subsidiaries;
(iii) any change which, together with any changes made to the Board of
Directors within the preceding year, would result in a change in control of
the then current Board of Sonic; or (iv) in the case of an entity that
produces motor vehicles or controls or is controlled by or is under common
control with an entity that either produces motor vehicles or is a motor
vehicle franchisor, the acquisition by any person, entity or group of more
than 20% of the voting stock of Sonic and any proposal by any such person,
entity or group, through the Sonic Board of Directors or shareholders
action, to change the Board of Directors of Sonic, then, if such actions in
GM's business judgment could have a material or adverse effect on its image
or reputation in the GM dealerships operated by Sonic or be materially
incompatible with GM's interests (and upon notice of GM's reasons for such
judgment), Sonic has agreed that it will take one of the remedial actions
set forth in the next paragraph within 90 days of receiving such Schedule
13D or such amendment.
If Sonic is obligated under the previous paragraph to take remedial
action, it will (a) transfer to GM or its designee, and GM or its designee
will acquire the assets, properties or business associated with any GM
dealership operated by Sonic at fair market value as determined in
accordance with GM's Dealership Agreement with the Company, or (b) provide
evidence to GM that such person, entity or group no longer has such
threshold level of ownership interest in Sonic or that the actions
described in clause (b) of the previous paragraph will not occur.
Should Sonic or its GM franchisee subsidiary enter into an agreement to
transfer the assets of the GM franchisee subsidiary to a third party, the
right of first refusal described in the GM Dealer Agreement shall apply to
any such transfer.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby has been
passed upon for Sonic by Parker, Poe, Adams & Bernstein, L.L.P., Charlotte,
North Carolina.
EXPERTS
The consolidated financial statements of Sonic Automotive, Inc. and
Subsidiaries, the combined financial statements of Hatfield Automotive Group,
the combined financial statements of Higginbotham Automotive Group, the
financial statements of Casa Ford of Houston, Inc., the combined financial
statements of Williams Automotive Group, the financial statements of Economy
Cars, Inc., the financial statements of Global Imports, Inc., the combined
financial statements of Newsome Automotive Group, the combined financial
statements of Lloyd Automotive Group, and the financial statements of Lute
Riley Motors, Inc. incorporated by reference in this prospectus and elsewhere
in the Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
24
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
Class A Common Stock
---------------
P R O S P E C T U S
---------------
, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses in connection with
the issuance and distribution of the securities being registered hereunder. All
of the costs identified below will be paid by the Company. Except for the SEC
registration fee, all amounts are estimates.
<TABLE>
<S> <C>
SEC Registration Fee ................ $4,200
NYSE Listing Fee .................... 3,699
Printing and Engraving Expenses ..... *
Legal Fees and Expenses ............. *
Accounting Fees and Expenses ........ *
Miscellaneous Expenses .............. *
---------
Total ............................... $ *
=========
</TABLE>
- ---------
* To be furnished by amendment.
Item 15. Indemnification of Directors and Officers
Sonic's Bylaws effectively provide that Sonic shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 145"), indemnify all persons
whom it may indemnify pursuant thereto. In addition, Sonic's Certificate of
Incorporation eliminates personal liability of its directors to the full extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorney's fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
actions, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in
or not opposed to the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interest of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action or suit was brought shall determine upon
application that the defendant officers or directors are reasonably entitled to
indemnity for such expenses despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or
limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective. Sonic maintains insurance
against liabilities under the Securities Act for the benefit of its officers
and directors.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officer or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed that in the opinion of the Commission such indemnification is against
public policy as expressed in the Securities Act and is therefore
unenforceable.
II-1
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------------
<S> <C>
3.1 Amendment to Sonic's Amended and Restated Certificate of Incorporation filed with the
Delaware Secretary of State on June 17, 1999.
4.1* Form of Certificate for Sonic's Class A Common Stock (incorporated by reference to
Exhibit 4.1 to Sonic's Registration Statement on Form S-1 (File No. 333-33295)).
4.2* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series I (incorporated by
reference to Exhibit 4.2 to Sonic's Registration Statement on Form S-3 (File No. 333-68183)
(the "December 1998 Form S-3")).
4.3* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series II (incorporated by
reference to Exhibit 4.3 to the December 1998 Form S-3).
4.4* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series III (incorporated by
reference to Exhibit 4.4 to the December 1998 Form S-3).
4.5* Certificate of Designations for Sonic's 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).
4.6* Stock Purchase Agreement dated as of April 30, 1998 by and among Sonic, Aldo B. Paret and
Casa Ford of Houston, Inc. (incorporated by reference to Exhibit 99.13 to Sonic's Current
Report on Form 8-K filed July 9, 1998).
4.7* 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 (incorporated by reference to Exhibit 10.35a to Sonic's Annual
Report on Form 10-K for the fiscal year ended December 31, 1998).
4.8 Agreement and Plan of Merger dated as of December 15, 1998 by and among Sonic, JN
Management Co., Newsome Autoworld, Inc., Newsome Chevrolet World, Inc. and John H.
Newsome, Jr. (the "Newsome Merger Agreement").
4.9 Amendment No. 1 and Supplement to the Newsome Merger Agreement dated as of May 17,
1999.
5.1** Opinion of Parker, Poe, Adams & Bernstein, L.L.P. regarding the legality of the securities
being registered.
23.1** Consent of Parker, Poe, Adams & Bernstein, L.L.P. (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on Signature Page of Registration Statement).
27* Financial Data Schedule (incorporated by reference to Exhibit 27 to Sonic's Quarterly Report
on Form 10-Q for its fiscal quarter ended March 31, 1999).
</TABLE>
- ---------
* Filed previously.
** To be filed by amendment.
Item 17. Undertakings.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20 percent change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
II-2
<PAGE>
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) above do not apply
if the registration statement is on Form S-3, Form S-8 or Form F-3, and
information required to be included in a post-effective amendment by these
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Exchange
Act that are incorporated by reference in this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Securities Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Charlotte, State of North Carolina, on this 9th day
of July, 1999.
SONIC AUTOMOTIVE, INC.
By: /S/ THEODORE M. WRIGHT
-------------------------------------
Theodore M. Wright
Chief Financial Officer,
Vice President-Finance,
Treasurer and Secretary
We the undersigned directors and officers of Sonic Automotive, Inc. do
hereby constitute and appoint each of Messrs. O. Bruton Smith, Bryan Scott
Smith, and Theodore M. Wright, each with full power of substitution, our true
and lawful attorney-in-fact and agent to do any and all acts and things in our
names and in our behalf in our capacities stated below, which acts and things
any of them may deem necessary or advisable to enable Sonic Automotive, Inc. to
comply with the Securities Act of 1933, as amended, and any rules, regulations
and requirements of the Securities and Exchange Commission, in connection with
this Registration Statement, including specifically, but not limited to, power
and authority to sign for any or all of us in our names, in the capacities
stated below, any and all amendements (including post-effective amendments)
hereto and any subsequent registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, as amended, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission; and we do hereby ratify and confirm all
that they shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ----------------------------------------- ------------------------------------------ -------------
<S> <C> <C>
/S/ O. BRUTON SMITH Chief Executive Officer July 9, 1999
----------------------------------
O. Bruton Smith (principal executive officer)
and Chairman
/S/ B. SCOTT SMITH President, Chief Operating Officer and July 9, 1999
----------------------------------
B. Scott Smith Director
/S/ THEODORE M. WRIGHT Chief Financial Officer, Vice President- July 9, 1999
----------------------------------
Theodore M. Wright Finance, Treasurer, Secretary
(principal financial and accounting
officer) and Director
/S/ DENNIS D. HIGGINBOTHAM President of Retail Operations and July 9, 1999
----------------------------------
Dennis D. Higginbotham Director
/S/ JEFFREY C. RACHOR Vice President of Retail July 9, 1999
----------------------------------
Jeffrey C. Rachor Operations and Director
/S/ WILLIAM R. BROOKS Director July 9, 1999
----------------------------------
William R. Brooks
/S/ WILLIAM P. BENTON Director July 9, 1999
----------------------------------
William P. Benton
/S/ WILLIAM I. BELK Director July 9, 1999
----------------------------------
William I. Belk
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ----------------------------------------------------------------------------------------------
<S> <C>
3.1 Amendment to Sonic's Amended and Restated Certificate of Incorporation filed with the
Delaware Secretary of State on June 17, 1999.
4.1* Form of Certificate for Sonic's Class A Common Stock (incorporated by reference to
Exhibit 4.1 to Sonic's Registration Statement on Form S-1 (File No. 333-33295)).
4.2* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series I
(incorporated by reference to Exhibit 4.2 to Sonic's Registration Statement on Form S-3
(File No. 333-68183) (the "December 1998 Form S-3")).
4.3* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series II
(incorporated by reference to Exhibit 4.3 to the December 1998 Form S-3).
4.4* Form of Certificate for Sonic's Class A Convertible Preferred Stock, Series III
(incorporated by reference to Exhibit 4.4 to the December 1998 Form S-3).
4.5* Certificate of Designations for Sonic's 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).
4.6* Stock Purchase Agreement dated as of April 30, 1998 by and among Sonic, Aldo B.
Paret and Casa Ford of Houston, Inc. (incorporated by reference to Exhibit 99.13 to
Sonic's Current Report on Form 8-K filed July 9, 1998).
4.7* 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 (incorporated by reference to Exhibit
10.35a to Sonic's Annual Report on Form 10-K for the fiscal year ended December 31,
1998).
4.8 Agreement and Plan of Merger dated as of December 15, 1998 by and among Sonic, JN
Management Co., Newsome Autoworld, Inc., Newsome Chevrolet World, Inc. and
John H. Newsome, Jr. (the "Newsome Merger Agreement").
4.9 Amendment No. 1 and Supplement to the Newsome Merger Agreement dated as of
May 17, 1999.
5.1** Opinion of Parker, Poe, Adams & Bernstein, L.L.P. regarding the legality of the
securities being registered.
23.1** Consent of Parker, Poe, Adams & Bernstein, L.L.P. (included in Exhibit 5.1).
23.2 Consent of Deloitte & Touche LLP.
24.1 Powers of Attorney (included on Signature Page of Registration Statement).
27* Financial Data Schedule (incorporated by reference to Exhibit 27 to Sonic's Quarterly
Report on Form 10-Q for its fiscal quarter ended March 31, 1999).
</TABLE>
- ---------
* Filed previously.
** To be filed by amendment.
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SONIC AUTOMOTIVE, INC.
* * * * * * * * * * * * * * *
Adopted in accordance with the
provisions of Section 242 of the General
Corporation Law of the State of Delaware
* * * * * * * * * * * * * * *
SONIC AUTOMOTIVE, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY as follows:
FIRST: The Board of Directors of the Corporation adopted the resolution
set forth below proposing the amendment to the Amended and Restated Certificate
of Incorporation (the "Amendment") and directed that the Amendment be submitted
to the holders of the issued and outstanding shares of capital stock of the
Corporation entitled to vote thereon for their consideration and approval:
RESOLVED, that the Board of Directors hereby deems that Section 4.01 of
the Corporation's Charter is proposed to be amended by deleting Section 4.01 in
its entirety and inserting the following in lieu thereof:
SECTION 4.01. AUTHORIZED CAPITAL STOCK. The aggregate number of shares
of capital stock which the Corporation shall have authority to issue is one
hundred thirty-three million (133,000,000) shares divided into the following
classes:
(a) One hundred million (100,000,000) shares of Class A Common
Stock with a par value of one cent ($.01) per share (the "Class A Common
Stock");
<PAGE>
(b) Thirty million (30,000,000) shares of Class B Common Stock
with a par value of one cent ($.01) per share (the "Class B Common Stock"); and
(c) Three million (3,000,000) shares of Preferred Stock with a
par value of ten cents ($.10) per share (the "Preferred Stock").
Each share of Class A Common Stock and each share of Class B Common
Stock (collectively, the "Common Stock") shall be identical in all respects and
shall have equal voting powers, preferences and relative rights, except as
otherwise provided in this Article IV.
SECOND: The Amendment was duly adopted in accordance with Section 242
of the General Corporation Law of the State of Delaware at the annual meeting of
the stockholders of the Corporation held June 8, 1999, by the holders of a
majority of the issued and outstanding shares of the Class A Common Stock, by
the holders of a majority of the issued and outstanding shares of the Class B
Common Stock, and by the holders of a majority of the votes entitled to be voted
with respect to the Amendment.
* * * * * * * * * * * * * * *
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by one of its duly authorized officers this 16th day of
June, 1999.
SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
----------------------------------
Theodore M. Wright
Vice President - Finance and Chief
Financial Officer
2
EXHIBIT 4.8
THIS AGREEMENT IS SUBJECT TO ARBITRATION
PURSUANT TO THE SOUTH CAROLINA
UNIFORM ARBITRATION ACT
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of December 15, 1998 (this
"AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), JN MANAGEMENT CO. ("JN"), NEWSOME AUTOWORLD, INC. ("AUTOWORLD") and
NEWSOME CHEVROLET WORLD, INC. ("CHEVROLET WORLD"), each a South Carolina
corporation (collectively, the "COMPANIES"), and JOHN H. NEWSOME, JR. (the
"SELLER").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Seller, through the Companies, operates a Chevrolet
automobile dealership pursuant to dealership agreements with General Motors
Corporation (the "MANUFACTURER"); and
WHEREAS, the Seller owns, directly or indirectly, all of the shares of
JN's common stock, all of the shares of Autoworld's common stock and all of the
shares of Chevrolet World's common stock, which shares (collectively, the
"SHARES") represent all of the issued and outstanding shares of capital stock of
the Companies and are owned, directly or indirectly, of record and beneficially
by the Seller; and
WHEREAS, contemporaneously with the execution of this Agreement, the
Buyer and John H. Newsome, III and Imports of Florence, LLC, and Newsome
Automotive, LLC, have entered into an Asset Purchase Agreement (the "ASSET
PURCHASE AGREEMENT") with respect to the sale to the Buyer of certain automobile
dealership assets; and
WHEREAS, contemporaneously with the execution of this Agreement, the
Buyer has entered into a Contract to Purchase and Sell Property (the "REAL
PROPERTY PURCHASE AGREEMENT") with John H. Newsome, Jr. (in this context, the
"OWNER"), whereby the Buyer has agreed to buy, and the Owner has agreed to sell
certain real property, as more specifically described therein; and
WHEREAS, contemporaneously with the execution of this Agreement, the
Buyer has entered into a Stock Purchase Agreement (the "REAL PROPERTY STOCK
PURCHASE AGREEMENT") with the Seller (in this context, the "OWNER"), whereby the
Buyer has agreed to buy, and the Owner has agreed to sell, all of the capital
stock of S. C. Automotive Enterprises, Inc.; and
1
<PAGE>
WHEREAS, the Asset Purchase Agreement, the Real Property Stock Purchase
Agreement and the Real Property Purchase Agreement are sometimes hereinafter
collectively called the "OTHER BASIC AGREEMENTS"; and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is subject to the consummation of the transactions contemplated by the
Other Basic Agreements; and
WHEREAS, the Buyer desires to purchase the Shares from the Seller, and
the Seller is willing to sell the Shares to the Buyer, upon the terms and
conditions hereinafter set forth; and
WHEREAS, the acquisition by the Buyer of the Shares is to be
accomplished by the merger (the "MERGER") of the Companies with and into one or
(if so determined by the Buyer) more wholly-owned South Carolina first-tier
subsidiaries of the Buyer (the "SUBS"), to be formed by the Buyer prior to the
Closing, on the terms and subject to the conditions set forth herein (if the
Buyer determines to merge the Companies into one wholly-owned South Carolina
subsidiary of the Buyer, the defined term "SUBS" as used herein shall be deemed
to read as "SUB" and the defined term "SURVIVING COMPANIES" as used herein shall
be deemed to read as "SURVIVING COMPANY", in each case together with conforming
changes deemed made to the text of this Agreement mutatis mutandis).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and representations hereinafter stated, and intending to be legally
bound hereby and to incorporate the preceding recitations herein, the parties
agree as follows:
ARTICLE 1
THE MERGER & THE MERGER CONSIDERATION
1.1 THE MERGER.
(a) Subject to the provisions of this Agreement and the
Articles of Merger substantially in the form of Exhibit A attached hereto (the
"ARTICLES OF MERGER"), the Companies shall be merged, in a transaction intended
by the parties to be a tax free reorganization under Section 368(A) of the
Internal Revenue Code of 1986, as amended, with and into the Subs in accordance
with the provisions of the South Carolina Business Corporation Act (the "MERGER
LAW"), whereupon the existence of the Companies shall cease and the Subs shall
be the surviving corporations (the Subs and the Companies are sometimes herein
referred to as the "MERGING COMPANIES" and the Subs after the Merger are
sometimes herein referred to as the "SURVIVING COMPANIES").
(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 South Carolina 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 South Carolina (the "EFFECTIVE TIME").
2
<PAGE>
(c) At the Effective Time, the separate existence of the
Companies shall cease and the Companies shall be merged with and into the Sub
and the Sub shall be the Surviving Company, whose name thereafter shall be
SONIC-NEWSOME CHEVROLET WORLD, INC.
(d) From and after the Effective Time: (i) the respective
Articles of Incorporation and the Bylaws of the Subs, both as in effect
immediately prior to the Effective Time, shall be the respective Articles of
Incorporation and the Bylaws of the Surviving Companies, until thereafter
amended in accordance with applicable law; (ii) the respective directors of the
Subs at the Effective Time shall become the directors of the Surviving
Companies, until their respective successors are duly elected or appointed and
qualified in accordance with applicable law; and (iii) the respective officers
of the Subs at the Effective Time shall become the initial officers of the
Surviving Companies, to serve at the pleasure of the respective boards of
directors of the Surviving Companies.
(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 Companies' shareholders:
(1) each share of common stock of each 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 respective Surviving Company; and
(2) all of the Shares shall, automatically and
without any action on the part of the Seller, cease to be outstanding and shall
be converted into the right to receive the Merger Consideration (as defined in
Section 1.2 below) in accordance with the provisions of said Section 1.2. All
Shares, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and the Seller
shall cease to have any rights with respect thereto, except the right to receive
the Merger Consideration in accordance with provisions of said Section 1.2.
1.2 THE MERGER CONSIDERATION.
(a) THE MERGER CONSIDERATION. The consideration to be paid by
the Buyer for the Shares pursuant to the Merger (the "MERGER CONSIDERATION")
shall consist of the sum of (i) $4,000,000, plus (ii) the Net Book Value (as
defined in Section 1.2(c)(1) below).
(b) PAYMENT OF THE MERGER CONSIDERATION. The Merger
Consideration shall be paid as follows:
(1) (A) At the Closing, the sum of $2,581,000 shall
be payable by the Buyer to the Seller by wire transfer of immediately available
funds to the account of the Seller, which shall be designated by the Seller in
writing at least one full Business Day prior to the Closing Date (as defined in
Article 2 hereof). The sum of $500,000 (the "ESCROW AMOUNT") shall be placed in
escrow with First Union National Bank or another escrow agent mutually
acceptable to the parties hereto (the "ESCROW AGENT") by the Buyer in accordance
with the escrow agreement in the form of Exhibit B hereto, with such other
changes thereto as the Escrow Agent shall reasonably request (the "ESCROW
AGREEMENT"). For purposes of this Agreement, a
3
<PAGE>
"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 North Carolina.
(B) The term of the Escrow Agreement
shall be for a period of ninety (90) days from the Closing Date (or such longer
period of time as shall be necessary to complete the determination of Net Book
Value pursuant to Section 1.2(c) below). If, as of the date which is ninety (90)
days from the Closing Date (or such later date as shall be necessary to complete
the determination of the Net Book Value pursuant to Section 1.2(c) below), the
Buyer shall have made no claims in respect of any Net Book Value Shortfall (as
defined in Section 1.2(c) below), the Buyer will execute a joint instruction
with the Seller pursuant to the Escrow Agreement to instruct the Escrow Agent to
pay all of the Escrow Amount to the Seller pursuant to the terms of the Escrow
Agreement.
(2) (A) At the Closing, the Buyer shall issue
to the Seller 8,500 shares of the Buyer's Class A Convertible Preferred Stock,
Series II (the "PREFERRED STOCK"). The Preferred Stock will be convertible into
shares of the Buyer's Class A Common Stock, par value $.01 per share (the
"COMMON STOCK"), as provided in the Certificate of Designation, Preferences and
Rights with respect to the Preferred Stock, a copy of which is attached as
Exhibit C-1 hereto at the Closing, the Seller will execute and deliver to the
Buyer a Certificate Regarding Restricted Securities in substantially the form of
Exhibit C-2 hereto.
(B) The Seller may, by written notice
delivered at any time on or prior to the twentieth (20th) day after the date
hereof, request the Buyer to provide the Seller with a prospectus (the
"PROSPECTUS") with respect to the Buyer's offer and sale to the Seller of the
Registered Common Shares (as hereinafter defined). In the event that the Seller
shall deliver such notice to the Buyer, the Buyer shall use its best reasonable
efforts to deliver the Prospectus to the Seller at least thirty (30) days prior
to the Closing Date. At the option of the Seller, exercisable by written notice
to the Buyer (the "SELLER'S NOTICE") not sooner than twenty (20) Business Days
after the receipt by the Seller from the Buyer of the Prospectus and not later
than five (5) Business Days before the Closing, the Buyer shall be obligated to
issue to the Seller at the Closing, in lieu of up to all of the Preferred Stock,
that number of shares (the "REGISTERED COMMON SHARES") of Common Stock which,
subject to subsection (BB), would be issued on conversion of the number of
shares of the Preferred Stock specified in the Seller's Notice, up to all of the
shares of the Preferred Stock, if such number of shares of the Preferred Stock
were converted on the date of delivery of the Seller's Notice. The offer and
sale of the Registered Common Shares by the Buyer shall be registered under an
effective registration statement on Form S-4 (the "ACQUISITION SHELF
REGISTRATION STATEMENT") filed by the Buyer with the Securities and Exchange
Commission (the "SEC"). To the extent required by law, the Buyer shall prepare
as soon as reasonably practicable after the Closing a prospectus supplement or
post-effective amendment to the Acquisition Shelf Registration Statement that
would permit the offer and resale of the Registered Common Shares from time to
time by the Seller. The Buyer shall also use its best reasonable efforts to list
the Registered Common Shares for trading on the New York Stock Exchange. The
Buyer shall have no obligation to maintain the currency of any prospectus,
permit the use of any prospectus or maintain the effectiveness of the
Acquisition Shelf Registration Statement for the resale of the Registered Common
Shares once all of the Registered Common Shares that remain unsold may be sold
by the Seller without restriction pursuant to Rule 145 ("RULE 145") promulgated
by the SEC under the Securities Act of 1933, as amended, (the "SECURITIES ACT"),
or any successor regulation thereto. The Seller agrees that he
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shall effect each resale of Registered Common Shares only pursuant to a current
prospectus or supplements thereto that is a part of the Acquisition Shelf
Registration Statement (the "RESALE PROSPECTUS") with respect to which the
Buyer, for each such resale, has granted its prior consent to the use thereof.
(BB) As to any or all of the
shares of the Preferred Stock specified in the Seller's Notice, the Seller may,
in the Seller's Notice, elect to take the value of such shares of Preferred
Stock (valued at $1,000 per share) in shares of Common Stock which are subject
to the "lock-up" restrictions hereafter set forth. In such event, the Buyer will
issue and deliver to the Seller at the Closing that number of Registered Common
Shares (the "LOCK-UP REGISTERED COMMON SHARES") which would be issued on
conversion of the shares of Preferred Stock subject to such election on the date
of delivery of the Seller's Notice, but utilizing a Market Price (as defined in
the Certificate of Designation, Preferences and Rights with respect to the
Preferred Stock) which is eighty-five percent (85%) of the Market Price which
would otherwise be applicable to such conversion. Thereafter, the Seller shall
not offer, sell, contract to sell, or otherwise dispose of, any of the Lock-up
Registered Common Shares for a period of one hundred eighty (180) days from the
date of delivery of the Registered Common Shares by the Buyer.
(C) The Seller also agrees and acknowledges,
with regard to the offer or resale by him of any of the Registered Common
Shares, that:
(I) any offering of any of the
Registered Common Shares under the Resale Prospectus by the Seller will be
effected in an orderly manner through a securities dealer, acting as broker or
dealer, selected by the Buyer in its sole discretion (the "DESIGNATED BROKER");
(II) if requested by the Buyer, the
Seller will enter into one or more custody agreements with one or more banks
with respect to the Registered Common Shares so that all such Shares are held in
the custody of such bank or banks until offered pursuant to clause (I) above;
(III) the Seller 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, the
certificates representing the Registered Common Shares will be issued by the
Buyer to the Seller 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 by
the Seller 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
Seller;
(V) the Seller shall provide
the Buyer with all information concerning the Seller and its resale of the
Registered Common Shares as may then be required by the Securities Act and shall
indemnify the Buyer for any liabilities arising under the Securities Act, the
Securities Exchange Act of 1934 or any state securities laws resulting
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from any material misstatements in, or omissions of material information from,
such information provided by the Seller to the Buyer pursuant to this clause
(V);
(VI) the Seller 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 the Buyer; and
(VII) the Seller has received a copy
of the Buyer's most recent Annual Report on Form 10-K, Quarterly Report on Form
10-Q and proxy statement as well as all its Current Reports on Form 8-K since
the end of the Buyer's last fiscal year.
(D) The Buyer also agrees, in connection
with subsection (B) above, that:
(I) the Buyer shall pay all
expenses, including legal and accounting fees, in connection with the
preparation, filing and maintenance of the Acquisition Shelf Registration
Statement, including amendments thereto, the Resale Prospectus, including
supplements thereto, the issuance of certificates representing the Registered
Common Shares, and other expenses incurred by the Buyer in meeting its
obligations as set forth in subsection (B) above; and
(II) the Buyer shall indemnify
the Seller for any liabilities arising under the Securities Act, the Securities
Exchange Act of 1934 or any state securities 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 liabilities required
to be indemnified by the Seller under clause (C)(V) above.
(E) To the extent that the Seller does not
timely deliver the Seller's Notice with respect to all of the shares of the
Preferred Stock, the Buyer shall deliver the Preferred Stock to the Seller at
the Closing. Thereafter, the Buyer's sole obligations with respect to such
Preferred Stock and the Common Stock issuable upon conversion thereof (the
"CONVERSION STOCK") shall be as follows:
(I) the 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); and
(II) the Buyer shall remove stock
transfer instructions on and restrictive legends from certificates representing
the Conversion Stock to the extent that either (x) the offer and sale of the
Preferred Stock or the Conversion Stock may hereafter be registered under the
Securities Act and under any applicable state securities laws or (y) the Buyer
has received an opinion of counsel, in form and substance reasonably
satisfactory to the Buyer, that such registration of such offer and sale is not
required; and
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(III) commencing the day after the
filing by the Buyer of its Form 8-K setting forth any required historical and
pro forma financial information concerning the acquisition transaction
contemplated by this Agreement pursuant to Item 2 of such Form, if required by
law, or otherwise commencing the date after the Closing (the "REGISTRATION
COMMENCEMENT DATE") and subject to the provisions of subsection (F) hereof, if
at any time the Buyer proposes to register any of its Common Stock under the
Securities Act in connection with the primary public offering of such securities
solely for cash on a form that would permit the registration of the resale of
the Conversion Stock by the Seller, then the Buyer shall, each such time,
promptly give the Seller written notice of such determination. Upon written
request of the Seller given within ten (10) days after the giving of such notice
by the Buyer, the Buyer shall use its best reasonable efforts to cause the
registration under the Securities Act of the offer and sale by the Seller of the
number of shares of the Conversion Stock the Seller has requested in such notice
to be registered (the "PIGGYBACK REGISTRATION"). If the Piggyback Registration
is of a type that would permit sales of the Conversion Stock from time to time
pursuant to Rule 415 promulgated by the SEC under the Securities Act, or any
successor regulation (commonly known as a "shelf registration"), then the Buyer
shall be under no obligation to cause any such shelf registration to remain
effective for more than 180 days. If necessary, the Buyer shall use its best
reasonable efforts to effect the registration of the offer and sale of the
Conversion Stock subject to the Piggyback Registration under the state
securities or blue sky laws of such states as shall be reasonably appropriate,
as determined by the Buyer in its sole discretion, for the distribution of such
Conversion Stock. The Buyer shall bear all expenses incurred in connection with
the effecting of the Piggyback Registration, except for: fees and expenses of
counsel, if any, retained by the Seller; any expenses or fees incurred in
connection with the resale of the Conversion Stock, including, but not limited
to, underwriter's fees and broker's commissions; and any blue sky registration
and filing fees in those jurisdictions where the applicable blue sky regulatory
authorities require the Seller to bear such fees, which all shall be borne by
the Seller participating therein pro rata in accordance with the relationship
between the number of the Seller's shares registered and the total number of
shares registered. The Buyer and the Seller shall indemnify each other to the
same extent as set forth in clause (D)(II) above (in the case of indemnification
by the Buyer) and clause (C)(V) above (in the case of indemnification by the
Seller). The Seller's rights to Piggyback Registration hereunder shall also be
subject to customary limitations, in the context of an underwritten offering,
regarding underwriter cutbacks and any pro-rations with other holders of
registration rights. The right to Piggyback Registration hereunder shall
terminate at such time as the holders of the Seller's Conversion Stock are able
to sell all of such Conversion Stock without restrictions under Rule 144.
(F) If requested by the managing or lead
managing underwriter for any Piggyback Registration which is an underwritten
public offering, the Seller shall execute and deliver such 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, the Seller 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 SEC. The Seller 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 are made, not misleading.
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(G) Notwithstanding any provision of
this Agreement to the contrary, the Seller shall not have any right to take any
action (and the Seller hereby agrees that it shall not 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 Subsection G shall
prevent the Seller from making a claim for monetary relief.
(c) ADJUSTMENT PROCEDURES.
(1) Not later than 60 days after the Closing
Date, the Buyer will prepare and deliver to the Seller an unaudited consolidated
balance sheet (the "CLOSING BALANCE SHEET") of the Companies as of the Closing
Date, consisting of a computation of the consolidated net book value of the
tangible assets of the Companies as of the Closing Date, less the consolidated
book value of the liabilities of the Companies as of the Closing Date, all as
determined in accordance with generally accepted accounting principles
consistently applied ("GAAP") and utilizing the first in-first out (FIFO) method
of inventory accounting. In preparing the Closing Balance Sheet: (A) no 1997 or
older vehicles shall be included in new vehicle inventory; (B) used vehicle
inventories shall be valued as mutually agreed by the Buyer and the Seller,
based upon a physical inventory to be conducted by them not later than the
Business Day immediately preceding the Closing Date, PROVIDED, HOWEVER, that
with respect to any used vehicle as to which the Buyer and the Seller cannot
agree upon a value, such vehicle shall be valued as proposed by the Buyer,
except that the applicable Merging Company may sell such used vehicle prior to
the Closing Date (including a sale to the Seller) at a price to be determined by
the Seller; (C) parts inventories shall be valued in the same manner as "Parts"
are valued in the Asset Purchase Agreement; (D) the liabilities of the Companies
shall include any tax liabilities associated with the conversion from the last
in-first out (LIFO) method of accounting to the FIFO method of accounting and
tax liabilities associated with the distribution of the Hartsville properties;
(E) there shall be included appropriate write-offs for doubtful accounts
receivable and bad debts and for damaged, spoiled, obsolete or slow-moving
inventory; (F) there shall be included an appropriate reserve for liabilities of
the Companies, as well as for the "Sellers" under the Asset Purchase Agreement,
in connection with the issuance by the Companies and such "Sellers" of extended
warranties; and (G) the tangible net book value will be calculated without
giving effect to the value of any real property or leasehold improvements. The
tangible net book value reflected on the Closing Balance Sheet is hereinafter
called the "NET BOOK VALUE." The cost of parts inventory counts shall be borne
equally by the Buyer, on the one hand, and the Seller, on the other hand.
(2) If within 30 days following delivery of the
Closing Balance Sheet (or the next Business Day if such 30th day is not a
Business Day), the Seller has not given the Buyer notice of the Seller's
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 Seller's objection), then the Net Book Value reflected in the
Closing Balance Sheet will be deemed mutually agreed by the Buyer and the
Seller. If the Seller shall have given such notice of objection in a timely
manner, then the issues in dispute will be submitted to a "Big Six" accounting
firm mutually acceptable to the Buyer and the Seller (the "ACCOUNTANTS") for
resolution. If issues in dispute are submitted to the Accountants for
resolution: (A) each party will furnish to the Accountants such workpapers and
other documents and information relating to the disputed issues as the
Accountants may request and are available to the party or its
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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 Seller shall each bear 50% of the fees and expenses of the Accountants
for such determination.
(3) 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 $7,581,000 (the "NET BOOK VALUE EXCESS"), the Buyer
shall be obligated to pay the amount of the Net Book Value Excess promptly to
the Seller. Payment of the Net Book Value Excess, up to $500,000 thereof (i.e.,
up to $8,081,000 of Net Book Value), shall be by the issuance of additional
shares of Preferred Stock at the rate of one whole share of Preferred Stock for
each $1,000 of such Net Book Value Excess, up to a maximum of 500 whole shares
of Preferred Stock (no fractional shares of Preferred Stock are to be issued;
any such fractional shares are to be paid in cash). The Seller shall have the
same rights with respect to such shares of Preferred Stock to elect, pursuant to
Section 1.2(b)(2)(B) and (BB), to take up to all of them in shares of registered
Common Stock, with the Seller's Notice related thereto to be given not sooner
than twenty (20) Business Days after receipt by the Seller of the Prospectus
with respect thereto and not later than ten (10) Business Days prior to the
issuance thereof by the Buyer. To the extent that the Seller does not elect to
take such shares of registered Common Stock, the provisions of Section
1.2(b)(2)(E) and (F) shall be applicable. Payment of the Net Book Value Excess
in excess of $500,000 (i.e., Net Book Value in excess of $8,081,000) shall be
made in cash in the same manner as the payment of the cash portion of the Merger
Consideration at the Closing. Payment of the Net Book Value Excess (whether the
same be paid in shares of the Buyer's stock or in cash) shall be made together
with interest, payable in cash, on the amount of the Net Book Value Excess at
the Buyer's floor plan financing rate from time to time in effect (the "INTEREST
RATE") from the Closing Date to the date of such payment. 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 $7,581,000 (the "NET BOOK VALUE
SHORTFALL"), the Seller shall be obligated to pay the amount of the Net Book
Value Shortfall promptly to the Buyer. In furtherance of such obligation of the
Seller, the parties shall execute and deliver to the Escrow Agent a joint
instruction to deliver up to all of the Escrow Amount to the Buyer. To the
extent that the Net Book Value Shortfall exceeds the Escrow Amount, the Seller
shall be obligated to pay the amount of such excess promptly to the Buyer,
together with interest, payable in cash, on the amount of such excess at the
Interest Rate from the Closing Date to the date of such payment. Any interest
earned on the Escrow Amount shall be paid to the Buyer and/or the Seller in
proportion to their respective shares of the Escrow Amount paid to them.
(4) With respect to the payment by the Buyer to
the Seller of any Net Book Value Excess in cash pursuant to Section 1.2(c)(3)
above, the Seller shall deliver to the Buyer within fifteen (15) days of such
payment, written notice of the amount of federal and state capital gains taxes,
if any, payable by the Seller on such cash payment. Such notice shall set forth
in reasonable detail a calculation of such capital gains taxes on such cash
payment pursuant to Section 1.2(c)(3) above for each Seller in accordance with
the applicable provisions of the U.S. federal and State of South Carolina income
tax laws and regulations. Within fifteen (15) days of receipt of such notice by
the Buyer, the Buyer shall reimburse the Seller for such capital
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gains tax liability by paying to the Seller cash in the amount of his tax
liabilities as set forth in such notice; PROVIDED, HOWEVER, the Buyer's
obligation under this Section 1.2(c)(4) shall not exceed a maximum aggregate
total of $378,000.
1.3 DELIVERY OF THE SHARES.
(a) At the Closing, the Seller shall deliver to the Buyer a
certificate or certificates representing all of the Shares, 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 the Seller. If such
certificate or certificates cannot, after a diligent search, be located, in lieu
of such certificate or certificates, the Seller shall provide an affidavit of
lost certificate and indemnity in a form reasonably satisfactory to the Buyer.
Upon such surrender by the Seller, the Seller shall be entitled to the Merger
Consideration, as more fully provided in Section 1.2 above. Until surrendered in
accordance with Section 1.3, 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 1.2.
(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").
(c) It shall be a condition to the Buyer's obligations at the
Closing that all the Shares shall have been voted in favor of the Merger, such
that no appraisal or dissenters' rights under applicable law shall be available
to the Seller.
1.4 NON-COMPETITION AGREEMENT. At the Closing, the Seller will enter
into a non-competition agreement with the Buyer and the Subs substantially in
the form of Exhibit D hereto (the "NON-COMPETITION AGREEMENT"). The amount of
the Merger Consideration allocated to the Non-Competition Agreement shall be
$10,000.
1.5 SELLER'S COVENANT TO CLOSE. The Seller further covenants and agrees
to vote all of the Shares held by him in favor of the Merger, and otherwise to
take all officer, director, or shareholder actions necessary to cause the
Companies to adopt, approve, and consummate, the Merger.
ARTICLE 2
CLOSING
The Closing shall take place at the offices of Parker, Poe, Adams &
Bernstein, LLP, Charlotte, North Carolina, at 9:30 a.m., local time, on the
Closing Date. The Closing Date shall be the fifth (5th) Business Day, or such
shorter period as the Buyer may choose, but in no event sooner than January 1,
1999, following the date the Buyer gives notice of the Closing to the Seller,
but in no event later than the date which is sixty (60) days from the date of
this Agreement (the "CLOSING DATE DEADLINE"); PROVIDED, HOWEVER, if as of the
Closing Date Deadline, the consents or approvals of the Manufacturer
contemplated in Section 7.10 shall not have been obtained and/or the audited
financial statements contemplated in Section 7.13 shall
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not have been completed, or the conditions to Closing set forth in Sections 8.8
or 8.13 of the Asset Purchase Agreement shall not have been satisfied, the Buyer
may elect to extend the Closing Date Deadline for up to an additional sixty (60)
days. The date upon which the Closing shall take place is hereinafter called the
"CLOSING DATE."
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to the Buyer, as follows:
3.1 OWNERSHIP OF SHARES. The Seller has, and will have at the time of
the Closing, good and valid title to the Shares, free and clear of all
Encumbrances.
3.2 SELLER'S POWER AND AUTHORITY; CONSENTS AND APPROVALS.
(a) The Seller has full capacity, right, power and authority
to execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by the Seller in connection herewith,
to consummate the transactions contemplated hereby and thereby and to perform
its obligations hereunder and thereunder.
(b) Except as set forth on Schedule 3.2(b) hereto, no
authorization, approval or consent of, or notice to or filing or registration
with, any governmental agency or body, or any other third party, is required in
connection with the execution and delivery by the Seller of this Agreement and
the other agreements, documents and instruments to be executed and delivered by
the Seller in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by the Seller of his
obligations hereunder and thereunder.
3.3 EXECUTION AND ENFORCEABILITY. This Agreement and the other
agreements, documents and instruments to be executed by the Seller in connection
herewith, and the consummation by the Seller of the transactions contemplated
hereby and thereby, have been duly authorized, executed and delivered by the
Seller and constitute, and the other agreements, documents and instruments
contemplated hereby, when executed and delivered by the Seller, shall
constitute, the legal, valid and binding obligations of the Seller, enforceable
against the Seller in accordance with their respective terms, except to the
extent that enforceability may be limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors' rights generally.
3.4 LITIGATION REGARDING SELLER. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to the Seller's knowledge, threatened or probable of assertion, against the
Seller relating to the Shares, this Agreement or the transactions contemplated
hereby before any court, governmental or administrative agency or other body.
The Seller does not know of any basis for the institution of any such suit or
proceeding. No judgment, order, writ, injunction, decree or other similar
command of any court or governmental or administrative agency or other body has
been entered against or served upon the Seller relating to the Shares, this
Agreement or the transactions contemplated hereby.
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3.5 INTEREST IN COMPETITORS AND RELATED ENTITIES; CERTAIN TRANSACTIONS.
(a) Except as set forth on Schedule 3.5 hereto, neither the
Seller nor any Affiliate of the Seller (i) has any direct or indirect interest
in any person or entity engaged or involved in any business which is competitive
with the business of any of the Companies, (ii) has any direct or indirect
interest in any person or entity which is a lessor of assets or properties to,
material supplier of, or provider of services to, any of the Companies, or (iii)
has a beneficial interest in any contract or agreement to which any of the
Companies is a party; PROVIDED, HOWEVER, that the foregoing representation and
warranty shall not apply to any person or entity, or any interest or agreement
with any person or entity, which is a publicly held corporation in which the
Seller individually owns less than 3% of the issued and outstanding voting
stock. 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 or sibling of such specified person and the concept of
"CONTROL" means 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.
(b) Except as set forth in Schedule 3.5 hereto, there are no
transactions between any of the Companies and the Seller (including the Seller's
Affiliates), or any of the directors, officers or salaried employees of any of
the Companies, or the family members or Affiliates of any of the above (other
than for services as employees, officers and directors), 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, the Seller, or
any such officer, director or salaried employee, family member, or Affiliate or
any corporation, partnership, trust or other entity in which such family member,
Affiliate, officer, director or employee has a substantial interest or is a
shareholder, officer, director, trustee or partner.
3.6 SELLER NOT A FOREIGN PERSON. The Seller is a "United States person"
as that term is defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended (the "CODE"), and the regulations promulgated thereunder.
3.7 ORGANIZATION; GOOD STANDING; QUALIFICATIONS; AND POWER. Each of the
Companies is a corporation duly organized, validly existing and in good standing
under the laws of the State of South Carolina and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. Each of the Companies is qualified to do business as a
foreign corporation and is in good standing in each of the jurisdictions listed
on Schedule 3.7 hereto, which are the only jurisdictions where the nature of its
business and assets requires such qualification.
3.8 CAPITALIZATION. Schedule 3.8 hereto sets forth the authorized
capital stock of each of the Companies, the number of shares of such authorized
capital stock outstanding and the identity of the record holders thereof. All of
the Shares are duly authorized, validly issued, fully paid and non-assessable
and are held by the Seller in the amounts indicated on Schedule 3.8 hereto.
Except as set forth on Schedule 3.8 hereto, there are no preemptive rights,
whether at law or otherwise, to purchase any of the securities of the Companies,
and there are no outstanding options, warrants, "phantom" stock plans,
subscriptions, agreements, plans or other
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commitments pursuant to which any of the Companies 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.
3.9 SUBSIDIARIES AND INVESTMENTS. None of the Companies owns or
maintains, 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.
3.10 NO VIOLATION; CONFLICTS. Except as set forth on Schedule 3.10
hereto, the execution and delivery by the Seller of this Agreement and the other
agreements, documents and instruments to be executed and delivered by the Seller
in connection herewith, the consummation by the Seller of the transactions
contemplated hereby and thereby and the performance by the Seller of his
obligations hereunder and thereunder do not and will not (a) conflict with or
violate any of the terms of the Articles of Incorporation or By-Laws of any of
the Companies, (b) violate or conflict with any law, ordinance, rule or
regulation, or any judgment, order, writ, injunction, decree or similar command
of any court, administrative or governmental agency or other body, applicable to
any of the Companies, (c) violate or conflict with the terms of, or result in
the acceleration of, any indebtedness or obligation of any of the Companies
under, or violate or conflict with or result in a breach of, or constitute a
default under, any indenture, mortgage, deed of trust, agreement or instrument
to which any of the Companies is a party or by which any of the Companies or any
of its assets or properties is bound or affected, (d) result in the creation or
imposition of any Encumbrance of any nature upon any of the assets or properties
of any of the Companies, (e) constitute an event permitting termination of any
agreement, license or other right of any of the Companies, or (f) require any
authorization, approval or consent of, or any notice to or filing or
registration with, any governmental agency or body, or any other third party,
applicable to any of the Companies or any of its properties or assets.
3.11 TITLE TO ASSETS; RELATED MATTERS. Each of the Companies has good
and valid title to all assets, rights, interests and other properties, real,
personal and mixed, tangible and intangible, owned by it (collectively, the
"ASSETS"), free and clear of all Encumbrances, except those specified on
Schedule 3.11 and liens for taxes not yet due and payable. The Assets (a)
include all properties and assets (real, personal and mixed, tangible and
intangible) owned by each of the Companies; (b) do not include (i) any contracts
for future services, prepaid items or deferred charges the full value or benefit
of which will not be usable by or transferable to the Buyer, or (ii) any
goodwill, organizational expense or other similar intangible asset.
3.12 POSSESSION. The tangible assets included within the Assets are in
the possession or control of the respective Companies and no other person or
entity has a right to possession or claims possession of all or any part of such
Assets, except the rights of lessors of Leased Equipment and Leased Premises
(each as defined in Section 3.16 hereof) under their respective contracts and
leases.
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3.13 FINANCIAL STATEMENTS.
(a) The Seller has delivered to the Buyer prior to the
date hereof:
(i) the unaudited annual balance sheets of the
Companies as of the dates stated on Schedule 3.13 hereto and the related
unaudited statements of income, stockholders' equity and changes in cash flows
for the fiscal years then ended (including the notes thereto and any other
information included therein) (collectively, the "ANNUAL FINANCIAL STATEMENTS");
and
(ii) the unaudited balance sheet of the Companies
as of the date stated on Schedule 3.13 hereto and the related unaudited
statements of income, stockholders' equity and changes in cash flow for the
interim period ended as of the date of such unaudited statements (collectively,
the "INTERIM FINANCIAL STATEMENTS"; the Annual Financial Statements and the
Interim Financial Statements are hereinafter collectively referred to as the
"FINANCIAL STATEMENTS").
(b) The Financial Statements (i) are in accordance with the
books and records of the respective Companies, which books and records are true,
correct and complete, (ii) fully and fairly present the financial position of
the respective Companies as of the dates indicated and the results of operation,
stockholders' equity and changes in cash flows of the respective Companies for
the periods indicated, and (iii) except as set forth in Schedule 3.13, have been
prepared in accordance with the income tax basis of accounting.
3.14 ACCOUNTS RECEIVABLE. All accounts receivable of the Companies are
collectible at the aggregate recorded amounts thereof, subject to the reserve
for doubtful accounts maintained by the Companies in the ordinary course of
business, and are not subject to any known counterclaims or setoffs.
3.15 INVENTORIES. All inventories of the Companies consist of items of
a quality and quantity usable and saleable in the ordinary course of business of
the Companies, and the levels of inventories are consistent with the levels
maintained by the Companies in the ordinary course consistent with past practice
and the respective Companies' obligations under their agreements with all
applicable vehicle manufacturers and distributors. The values at which such
inventories are carried are based on the LIFO method and are stated in
accordance with income tax basis of accounting by the Seller at the lower of
historic cost or market.
3.16 REAL PROPERTY; MACHINERY AND EQUIPMENT.
(a) OWNED REAL PROPERTY. The Companies own no real property.
(b) LEASED PREMISES. Schedule 3.16(b) hereto contains a
complete list and description (including buildings and other structures thereon)
of all real property of which the each of the Companies is a tenant (herein
collectively referred to as the "LEASED PREMISES," and also as the "REAL
PROPERTY"). True, correct and complete copies of all leases of all Leased
Premises (the "LEASES") have been delivered to the Buyer. The Leased Premises
are in good physical condition, ordinary wear and tear excepted, and, with
respect to each Lease, no event or condition currently exists which would give
rise to a material repair or restoration obligation if
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such Lease were to terminate. The Seller has no knowledge of any event or
condition which currently exists which would create a legal or other impediment
to the use of the Leased Premises as currently used, or would increase the
additional charges or other sums payable by the tenant under any of the Leases
(including, without limitation, any pending tax reassessment or other special
assessment affecting the Leased Premises). The improvements and building systems
which comprise a part of the Leased Premises as to which each of the Companies
is responsible for the maintenance and repair thereof are in good condition,
maintenance and repair, ordinary wear and tear excepted.
(c) CLAIMS. There has been no work performed, services
rendered or materials furnished in connection with repairs, improvements,
construction, alteration, demolition or similar activities with respect to the
Real Property for at least ninety (90) days before the date hereof; there are no
outstanding claims or persons entitled to any claim or right to a claim for a
mechanics' or materialman's lien against the Real Property; and there is no
person or entity other than the respective Companies in or entitled to
possession of the Real Property.
(d) EASEMENTS, ETC. Each of the Companies has all easements
and rights, including, but not limited to, easements for power lines, water
lines, sewers, roadways and other means of ingress and egress, necessary to
conduct the business such Company now conducts, all such easements and rights
are perpetual, unconditional appurtenant rights to the Real Property, and none
of such easements or rights are subject to any forfeiture or divestiture rights.
(e) CONDEMNATION. Neither the whole nor any portion of any of
the Real Property has been condemned, expropriated, ordered to be sold or
otherwise taken by any public authority, with or without payment or compensation
therefor, and the Seller does not know of any such condemnation, expropriation,
sale or taking, or have any grounds to anticipate that any such condemnation,
expropriation, sale or taking is threatened or contemplated. The Seller has no
knowledge of any pending assessments which would affect the Real Property.
(f) ZONING, ETC. Except as set forth on Schedule 3.16(f)
hereto, none of the Real Property is in violation of any public or private
restriction or any law or any building, zoning, health, safety, fire or other
law, ordinance, code or regulation, and no notice from any governmental body has
been served upon any of the Companies or upon any of the Real Property claiming
any violation of any such law, ordinance, code or regulation or requiring or
calling to the attention of such Company the need for any work, repair,
construction, alterations or installation on or in connection with said
properties which has not been complied with. All improvements which comprise a
part of the Real Property are located within the record lines of the Real
Property and none of the improvements located on the Real Property encroach upon
any adjoining property or any easements or rights of way and no improvements
located on any adjoining property encroach upon any of the Real Property or any
easements or rights of way servicing the Real Property.
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(g) OWNED EQUIPMENT. Schedule 3.16(g) hereto sets forth a list
of all material machinery, equipment, motor vehicles, furniture and fixtures
owned by each of the Companies (collectively, the "OWNED EQUIPMENT").
(h) LEASED EQUIPMENT. Schedule 3.16(h) hereto contains a list
of all leases or other agreements, whether written or oral, under which each of
the Companies is lessee of or holds or operates any items of machinery,
equipment, motor vehicles, furniture and fixtures or other property (other than
real property) owned by any third party (collectively, the "LEASED EQUIPMENT").
(i) MAINTENANCE OF EQUIPMENT. The Owned Equipment and the
Leased Equipment are in good operating condition, maintenance and repair in
accordance with industry standards taking into account the age thereof.
3.17 PATENTS; TRADEMARKS; TRADE NAMES; COPYRIGHTS; LICENSES, ETC.
(a) Except as set forth on Schedule 3.17 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
and all other proprietary information, know-how and intellectual property
rights, whether patentable or unpatentable, that are owned or leased by the
Companies or used in the conduct of the Companies' business. None of the
Companies is a party to, and no Company pays a royalty to anyone under, any
license or similar agreement. There is no existing claim, or, to the knowledge
of the Seller, any basis for any claim, against any of the Companies that any of
its operations, activities or products infringe the patents, trademarks, trade
names, copyrights or other property rights of others or that any of the
Companies is wrongfully or otherwise using the property rights of others.
(b) The Companies have the right (under common law) to use the
name "Newsome Chevrolet World" in the State of South Carolina and, to the
knowledge of the Seller, 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.
3.18 CERTAIN LIABILITIES.
(a) All accounts payable by the Companies to third parties as
of the date hereof arose in the ordinary course of business and none are
delinquent or past-due.
(b) Schedule 3.18 hereto sets forth a list of all indebtedness
of the Companies, other than accounts payable, as of the close of business on
the day preceding the date hereof, for money borrowed, indebtedness of the
Companies 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.
3.19 NO UNDISCLOSED LIABILITIES. None of the Companies has any
material liabilities or obligations of any nature, known or unknown, fixed or
contingent, matured or unmatured, other
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than those (a) reflected in the Financial Statements, (b) incurred in the
ordinary course of business since the date of the Financial Statements and of
the type and kind reflected in the Financial Statements, or (c) disclosed
specifically on Schedule 3.19 hereto.
3.20 ABSENCE OF CHANGES. Since December 31, 1997, the businesses of the
Companies have been operated in the ordinary course, consistent with past
practices and, except as set forth on Schedule 3.20 hereto, there has not been
incurred, nor has there occurred:
(a) Any damage, destruction or loss (whether or not covered by
insurance), adversely affecting the business or assets of any of the Companies
in excess of $50,000; (b) Any strikes, work stoppages or other labor disputes
involving the employees of any of the Companies; (c) Any sale, transfer, pledge
or other disposition of any of the Assets of any of the Companies having an
aggregate book value of $50,000 or more (except sales of vehicles and parts
inventory in the ordinary course of business); (d) Any declaration or payment of
any dividend or other distribution in respect of its capital stock or any
redemption, repurchase or other acquisition of its capital stock; (e) Any
amendment, termination, waiver or cancellation of any Material Agreement (as
defined in Section 3.29 hereof) or any termination, amendment, waiver or
cancellation of any material right or claim of any of the Companies under any
Material Agreement (except in each case in the ordinary course of business and
consistent with past practice); (f) Any (1) general uniform increase in the
compensation of the employees of any of the Companies (including, without
limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment), (2) increase in any such
compensation payable to any individual officer, director, consultant or agent
thereof, or (3) loan or commitment therefor made by any of the Companies to any
officer, director, stockholder, employee, consultant or agent of any of the
Companies; (g) Any change in the accounting methods, procedures or practices
followed by any of the Companies or any change in depreciation or amortization
policies or rates theretofore adopted by any of the Companies; (h) Any material
change in policies, operations or practices of any of the Companies with respect
to business operations followed by any of the Companies, including, without
limitation, with respect to selling methods, returns, discounts or other terms
of sale, or with respect to the policies, operations or practices of any of the
Companies concerning the employees of any of the Companies; (i) Any capital
appropriation or expenditure or commitment therefor on behalf of any of the
Companies in excess of $50,000 individually or $100,000 in the aggregate; (j)
Any write-down or write-up of the value of any inventory or equipment of any of
the Companies or any increase in inventory levels in excess of historical levels
for comparable periods; (k) Any account receivable in excess of $50,000 or note
receivable in excess of $50,000 owing to any of the Companies which (1) has been
written off as uncollectible, in whole or in part, (2) has had asserted against
it any claim, refusal or right of setoff, or (3) the account or note debtor has
refused to, or threatened not to, pay for any reason, or such account or note
debtor has become insolvent or bankrupt; (l) Any other change in the condition
(financial or otherwise), business operations, assets, earnings, business or
prospects of any of the Companies which, in the judgment of the Seller, has, or
could reasonably be expected to have, a material adverse effect on the assets,
business or operations of any of the Companies; or (m) Any agreement, whether in
writing or otherwise, for any of the Companies to take any of the actions
enumerated in this Section 3.20.
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3.21 TAX MATTERS.
(a) All federal, state and local tax returns and tax reports
required as of the date hereof to be filed by the Companies for taxable periods
ending prior to the date hereof have been duly and timely filed prior to the due
date thereof (as such due date may have been lawfully extended) by the Companies
with the appropriate governmental agencies, and all such returns and reports are
true, correct and complete.
(b) All federal, state and local income, profits, franchise,
sales, use, occupation, property, excise, payroll, withholding, employment,
estimated and other taxes of any nature, including interest, penalties and other
additions to such taxes ("TAXES"), payable by, or due from, the Companies for
all periods prior to the date hereof have been fully paid or adequately reserved
for by the Companies or, with respect to Taxes required to be accrued, each of
the Companies has properly accrued or will properly accrue such Taxes in the
ordinary course of business consistent with past practice of such Company.
(c) Except for the tax years indicated on Schedule 3.21 hereto,
the federal income tax returns of the Companies have not been examined by the
Internal Revenue Service ("IRS"). Except as set forth on Schedule 3.21 hereto,
none of the Companies has 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
3.21 hereto, no examination or audit of any tax return or report of any of the
Companies 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 any of the Companies.
Copies of all federal, state and local tax returns and reports required to be
filed by the Companies for the years ended 1997, 1996, 1995, 1994, 1993 and
1992, together with all schedules and attachments thereto, have been delivered
by the Seller to the Buyer.
(d) Except as set forth on Schedule 3.21 hereto, none of the
Companies is now, and none has 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 Code Section 341 has been made affecting
any of the Companies. None of the Companies is a party to any agreement or
arrangement that would result in the payment of any "excess parachute payments"
under Code Section 280G. None of the Companies is required to make any
adjustment under Code Section 481(a). No power of attorney relating to Taxes is
currently in effect affecting any of the Companies.
3.22 COMPLIANCE WITH LAWS, ETC. Each of the Companies has conducted its
operations and business in compliance with, and all of the Assets (including all
of the Real Property) comply with, (i) all applicable laws, rules, regulations
and codes (including, without limitation, any laws, rules, regulations and codes
relating to anticompetitive practices, contracts, discrimination, employee
benefits, employment, health, safety, fire, building and zoning, but excluding
Environmental Laws which are the subject of Section 3.36 hereof) and (ii) all
applicable orders, rules, writs, judgments, injunctions, decrees and ordinances.
None of the Companies has received any notification of any asserted present or
past failure by it to comply with such laws, rules or regulations, or such
orders, writs, judgments, injunctions, decrees or ordinances. Set forth on
Schedule 3.22 hereto are all orders, writs, judgments, injunctions,
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decrees and other awards of any court or governmental agency applicable to each
of the Companies and/or its business or operations. The Seller has delivered to
the Buyer copies of all reports, if any, of the Companies required to be
submitted under the Federal Occupational Safety and Health Act of 1970, as
amended, and under all other applicable health and safety laws and regulations.
The deficiencies, if any, noted on such reports have been corrected by the
respective Companies and any deficiencies noted by inspection through the
Closing Date will have been corrected by the respective Companies by the Closing
Date.
3.23 LITIGATION REGARDING THE COMPANIES . Except as set forth on
Schedule 3.23 hereto, there are no actions, suits, claims, investigations or
legal, administrative or arbitration proceedings pending, or, to the Seller's
knowledge, threatened or probable of assertion, against any of the Companies or
relating to any of their respective assets, business or operations or the
transactions contemplated by this Agreement, and the Seller does not know of any
basis for the institution of any such suit or proceeding. No order, writ,
judgment, injunction, decree or similar command of any court or any governmental
or administrative agency or other body has been entered against or served upon
any of the Companies relating to any of the Companies or any of their respective
assets, businesses or operations.
3.24 PERMITS, ETC. Set forth on Schedule 3.24 hereto is a list of all
governmental licenses, permits, approvals, certificates of inspection and other
authorizations, filings and registrations that are necessary for the Companies
to own and operate their respective businesses as presently conducted
(collectively, the "PERMITS"). All such Permits have been duly and lawfully
secured or made by the Companies 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 such Permit.
3.25 EMPLOYEES; LABOR RELATIONS. As of the date hereof, the Companies
employed the number of employees specified on Schedule 3.25 hereto. As of the
date hereof, (a) none of the Companies is delinquent in the payment (i) to or on
behalf of its past or present employees of any wages, salaries, commissions,
bonuses, benefit plan contributions or other compensation for all periods prior
to the date hereof, or (ii) of any amount which is due and payable to any state
or state fund pursuant to any workers' compensation statute, rule or regulation
or any amount which is due and payable to any workers' compensation claimant;
(b) there are no collective bargaining agreements currently in effect between
any of the Companies and labor unions or organizations representing any
employees of the Companies; (c) no collective bargaining agreement is currently
being negotiated by any of the Companies; (d) to the knowledge of the Seller,
there are no union organizational drives in progress and there has been no
formal or informal request to any of the Companies for collective bargaining or
for an employee election from any union or from the National Labor Relations
Board; and (e) no dispute exists between any of the Companies and any of their
sales representatives or, to the knowledge of the Seller, between any such sales
representatives with respect to territory, commissions, products or any other
terms of their representation.
3.26 COMPENSATION. Schedule 3.26 contains a schedule of all employees
(including sales representatives) and consultants of the Companies whose
individual cash compensation for the year ended December 31, 1997, is in excess
of $100,000, together with the amount of total compensation paid to each such
person for the twelve month period ended December 31, 1997
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and the current aggregate base salary or hourly rate (including any bonus or
commission) for each such person.
3.27 EMPLOYEE BENEFITS.
(a) The Seller has listed on Schedule 3.27 and has delivered
to the Buyer true and complete copies of all Employee Plans (as defined below)
and related documents, established, maintained or contributed to by the
Companies (which shall include for this purpose and for the purpose of all of
the representations in this Section 3.27, the Seller and all employers, whether
or not incorporated, that are treated together with the Companies as a single
employer within the meaning of Section 414 of the Code). The term "EMPLOYEE
PLAN" shall include all plans described in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and also shall
include, without limitation, any deferred compensation, stock, employee or
retiree pension benefit, welfare benefit or other similar fringe or employee
benefit plan, program, policy, contract or arrangement, written or oral,
qualified or nonqualified, funded or unfunded, foreign or domestic, covering
employees or former employees of the Companies and maintained or contributed to
by the Companies.
(b) Where applicable, each Employee Plan (i) has been
administered in material compliance with the terms of such Employee Plan and the
requirements of ERISA and the Code; and (ii) is in material compliance with the
reporting and disclosure requirements of ERISA and the Code. None of the
Companies maintains or contributes to, and has never maintained or contributed
to, an Employee Plan subject to Title IV of ERISA or a "multiemployer plan."
There are no facts relating to any Employee Plan that (i) have resulted in a
"prohibited transaction" of a material nature or have resulted or is reasonably
likely to result in the imposition of a material excise tax, penalty or
liability pursuant to Section 4975 of the Code, (ii) have resulted in a material
breach of fiduciary duty or violation of Part 4 of Title I of ERISA, or (iii)
have resulted or could result in any material liability (whether or not asserted
as of the date hereof) of any of the Companies or any ERISA affiliate pursuant
to Section 412 of the Code arising under or related to any event, act or
omission occurring on or prior to the date hereof. Each Employee Plan that is
intended to qualify under Section 401(a) or to be exempt under Section 501(c) of
the Code is so qualified or exempt as of the date hereof in each case as such
Employee Plan has received favorable determination letters from the Internal
Revenue Service with respect thereto. To the knowledge of the Seller, the
amendments to and operation of any Employee Plan subsequent to the issuance of
such determination letters do not adversely affect the qualified status of any
such Employee Plan. No Employee Plan has an "accumulated funding deficiency" as
of the date hereof, whether or not waived, and no waiver has been applied for.
None of the Companies has made any promises or incurred any liability under any
Employee Plan or otherwise to provide health or other welfare benefits to former
employees of the Companies, except as specifically required by law. There are no
pending or, to the best knowledge of the Seller, threatened, claims (other than
routine claims for benefit) or lawsuits with respect to any of the Companies'
Employee Plans. As used in this Section 3.27, all technical terms enclosed in
quotation marks shall have the meaning set forth in ERISA.
3.28 POWERS OF ATTORNEY. There are no persons, firms, associations,
corporations or business organizations or entities holding general or special
powers of attorney from any of the Companies.
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3.29 MATERIAL AGREEMENTS.
(a) LIST OF MATERIAL AGREEMENTS. Set forth on Schedule 3.29(a)
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
Companies or their respective businesses or assets (collectively, the "MATERIAL
AGREEMENTS"). True copies of all written Material Agreements and written
summaries of all oral Material Agreements described or required to be described
on Schedule 3.29(a) have been furnished to the Buyer.
(b) PERFORMANCE, DEFAULTS, ENFORCEABILITY. Each of the
Companies 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 Material Agreement, 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 Seller, no other
party to any Material Agreement is in default in any respect of any of its
obligations thereunder. Each of the Material Agreements is valid and in full
force and effect and enforceable against the parties thereto in accordance with
their respective terms, and, except as set forth in Schedule 3.29(b) hereto, the
consummation of the transactions contemplated by this Agreement will not (i)
require the consent of any party thereto or (ii) constitute an event permitting
termination thereof.
3.30 BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment
banker, person or firm acting on behalf of any of the Companies or the Seller or
any person, firm or corporation affiliated with the Seller or under his
authority is or will be entitled to any brokers' or finders' fee or any other
commission or similar fee directly or indirectly from any of the parties hereto
in connection with the sale of the Shares contemplated hereby, other than any
such fee or commission the entire cost of which will be borne by the Seller.
3.31 BANK ACCOUNTS, CREDIT CARDS, SAFE DEPOSIT BOXES AND CELLULAR
TELEPHONES. Schedule 3.31 hereto lists all bank accounts, credit cards and safe
deposit boxes in the name of, or controlled by, the respective Companies, and
all cellular telephones provided and/or paid for by the respective Companies,
and details about the persons having access to or authority over such accounts,
credit cards, safe deposit boxes and cellular telephones.
3.32 INSURANCE.
(a) Schedule 3.32(a) 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 Companies 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 none of the
Companies is 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 respective Companies is adequate in
accordance with the standards of business of comparable size in the industry in
which the Companies operate and no notice of cancellation or termination has
been received with respect to any such policy. None of the Companies has,
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during the last three (3) fiscal years, been denied or had revoked or rescinded
any policy of insurance.
(b) Set forth on Schedule 3.32(b) hereto is a summary of
information pertaining to material property damage and personal injury claims in
excess of $5,000 against any of the Companies 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 Companies.
3.33 WARRANTIES. Set forth on Schedule 3.33 hereto are descriptions or
copies of the forms of all express warranties and disclaimers of warranty made
by the Companies (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 Companies. There have been no breach of warranty or
breach of representation claims against any of the Companies during the past
five (5) years which have resulted in any cost, expenditure or exposure to any
of the Companies of more than $100,000 individually or in the aggregate.
3.34 DIRECTORS AND OFFICERS. Set forth on Schedule 3.34 hereto is a
true and correct list of the names and titles of each director and officer of
each of the Companies.
3.35 SUPPLIERS AND CUSTOMERS. None of the Companies is 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 Seller, no such supplier, customer or creditor intends or has
threatened, or reasonably could be expected, to terminate or modify any of its
relationships with any of the Companies.
3.36 ENVIRONMENTAL MATTERS.
(a) For purposes of this Section 3.36, the following terms
shall have the following meaning: (i) "ENVIRONMENTAL LAW" 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 government authority relating
to pollution, Hazardous Materials, worker safety or protection of human health
or the environment. (ii) "HAZARDOUS MATERIALS" means any waste, pollutant,
chemical, hazardous material, hazardous substance, toxic substance, hazardous
waste, special waste, solid waste, petroleum or petroleum-derived substance or
waste (regardless of specific gravity), or any constituent or decomposition
product of any such pollutant, material, substance or waste, including, but not
limited to, any hazardous substance or constituent contained within any waste
and any other pollutant, material, substance or waste regulated under or as
defined by any Environmental Law.
(b) Each of the Companies has obtained all permits, licenses
and other authorizations or approvals required under Environmental Laws for the
conduct and operation of the Assets and the business of such Company
("ENVIRONMENTAL PERMITS"). All such Environmental Permits are in good standing,
each of the Companies is and has been in compliance with the terms and
conditions of all such Environmental Permits, and no appeal or any other action
is pending or threatened to revoke any such Environmental Permit.
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(c) The Companies and their respective businesses, operations
and assets are and have been in compliance with all Environmental Laws in all
material respects.
(d) Except as set forth on Part (d) of Schedule 3.36 hereto,
neither any of the Companies nor the Seller has received any written order,
notice, complaint, request for information, claim, demand or other communication
from any government authority or other person, whether based in contract, tort,
implied or express warranty, strict liability, or any other common law theory,
or any criminal or civil statute, arising from or with respect to (i) the
presence, release or threatened release of any Hazardous Material or any other
environmental condition on, in or under the Real Property or any other property
formerly owned, used or leased by any of the Companies, (ii) any other
circumstances forming the basis of any actual or alleged violation by any of the
Companies or the Seller of any Environmental Law or any liability of any of the
Companies or the Seller under any Environmental Law, (iii) any remedial or
removal action required to be taken by any of the Companies or the Seller under
any Environmental Law, or (iv) any harm, injury or damage to real or personal
property, natural resources, the environment or any person alleged to have
resulted from the foregoing, nor is the Seller aware of any facts which might
reasonably give rise to such notice or communication. Neither any of the
Companies nor the Seller has entered into any agreements concerning any removal
or remediation of Hazardous Materials.
(e) Except as set forth on Part (e) of Schedule 3.36, no
lawsuits, claims, civil actions, criminal actions, administrative proceedings,
investigations or enforcement or other actions are pending or, to the Seller's
knowledge, threatened under any Environmental Law with respect to the Companies,
the Seller or the Real Property.
(f) Except as set forth on Part (f) of Schedule 3.36, no
Hazardous Materials are or have been released, discharged, spilled or disposed
of by the Companies onto, or, to the knowledge of the Seller, migrated onto, the
Real Property or any other property previously owned, operated or leased by the
Companies, and, to the knowledge of the Seller, no environmental condition
exists (including, without limitation, the presence, release, threatened release
or disposal of Hazardous Materials) related to the Real Property, to any
property previously owned, operated or leased by any of the Companies, or to any
of the Companies' past or present operations, which would constitute a violation
of any Environmental Law or otherwise give rise to costs, liabilities or
obligations under any Environmental Law.
(g) Except as set forth on Part (g) of Schedule 3.36, neither
any of the Companies nor the Seller, nor, to the knowledge of the Seller, any of
their respective predecessors in interest, has transported or disposed of, or
arranged for the transportation or disposal of, any Hazardous Materials to any
location (i) which is listed on the National Priorities List, the CERCLIS list
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or any similar federal, state or local list, (ii) which is
the subject of any federal, state or local enforcement action or other
investigation, or (iii) about which any of the Companies or the Seller has
received or has reason to expect to receive a potentially responsible party
notice or other notice under any Environmental Law.
(h) To the knowledge of the Seller, no environmental lien has
attached or is threatened to be attached to the Real Property.
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(i) To the knowledge of the Seller, no employee of any of the
Companies in the course of his or her employment with any of the Companies has
been exposed to any Hazardous Materials or other substance, generated, produced
or used by any of the Companies which could give rise to any claim (whether or
not such claim has been asserted) against any of the Companies.
(j) Except as set forth on Schedule 3.36 hereto, none of the
Sellers has placed upon the Real Property and, to the knowledge of the Seller,
the Real Property does not contain, any: (i) septic tanks into which process
wastewater or any Hazardous Materials have been disposed; (ii) asbestos; (iii)
polychlorinated biphenyls (PCBs); (iv) underground injection or monitoring
wells; or (v) underground storage tanks.
(k) Except as set forth on Schedule 3.36, there have been no
environmental studies or reports made by the Seller or the Companies or, to the
knowledge of the Seller, any other person, relating to the Real Property or any
other property or facility previously owned, operated or leased by any of the
Companies.
(l) Except as set forth on Part (l) of Schedule 3.36, none of
the Companies has agreed to assume, defend, undertake, guarantee, or provide
indemnification for, any liability, including, without limitation, any
obligation for corrective or remedial action, of any other person under any
Environmental Law for environmental matters or conditions.
3.37 YEAR 2000 MATTERS. Except as set forth on Schedule 3.37, each of
the Companies has (i) initiated a review and assessment of all areas within its
business 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 such 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 timetable as described on Schedule 3.37 for addressing the
Year 2000 Problem on a timely basis, and (iii) to date, implemented that plan
and timetable, except as set forth on said Schedule 3.37.
3.38 BUSINESS GENERALLY. Except as set forth on Schedule 3.38, the
Seller is not aware of the existence of any conditions, including, without
limitation, any actual or potential competitive factors in the markets in which
the respective Companies participate, which have not been disclosed in writing
to the Buyer and which could reasonably be expected to have an adverse effect on
the business and operations of any of the Companies, other than general business
and economic conditions generally affecting the industry and markets in which
the respective Companies participate.
3.39 MISSTATEMENTS AND OMISSIONS. No representation and warranty by the
Seller contained in this Agreement, and no statement contained in any
certificate or Schedule furnished or to be furnished by the Seller to the Buyer
in connection with this Agreement, 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 and warranty or such statement not misleading.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Buyer is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Delaware.
4.2 BUYER'S POWER AND AUTHORITY; CONSENTS AND APPROVALS.
(a) The Buyer has all requisite corporate power and authority
to execute and deliver this Agreement and the other agreements, documents and
instruments to be executed and delivered by the Buyer in connection herewith, to
consummate the transactions contemplated hereby and thereby and to perform its
obligations hereunder and thereunder.
(b) Except as set forth in Schedule 4.2(b) hereto, no
authorization, approval or consent of, or notice to or filing or registration
with, any governmental agency or body, or any other third party, is required in
connection with the execution and delivery by the Buyer of this Agreement and
the other agreements, documents and instruments to be executed by the Buyer in
connection herewith, the consummation by the Buyer of the transactions
contemplated hereby or thereby or the performance by the Buyer of its
obligations hereunder and thereunder.
4.3 EXECUTION AND ENFORCEABILITY. This Agreement and the other
agreements, documents and instruments to be executed and delivered by the Buyer
in connection herewith, and the consummation by the Buyer of the transactions
contemplated hereby and thereby, have been duly and validly authorized, executed
and delivered by all necessary corporate action on the part of the Buyer and
this Agreement constitutes, and the other agreements, documents and instruments
to be executed and delivered by the Buyer in connection herewith, when executed
and delivered by the Buyer, shall constitute the legal, valid and binding
obligations of the Buyer, enforceable against the Buyer in accordance with their
respective terms, except to the extent that enforceability may be limited by
bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors' rights generally and general equity principles.
4.4 LITIGATION REGARDING BUYER. There are no actions, suits, claims,
investigations or legal, administrative or arbitration proceedings pending or,
to the Buyer's knowledge, threatened or probable of assertion against the Buyer
relating to this Agreement or the transactions contemplated hereby before any
court, governmental or administrative agency or other body, and no judgment,
order, writ, injunction, decree or other similar command of any court or
governmental or administrative agency or other body has been entered against or
served upon the Buyer relating to this Agreement or the transactions
contemplated hereby.
4.5 NO VIOLATION; CONFLICTS. The execution and delivery by the Buyer of
this Agreement and the other agreements, documents and instruments to be
executed and delivered by the Buyer in connection herewith, the consummation by
the Buyer of the transactions contemplated hereby and thereby and the
performance by the Buyer of its obligations hereunder and thereunder do not and
will not (a) conflict with or violate any of the terms of the Certificate of
Incorporation or By-Laws of the Buyer, or (b) violate or conflict with any
domestic law,
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ordinance, rule or regulation, or any judgement, order, writ, injunction or
decree of any court, administrative or governmental agency or other body,
material to the Buyer.
4.6 BROKERS' OR FINDERS' FEES, ETC. No agent, broker, investment
banker, person or firm acting on behalf of the Buyer or any person, firm or
corporation affiliated with the Buyer or under its authority is or will be
entitled to any brokers' or finders' fee or any other commission or similar fee
directly or indirectly from any of the parties hereto in connection with the
sale of the Shares contemplated hereby.
4.7 AUTHORIZATION OF THE PREFERRED STOCK. The issuance of the Preferred
Stock, as well as the Common Shares issuable upon conversion of the Preferred
Stock, has been duly authorized by all necessary corporate action of the Buyer.
At the Buyer's Annual Meeting of its shareholders held on December 3, 1998, the
Buyer's shareholders authorized the Preferred Stock such that the full number of
Common Shares issuable upon conversion thereof may be issued without limitation
of the "Conversion Cap" referred to in the Certificate of Designation,
Preferences and Rights attached as Exhibit C-1 hereto. Upon the issuance of the
Preferred Stock pursuant to this Agreement, and upon the issuance of Common
Shares upon conversion of any shares of the Preferred Stock, the Preferred Stock
and/or Common Shares, as the case may be, shall be validly issued, fully paid
and non-assessable.
4.8 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 23, 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 10,254 shares of Series II Preferred Stock are issued and
outstanding and/or are committed to be issued by the Buyer, and approximately
30,380 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.
4.9 DISCLOSURE MATERIALS. The Buyer has delivered to the Seller 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) all 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
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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.
4.10 MISSTATEMENTS AND OMISSIONS. No representation and warranty by the
Buyer contained in this Agreement, and no statement contained in any certificate
or Schedule furnished or to be furnished by the Buyer to the Seller in
connection with this Agreement, 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 and warranty or such statement not misleading.
ARTICLE 5
PRE-CLOSING COVENANTS OF THE SELLER
The Seller hereby covenants and agrees that, from and after the date
hereof until the Closing:
5.1 PROVIDE ACCESS TO INFORMATION; COOPERATION WITH BUYER.
(a) ACCESS. The Seller shall afford, and cause the Companies
to afford, to the Buyer, its attorneys, accountants, and representatives, free
and full access at all reasonable times, and upon reasonable prior notice, to
the properties, books and records of the Companies, and to interview personnel,
suppliers and customers of the Companies, in order that the Buyer may have a
full opportunity to make such investigation (including the Environmental Audit
contemplated by Section 5.11 below) as it shall reasonably desire of the assets,
businesses and operations of the Companies (including, without limitation, any
appraisals or inspections thereof), and provide to the Buyer and its
representatives such additional financial and operating data and other
information as to the businesses and properties of the Companies as the Buyer
shall from time to time reasonably request.
(b) COOPERATION IN OBTAINING MANUFACTURER APPROVAL. The Seller
shall promptly notify Manufacturer of the execution and delivery of this
Agreement, and thereafter shall use reasonable best efforts in cooperating with
the Buyer in the preparation of and delivery to Manufacturer, as soon as
practicable after the date hereof, of an application and any other information
necessary to obtain Manufacturer's consents to or the approval of the
transactions contemplated by this Agreement.
5.2 OPERATION OF BUSINESSES OF THE COMPANIES. The Seller shall cause
each of the Companies to (a) maintain its corporate existence in good standing,
(b) operate its business substantially as presently operated and only in the
ordinary course and consistent with past operations and its obligations under
any existing agreements with all applicable automobile manufacturers or
distributors, (c) use its best efforts to preserve intact its present business
organizations and employees and its relationships with persons having business
dealings with them, including, but not limited to, all applicable automobile
manufacturers or distributors and any floor plan financing creditors, (d) comply
in all respects with all applicable laws, rules and regulations, (e) maintain
its insurance coverages, (f) pay all Taxes, charges and assessments when due,
subject to any valid objection or contest of such amounts asserted in good faith
and adequately reserved against, (g) make all debt service payments when
contractually due and
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payable, (h) pay all accounts payable and other current liabilities when due,
(i) maintain the Employee Plans and each plan, agreement and arrangement listed
on Schedule 3.27, and (j) maintain its property, plant and equipment in good
operating condition in accordance with industry standards taking into account
the age thereof.
5.3 BOOKS OF ACCOUNT. The Seller shall cause each of the Companies to
maintain its books and records of account in the usual, regular and ordinary
manner.
5.4 EMPLOYEES. The Seller shall (i) use his reasonable best efforts to
encourage such personnel of the Companies as the Buyer may designate in writing
to remain employees of the Companies after the date of the Closing, and (ii) not
take any action, or permit the Companies to take any action, to encourage any of
the personnel of the Companies to leave their positions with the Companies.
5.5 CERTAIN PROHIBITIONS. The Seller shall not permit any of the
Companies to (i) issue any equity or debt security or any options or warrants,
(ii) enter into any subscriptions, agreements, plans or other commitments
pursuant to which any of the Companies is or may become obligated to issue any
of its debt or equity securities, (iii) otherwise change or modify its capital
structure, (iv) engage in any reorganization or similar transaction, (v) sell or
otherwise dispose of any of its assets, other than sales of inventory in the
ordinary course of business, (vi) declare or make payment of any dividend or
other distribution in respect of its capital stock or redeem, repurchase or
otherwise acquire any of its capital stock [OTHER THAN THE DISTRIBUTION OF THE
HARTSVILLE OPERATIONS].
5.6 OTHER CHANGES. The Seller shall not permit the Companies to take,
cause, agree to take or cause to occur any of the actions or events set forth in
Section 3.20 of this Agreement, to the extent that any of such actions or events
would reasonably be in the Seller's control.
5.7 ADDITIONAL INFORMATION. The Seller shall furnish and cause the
Companies to furnish to the Buyer 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
or warranty made by the Seller or any information contained in any Schedule
hereto or in other information supplied in connection herewith then inaccurate
or incomplete in any material respects. The receipt of such additional
information by the Buyer shall not operate as a waiver by the Buyer of the
obligations of the Seller to satisfy the conditions to Closing set forth in
Section 7.1 hereof; PROVIDED, HOWEVER, if such information shall be furnished to
the Buyer in a writing which shall also specifically refer to one or more
representations and warranties of the Seller contained herein which in the
absence of such information is inaccurate or incomplete in any material respect,
then if the Buyer waives the condition to Closing set forth in said Section 7.1
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
the Seller.
5.8 PUBLICITY. Except as may be required by law or the applicable rules
or regulations of any securities exchange, the Seller shall not (i) make or
permit any of the Companies to make any press release or other public
announcement relating to this Agreement or the transactions contemplated hereby,
without the prior written approval of the Buyer, and (ii) otherwise disclose
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the existence and nature of their discussions or negotiations regarding the
transactions contemplated hereby to any person or entity other than their
accountants, attorneys and similar professionals, all of whom shall be subject
to this nondisclosure obligation as agents of the Seller, as the case may be.
The Seller shall cooperate with the Buyer in the preparation and dissemination
of any public announcements of the transactions contemplated by this Agreement.
5.9 OTHER NEGOTIATIONS. The Seller shall not pursue, initiate,
encourage or engage in, nor shall any of their respective Affiliates or agents
pursue, initiate, encourage or engage in, and the Seller shall cause the
Companies and their Affiliates, directors, officers and agents not to pursue,
initiate, encourage or engage in, any negotiations or discussions with, or
provide any information to, any other person or entity (other than the Buyer and
its representatives and Affiliates) regarding the sale of the assets or capital
stock of any of the Companies or any merger or similar transaction involving any
of the Companies.
5.10 CLOSING CONDITIONS. The Seller shall use all reasonable best
efforts to satisfy promptly the conditions to Closing set forth in Article 7
hereof required herein to be satisfied by the Seller prior to the Closing.
5.11 ENVIRONMENTAL AUDIT. The Seller shall cause the Companies to 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
Seller shall cause the Companies to provide to the Environmental Auditor: (i)
reasonable access to all its existing records concerning the matters which are
the subject of the Environmental Audit; and (ii) reasonable access to the
employees of the Companies and the last known addresses of former employees of
the Companies who are most familiar with the matters which are the subject of
the Environmental Audit (the Seller agreeing to use reasonable efforts to have
such former employees respond to any reasonable requests or inquiries by the
Environmental Auditor). The Seller shall otherwise cooperate and cause the
Companies to cooperate with the Environmental Auditor in connection with the
Environmental Audit. The Buyer and the Seller shall each pay 50% of all of the
costs, fees and expenses incurred in connection with the preparation of the
Phase I environmental audit report and, if recommended in the Phase I
environmental report, 50% of all costs, fees and expenses incurred in connection
with the preparation of the Phase II environmental audit report.
5.12 AUDITED FINANCIAL STATEMENTS. The Seller shall allow, cooperate
with and assist Buyer's accountants, and shall instruct the Companies'
accountants to cooperate, in the preparation of audited financial statements of
the Companies as necessary for any required filings by the Buyer with the
Securities and Exchange Commission or with the Buyer's lenders; PROVIDED that
the expense of such audit shall be borne by the Buyer.
5.13 HART-SCOTT-RODINO. Subject to the determination by the Buyer that
any of the following actions is not required, the Seller 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
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all inquiries received from the FTC or the Antitrust Division for additional
information or documentation.
ARTICLE 6
PRE-CLOSING COVENANTS OF BUYER
The Buyer hereby covenants and agrees that, from and after the date
hereof until the Closing:
6.1 PUBLICITY. Except as may be required by law or by the rules of the
New York Stock Exchange, or as necessary in connection with the transactions
contemplated hereby, the Buyer shall not (i) make any press release or other
public announcement relating to this Agreement or the transactions contemplated
hereby, without the prior written approval of the Seller, or (ii) otherwise
disclose the existence and nature of its discussions or negotiations regarding
the transactions contemplated hereby to any person or entity other than its
accountants, attorneys and similar professionals, all of whom shall be subject
to this nondisclosure obligation as agents of the Buyer.
6.2 CLOSING CONDITIONS. The Buyer shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Article 8 hereof
required herein to be satisfied by the Buyer prior to the Closing.
6.3 APPLICATION TO MANUFACTURER. Subject to the reasonable cooperation
of the Seller, the Buyer shall provide to Manufacturer as promptly as
practicable after the execution and delivery of this Agreement any application
or other information with respect to such application necessary in connection
with the seeking of the consents of Manufacturer to the transactions
contemplated by this Agreement.
6.4 HART-SCOTT-RODINO. Subject to the determination by the Buyer that
any of the following actions is not required, the Buyer shall promptly prepare
and file Notification and Report Forms under the HSR Act with the FTC and the
Antitrust Division, respond as promptly as practicable to all inquiries received
from the FTC or the Antitrust Division for additional information or
documentation, and the Buyer shall pay all filing fees in connection therewith.
6.5 ACCESS. The Buyer shall afford to the Seller, his attorneys,
accountants, and representatives, free and full access at all reasonable times,
and upon reasonable prior notice, to the properties, books and records of the
Buyer, and to interview personnel, suppliers and customers of the Buyer, in
order that the Seller may have a full opportunity to make such investigation as
he shall reasonably desire of the assets, business and operations of the Buyer.
6.6 ADDITIONAL INFORMATION. The Buyer shall furnish to the Seller 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 or warranty made by the Buyer or
any information contained in any Schedule hereto or in other information
supplied in connection herewith then inaccurate or incomplete in any material
respect. The receipt of such additional information by the Seller shall not
operate as a waiver by the Seller of the obligations of the Buyer to satisfy the
conditions to Closing set forth in Section
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8.1 hereof; PROVIDED, HOWEVER, if such information shall be furnished to the
Seller in a writing which shall also specifically refer to one or more
representations and warranties of the Buyer contained herein which in the
absence of such information is inaccurate or incomplete in a material respect,
then if the Seller waives the condition to Closing set forth in said Section 8.1
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
the Buyer.
6.7 BUYER'S OBLIGATION TO NOTIFY OF BREACH. In the event that the
President or the Chief Financial Officer of the Buyer shall have actual
knowledge of the breach by the Seller of any material representation, warranty,
covenant or agreement of the Seller contained in this Agreement, the Buyer shall
notify the Seller thereof within a reasonable period of time to give the Seller
an opportunity to cure such breach. The provisions of this Section 6.7 shall
create no obligation of due inquiry on the part of the Buyer, nor shall it
affect the Buyer's right to indemnification under Article 9 hereof unless the
Seller shall have confirmed such breach to the Buyer in a writing pursuant to
Section 5.7 above and the Buyer shall have waived the condition to Closing set
forth in Section 7.1 or Section 7.2, as applicable, with respect to such breach.
6.8 WAIVER OF RIGHT TO REDEEM. The Buyer hereby waives its rights to
redeem the Preferred Stock, which rights are set forth in the Certificate of
Designation, Preferences and Rights with respect to the Preferred Stock, a copy
of which is attached as Exhibit C-1 hereto.
ARTICLE 7
CONDITIONS TO OBLIGATIONS OF THE BUYER AT THE CLOSING
The obligations of the Buyer to perform this Agreement at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Buyer:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Seller in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
7.2 PERFORMANCE OF OBLIGATIONS OF THE SELLER. The Seller shall have
performed all obligations required to be performed by the Seller under this
Agreement, and complied with all covenants for which compliance by the Seller is
required under this Agreement, prior to or at the Closing, including, without
limitation, delivery of the stock certificates and stock powers for the Shares
described in Section 1.3 hereof.
7.3 CLOSING DOCUMENTATION. The Buyer shall have received the
following documents, agreements and instruments from the Seller:
(a) a certificate signed by the Seller and dated the date of
the Closing certifying as to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2 hereof;
(b) wire transfer instructions from the Seller, with respect
to the payment at the Closing of the cash portion of the Merger Consideration;
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(c) an opinion of Beard Law Offices, counsel for the Seller,
dated the date of the Closing and addressed to the Buyer, in form and substance
reasonably acceptable to the Buyer and its counsel;
(d) copies of all authorizations, approvals, consents,
notices, registrations and filings referred to in Schedules 3.2(b), 3.10 and
3.29(b) hereof, other than from the Manufacturer,
(e) certificates dated as of a recent date from (i) the
Secretary of State of the State of South Carolina to the effect that each of JN,
Autoworld and Chevrolet World is duly incorporated and in good standing in such
state and stating that the Companies owe no franchise taxes in such state, and
(ii) one or more certificates of officials from the jurisdictions listed on
Schedule 3.7 hereto to the effect that the Companies are duly qualified as a
foreign corporation and is in good standing in such jurisdictions;
(f) a copy of the Articles of Incorporation of each of JN,
Autoworld and Chevrolet World, including all amendments thereto, certified as of
a recent date by the Secretary of State of the State of South Carolina;
(g) evidence, reasonably satisfactory to the Buyer, of the
authority and incumbency of the persons acting on behalf of each of the
Companies in connection with the execution of any document delivered in
connection with this Agreement;
(h) Uniform Commercial Code Search Reports on Form UCC-11 with
respect to each of the Companies from the states and local jurisdictions where
the principal places of business of the Companies and their assets are located;
(i) a certificate of the Seller as to the Seller's
non-foreign status in appropriate form;
(j) the corporate minute books and stock record books of each
of JN, Autoworld and Chevrolet World, and all other books and records of, or
pertaining to, the businesses and operations of the Companies;
(k) estoppel letters of lenders to the Companies, in form and
substance reasonably satisfactory to the Buyer, with respect to amounts owing by
the respective Companies as of the Closing; and
(l) such other instruments and documents as the Buyer shall
reasonably request not inconsistent with the provisions hereof.
7.4 APPROVAL OF LEGAL MATTERS. The form of all instruments,
certificates and documents to be executed and delivered by the Seller 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.
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7.5 NO LITIGATION. No action, suit or other proceeding shall be pending
or threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain damages in respect thereof,
or involving a claim that consummation thereof would result in the violation of
any law, decree or regulation of any governmental authority having appropriate
jurisdiction, and no order, decree or ruling of any governmental authority or
court shall have been entered challenging the legality, validity or propriety
of, or otherwise relating to, this Agreement or the transactions contemplated
hereby, or prohibiting, restraining or otherwise preventing the consummation of
the transactions contemplated hereby.
7.6 NO MATERIAL ADVERSE CHANGE OR UNDISCLOSED LIABILITY. 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
Companies, or any of its assets.
7.7 NO ADVERSE LAWS. There shall not have been enacted, adopted or
promulgated any statute, rule, regulation or order which materially adversely
affects the business or assets of any of the Companies.
7.8 AFFILIATE AND OTHER TRANSACTIONS. All amounts owing to the
Companies from the Seller or any Affiliate thereof (including the $3,081,000
receivable of Autoworld) or from any of the Companies' officers and employees
shall have been paid in full on or prior to the Closing Date.
7.9 ESCROW AGREEMENT. The Seller and the Escrow Agent shall have
duly executed and delivered to the Buyer the Escrow Agreement.
7.10 MANUFACTURER APPROVALS; MOTOR VEHICLE LICENSES.
(a) The Manufacturer shall have given any required approvals
of the transfer of the Shares to the Buyer and shall have given any required
approval of O. Bruton Smith or his designee as the authorized dealer operator of
the Companies' dealership franchises with the Manufacturer, and the Manufacturer
shall have executed any required dealer agreements and/or amendments or
supplements thereto in connection with the foregoing.
(b) The Buyer shall have been licensed as a Motor Vehicle
Dealer under applicable South Carolina 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 each dealership location included in the Real Property.
7.11 NON-COMPETITION AGREEMENT. Seller shall have duly executed
and delivered to the Buyer and the Surviving Companies the Non-Competition
Agreement.
7.12 CANCELLATION OF STOCK OPTIONS. All outstanding options, warrants,
"phantom" stock options and other plans, agreements or arrangements of the
Companies with respect to the purchase, or the issuance of, any capital stock or
other securities of the Companies shall have been canceled and terminated prior
to the Closing at no expense to the Buyer, and the Buyer shall have received
reasonably satisfactory evidence thereof.
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7.13 AUDITED FINANCIAL STATEMENTS. The Buyer shall have completed
preparation of such audited financial statements of the Companies as may be
required by applicable regulations of the Securities and Exchange Commission or
by any of the Buyer's lenders.
7.14 HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods
under the HSR Act shall have expired without any indication by 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, the conclusion of such challenge or
investigation permits the transactions contemplated hereby in all material
respects.
7.15 OTHER BASIC AGREEMENTS. All conditions to the Buyer's obligations
to close under the Other Basic Agreements shall have been satisfied or waived by
the Buyer, and the closings under the Other Basic Agreements shall have occurred
or shall be occurring contemporaneously.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF THE SELLER AT THE CLOSING
The obligations of the Seller to perform this Agreement at the Closing
are subject to the satisfaction at or prior to the Closing of the following
conditions, unless waived in writing by the Seller:
8.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Buyer in this Agreement shall be true and correct in all material
respects at and as of the date of this Agreement and at and as of the Closing as
though made at and as of the Closing.
8.2 PERFORMANCE OF OBLIGATIONS OF THE BUYER. The Buyer shall have
performed all obligations required to be performed by it under this Agreement,
and complied with all covenants for which compliance by it is required under
this Agreement, prior to or at the Closing, including, without limitation,
payment of the Merger Consideration pursuant to Section 1.2(b) hereof.
8.3 CLOSING DOCUMENTATION. The Seller shall have received the
following documents, agreements and instruments from the Buyer:
(a) a certificate signed by a duly authorized signatory of the
Buyer and dated as of the Closing Date certifying as to the satisfaction of the
conditions set forth in Sections 8.1 and 8.2 hereof;
(b) an opinion of Parker, Poe, Adams & Bernstein L.L.P.,
counsel for the Buyer, dated as of the Closing Date and addressed to the Seller,
in form and substance reasonably satisfactory to the Seller and his counsel;
(c) 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;
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(d) certificates dated as of a recent date from the Secretary
of State of the State of North Carolina to the effect that the Subs are duly
incorporated and in good standing in such State;
(e) a copy of the Buyer's Certificate of Incorporation,
including all amendments thereto, certified by the Secretary of State of the
State of Delaware;
(f) evidence, reasonably satisfactory to the Seller, 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 Seller shall
reasonably request not inconsistent with the provisions hereof.
8.4 APPROVAL OF LEGAL MATTERS. The form of all certificates,
instruments and documents to be executed or delivered by the Buyer to the Seller
pursuant to this Agreement and all legal matters in respect of the transactions
as herein contemplated shall be reasonably satisfactory to the Seller and his
counsel, none of whose approval shall be unreasonably withheld or delayed.
8.5 NO LITIGATION. No action, suit or other proceeding shall be pending
or threatened before any court, tribunal or governmental authority seeking or
threatening to restrain or prohibit the consummation of the transactions
contemplated by this Agreement, or seeking to obtain substantial damages in
respect thereof, or involving a claim that consummation thereof would result in
the violation of any law, decree or regulation of any governmental authority
having appropriate jurisdiction, and no order, decree or ruling of any
governmental authority or court shall have been entered challenging the
legality, validity or propriety of, or otherwise relating to, this Agreement or
the transactions contemplated hereby, or prohibiting, restraining or otherwise
preventing the consummation of the transactions contemplated hereby.
8.6 ESCROW AGREEMENT. The Buyer and the Escrow Agent shall have
duly executed and delivered the Escrow Agreement to the Seller.
8.7 HART-SCOTT-RODINO WAITING PERIOD. All applicable waiting periods
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, the conclusion of such challenge or
investigation permits the transactions contemplated hereby in all material
respects.
8.8 OTHER BASIC AGREEMENTS. All conditions to the obligations of the
parties other than the Buyer under the Other Basic Agreements shall have been
satisfied or waived by the applicable other party, and the closings under the
Other Basic Agreements shall have occurred or shall be occurring
contemporaneously.
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ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION, ETC.
9.1 SURVIVAL. All statements contained in any Schedule or certificate
delivered hereunder or in connection herewith by or on behalf of any of the
parties pursuant to this Agreement shall be deemed representations and
warranties by the respective parties hereunder unless otherwise expressly
provided herein. The representations and warranties of the Seller or the Buyer
contained in this Agreement, including those contained in any Schedule or
certificate delivered hereunder or in connection herewith, shall survive the
Closing for a period of three years with the exception of (i) the
representations and warranties of the Seller contained in Section 3.21, which
shall survive the Closing until the expiration of the applicable tax statutes of
limitation plus a period of sixty (60) days, and (ii) the representations and
warranties of the Seller contained in Sections 3.11, 3.19 and 3.36, which shall
survive the Closing until the expiration of the applicable statutes of
limitation for a breach thereof. As to each representation and warranty of the
parties hereto, the date to which such representation and warranty shall survive
is hereinafter referred to as the "SURVIVAL DATE".
9.2 AGREEMENT TO INDEMNIFY BY SELLER. Subject to the terms and
conditions of Sections 9.4 and 9.5 hereof, the Seller hereby agrees to indemnify
and save the Buyer, the Surviving Companies and their respective shareholders,
officers, directors, employees, successors and assigns (each, a "BUYER
INDEMNITEE") harmless from and against, for and in respect of, any and all
damages, losses, obligations, liabilities, demands, judgments, injuries,
penalties, claims, actions or causes of action, encumbrances, costs, and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees), suffered, sustained, incurred or required to be paid by any Buyer
Indemnitee (collectively, "BUYER'S DAMAGES") arising out of, based upon, in
connection with, or as a result of:
(a) the untruth, inaccuracy or breach of any representation
and warranty of the Seller contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in connection
herewith, excluding any breach of representation and warranty contained in
Section 3.19; PROVIDED, HOWEVER, that with respect to the foregoing
indemnification obligation of the Seller contained in this paragraph (a) and the
indemnification obligation of the Seller contained in paragraph (b) immediately
below, the Seller shall not have any indemnification obligation until (and only
to the extent that) Buyer's Damages in respect of all claims for indemnity
pursuant to this paragraph (a) and said paragraph (b) shall exceed a cumulative
aggregate total of $150,000;
(b) the untruth, inaccuracy or breach of any representation
and warranty of the Seller contained in or made pursuant to Section 3.19,
including in any Schedule or certificate delivered hereunder in connection
therewith;
(c) the breach or nonfulfillment of any covenant or agreement
of the Seller contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto;
(d) any loss of life, injury to persons or property, or damage
to natural resources caused by the actual, alleged, or threatened release,
storage, transportation, treatment
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or generation, of Hazardous Materials generated, stored, used, disposed of,
treated, handled or shipped by the Companies on or before the Closing Date;
(e) any cleanup of Hazardous Materials released, disposed of
or discharged: (i) on, beneath or adjacent to the Real Property prior to or on
the date of the Closing; or (ii) at any other location if such substances were
generated, used, stored, treated, transported or released by the Companies prior
to or on the Closing Date; PROVIDED, HOWEVER, such cleanup obligation shall only
be to the level required of an applicable governmental agency or as COMMERCIALLY
reasonably necessary to satisfy the requirements of a lender to or prospective
purchaser of the Real Property.
(f) all known or unknown environmental liabilities and claims
of the Companies or arising out of the ownership the Shares prior to the
Closing, including, without limitation, the presence, release or threatened
release of Hazardous Materials and any liabilities or obligations arising under
any Environmental Law, including but not limited to the Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), as amended;
(g) any and all costs of installing pollution control
equipment or other equipment to bring any of the Real Property into compliance
with any Environmental Law if such equipment is installed because any of the
Real Property was not in compliance with any Environmental Laws as of the date
of the Closing; or
(h) all liabilities of any of the Companies for Taxes arising
out of the distribution of the Hartsville operations, except to the extent
accrued on the Closing Balance Sheet.
Notwithstanding the provisions of paragraphs (e), (f) and (g) immediately above,
the term "Buyer's Damages" as applicable to said paragraphs shall not include
any amounts due and payable to the Buyer or the Surviving Company from any
governmental agency under the "SUPERB" or other government funded remediation
program, so long as such amounts paid do not result in any continuing liability
or obligation of the Buyer or the Surviving Companies based upon such payment.
9.3 AGREEMENT TO INDEMNIFY BY BUYER. Subject to the terms and
conditions of Sections 9.4 and 9.5 hereof, the Buyer hereby agrees to indemnify
and save the Seller and his heirs, successors and assigns (each, a "SELLER
INDEMNITEE") harmless from or against, for and in respect of, any and all
damages, losses, obligations, liabilities, demands, judgments, injuries,
penalties, claims, actions or causes of action, encumbrances, costs, and
expenses (including, without limitation, reasonable attorneys' fees and expert
witness fees) suffered, sustained, incurred or required to be paid by the Seller
Indemnitee arising out of, based upon or in connection with or as a result of:
(a) the untruth, inaccuracy or breach of any representation
and warranty of the Buyer contained in or made pursuant to this Agreement,
including in any Schedule or certificate delivered hereunder or in connection
herewith; or
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(b) the breach or nonfulfillment of any covenant or agreement
of the Buyer contained in this Agreement or in any other agreement, document or
instrument delivered hereunder or pursuant hereto.
9.4 CLAIMS FOR INDEMNIFICATION. No claim for indemnification with
respect to a breach of a representation and warranty shall be made under this
Agreement after the applicable Survival Date unless prior to such Survival Date
the Buyer Indemnitee or the Seller Indemnitee, as the case may be, shall have
given the Seller or the Buyer, as the case may be, written notice of such claim
for indemnification based upon actual loss sustained, or potential loss
anticipated, as a result of the existence of any claim, demand, suit, or cause
of action against such Buyer Indemnitee or Seller Indemnitee, as the case may
be.
9.5 PROCEDURES REGARDING THIRD PARTY CLAIMS. The procedures to be
followed by the Buyer and the Seller with respect to indemnification hereunder
regarding claims by third persons which could give rise to an indemnification
obligation hereunder shall be as follows:
(a) Promptly after receipt by any Buyer Indemnitee or Seller
Indemnitee, as the case may be, of notice of the commencement of any action or
proceeding (including, without limitation, any notice relating to a tax audit)
or the assertion of any claim by a third person which the person receiving such
notice has reason to believe may result in a claim by it for indemnity pursuant
to this Agreement, such person (the "INDEMNIFIED PARTY") shall give a written
notice of such action, proceeding or claim to the party against whom
indemnification pursuant hereto is sought (the "INDEMNIFYING PARTY"), setting
forth in reasonable detail the nature of such action, proceeding or claim,
including copies of any documents and written correspondence from such third
person to such Indemnified Party.
(b) The Indemnifying Party shall be entitled, at its own
expense, to participate in the defense of such action, proceeding or claim, and,
if (i) the action, proceeding or claim involved seeks (and continues to seek)
solely monetary damages, (ii) the Indemnifying Party confirms, in writing, its
obligation hereunder to indemnify and hold harmless the Indemnified Party with
respect to such damages in their entirety pursuant to Sections 9.2 or 9.3
hereof, as the case may be, and (iii) the Indemnifying Party shall have made
provision which, in the reasonable judgment of the Indemnified Party, is
adequate to satisfy any adverse judgment as a result of its indemnification
obligation with respect to such action, proceeding or claim, then the
Indemnifying Party shall be entitled to assume and control such defense with
counsel chosen by the Indemnifying Party and approved by the Indemnified Party,
which approval shall not be unreasonably withheld or delayed. The Indemnified
Party shall be entitled to participate therein after such assumption, the costs
of such participation following such assumption to be at its own expense. Upon
assuming such defense, the Indemnifying Party shall have full rights to enter
into any monetary compromise or settlement which is dispositive of the matters
involved; PROVIDED, that such settlement is paid in full by the Indemnifying
Party and will not have any direct or indirect continuing material adverse
effect upon the Indemnified Party.
(c) With respect to any action, proceeding or claim as to
which (i) the Indemnifying Party does not have the right to assume the defense
or (ii) the Indemnifying Party shall not have exercised its right to assume the
defense, the Indemnified Party shall assume and control the defense of and
contest such action, proceeding or claim with counsel chosen by it and approved
by the Indemnifying Party, which approval shall not be unreasonably withheld.
The
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Indemnifying Party shall be entitled to participate in the defense of such
action, proceeding or claim, the cost of such participation to be at its own
expense. The Indemnifying Party shall be obligated to pay the reasonable
attorneys' fees and expenses of the Indemnified Party to the extent that such
fees and expenses relate to claims as to which indemnification is due under
Sections 9.2 or 9.3 hereof, as the case may be. The Indemnified Party shall have
full rights to dispose of such action, proceeding or claim and enter into any
monetary compromise or settlement; PROVIDED, HOWEVER, in the event that the
Indemnified Party shall settle or compromise any action, proceeding or claim for
which indemnification is due under Sections 9.2 or 9.3 hereof, as the case may
be, it shall act reasonably and in good faith in doing so.
(d) Both the Indemnifying Party and the Indemnified Party
shall cooperate fully with one another in connection with the defense,
compromise or settlement of any such action, proceeding or claim, including,
without limitation, by making available to the other all pertinent information
and witnesses within its control.
9.6 EFFECTIVENESS. The provisions of this Article 9 shall be effective
upon consummation of the Closing, and prior to the Closing, shall have no force
and effect.
ARTICLE 10
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision herein contained
to the contrary, this Agreement may be terminated at any time prior to the
Closing Date:
(a) By the written mutual consent of the Buyer and the
Seller;
(b) At any time prior to the Closing Date Deadline (as the
same may have been extended pursuant to Article 2 hereof), by written notice by
the Buyer or the Seller to the other party (ies) hereto if such other party
(ies) is (are) in breach of any of its (their) material representations,
warranties, covenants or agreements contained herein; PROVIDED, HOWEVER, the
breaching party (ies) shall have the right to cure such breach prior to the
Closing Date Deadline (as the same may have been extended pursuant to Article 2
hereof) if, in connection with any such cure by the Seller or the Buyer, and
provided that the Buyer has not elected to extend the Closing Date Deadline
pursuant to Article 2 hereof, the Seller or the Buyer, as the case may be, may
elect to extend the Closing Date Deadline as provided in said Article 2 in order
to complete such cure;
(c) At any time after the Closing Date Deadline (as the same
may have been extended pursuant to Article 2 hereof), by written notice by the
Buyer or the Seller 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 2 hereof);
(d) By written notice by the Buyer to the 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;
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(e) By the Buyer, by written notice to the Seller, in the
event that approval by Manufacturer is not received by the Closing Date Deadline
(as the same may have been extended pursuant to Article 2 hereof);
(f) By the Buyer or the Seller, by written notice to the
Seller or the Buyer, as the case may be, in the event that any Manufacturer (or
any person claiming by, through or under any Manufacturer) shall exercise any
right of first refusal, preemptive right or other similar right, with respect to
the dealership business of the Companies;
(g) By the Buyer (no later than the thirtieth (30th) day after
all due diligence materials described on Schedule 10.1(f) have been furnished to
Buyer) if the Buyer is not satisfied, in its sole discretion, with the results
of the Buyer's due diligence investigation contemplated by Section 5.1(a)
hereof; or
(h) By the Seller, not later than the thirtieth (30th) day
after the date of this Agreement, if the Seller is not satisfied in its sole
discretion, with the results of the Seller's due diligence investigation of the
Buyer;
PROVIDED, HOWEVER, no party may terminate this Agreement pursuant to Section
10.1(b) or (c) above if such party, at the time of such termination, is in
breach of any material representation, warranty or covenant of such party
contained in this Agreement.
10.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination
of this Agreement pursuant to Section 10.1, this Agreement shall be of no
further force or effect; PROVIDED, HOWEVER, that any termination pursuant to
Section 10.1 shall not relieve (i) the Buyer of any liability under Section 10.3
below, (ii) the Seller of any liability under Section 10.4 below, or (iii)
except as provided in Section 10.5 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.
10.3 PAYMENT OF BUYER'S TERMINATION FEE. If this Agreement is
terminated by the Seller pursuant to Section 10.1(b) above and the failure to
complete the Closing shall have been due to the Buyer's breach of its material
representations and warranties or its material covenants or obligations under
this Agreement, then the Buyer shall, within ten days after receipt by the Buyer
of written notice from the Seller, promptly pay to the Seller in immediately
available funds, as liquidated damages for the loss of the transaction and not
as a penalty, a termination fee of $1,000,000 (the "BUYER'S TERMINATION FEE").
10.4 PAYMENT OF SELLER'S TERMINATION FEE. If this Agreement is
terminated by the Buyer pursuant to Section 10.1(b) above and the failure to
complete the Closing shall have been due to the Seller's breach of any of his
material representations and warranties or any of his material covenants or
obligations under this Agreement, then the Seller shall, within ten days after
receipt by the Seller of written notice by the Buyer, promptly pay to the Buyer
in immediately available funds, as liquidated damages for the loss of the
transaction and not as a penalty, a termination fee of $1,000,000 (the "SELLER'S
TERMINATION FEE").
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10.5 TERMINATION FEES EXCLUSIVE REMEDIES FOR DAMAGES. The respective
rights of the parties to terminate this Agreement under Section 10.1(b) and to
be paid the Seller's 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 Seller's Termination
Fee or the Buyers' 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 to which it would otherwise be entitled in the event of breach by any
other party hereto.
10.6 TERMINATION OF OTHER BASIC AGREEMENTS. Upon the termination of any
of the Other Basic Agreements in accordance with its terms, this Agreement shall
automatically termiante; provided, however, no such termination shall release
any party hereto of any liability for breach of any representation, warranty,
covenant or agreement hereunder arising prior to such termination.
ARTICLE 11
CERTAIN TAXES AND EXPENSES
11.1 CERTAIN TAXES AND EXPENSES.
(a) All sales, use, transfer, intangible, excise, documentary
stamp, recording, gross income, gross receipts and other similar taxes or fees
which may be due or payable in connection with the consummation of the
transactions contemplated hereby shall be paid by the Seller.
(b) Except as otherwise herein provided, the Seller and the
Buyer shall be responsible for the payment of their respective fees, costs and
expenses incurred in connection with the negotiation and consummation of the
transactions contemplated hereby and shall not be liable to the other party or
parties for the payment of any such fees, costs and expenses.
ARTICLE 12
MISCELLANEOUS
12.1 CERTAIN TAX RETURNS. The Seller shall cooperate with and provide
assistance to the Buyer and the Surviving Companies in connection with the
preparation and filing of all federal, state, local and foreign income tax
returns which relate to the Surviving Companies and to periods prior to Closing
but which are not required to be filed until after the Closing.
12.2 PARTIES IN INTEREST; NO THIRD-PARTY BENEFICIARIES. Subject to
Section 12.4 hereof, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the respective heirs, 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 Companies or
the Buyer, or any other person, firm, corporation or legal entity, other than
the
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parties hereto and their successors and assigns, any rights, remedies or other
benefits under or by reason of this Agreement.
12.3 ENTIRE AGREEMENT; AMENDMENTS. This Agreement (including all
Exhibits and Schedules hereto) and the other writings referred to herein or
delivered pursuant hereto contain the entire understanding of the parties hereto
with respect to its subject matter. Disclosure of an item in one Schedule shall
be deemed a disclosure for purposes of all other provisions of this Agreement,
but only insofar as such disclosure could reasonably be interpreted as being
applicable to such other provisions. There are no representations, promises,
warranties, covenants or undertakings other than as expressly set forth herein
or therein. This Agreement supersedes all prior agreements and understandings
between the parties hereto with respect to its subject matter. This Agreement
may be amended or modified only by a written instrument duly executed by the
parties hereto.
12.4 ASSIGNMENT. This Agreement shall not be assignable by any party
hereto without the prior written consent of the other parties; PROVIDED,
HOWEVER, the Buyer may assign its rights and obligations hereunder to any
Affiliate of the Buyer presently existing or hereafter formed and to any person
or entity that shall acquire all or substantially all of the assets of the Buyer
or any of the Surviving Companies (including any such acquisition by merger or
consolidation); PROVIDED, FURTHER, that no such assignment shall release the
Buyer from its obligations hereunder without the consent of the Seller. Nothing
contained in this Agreement shall prohibit its assignment by the Buyer as
collateral security and the Seller hereby agrees to execute any acknowledgment
of such assignment by the Buyer as may be required by any lender to the Buyer.
12.5 REMEDIES. Except as expressly provided in this Agreement to the
contrary, each of the parties to this Agreement is entitled to all remedies in
the event of breach provided at law or in equity, specifically including, but
not limited to, specific performance.
12.6 HEADINGS. The Article and Section headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
12.7 NOTICES. All notices, claims, certificates, requests, demands and
other communications hereunder shall be given in writing and shall be delivered
personally, sent by telecopier or sent by a nationally recognized overnight
courier, postage prepaid, and shall be deemed to have been duly given when so
delivered personally, or when telecopier receipt is acknowledged 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.
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If to the Buyer, to:
Sonic Automotive, Inc.
5401 E. Independence Boulevard
Charlotte, North Carolina 28212
Attention: Theodore M. Wright, Chief Financial Officer
Telecopier No.: (704) 536-5116
With a copy to:
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Attention: Edward W. Wellman, Jr., Esq.
Telecopier No.: (704) 334-4706
If to the Seller or the Companies, to the Seller at:
John H. Newsome, Jr.
54 Sheraw Way
Georgetown, South Carolina 29440
With a copy to:
Beard Law Offices
36 Broad Street
Charleston, South Carolina 29401
Telecopy No.: (843) 577-4570
Attention: T. Alexander Beard
12.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and each such counterpart hereof shall be deemed to be an original
instrument, and all such counterparts together shall constitute but one
agreement.
12.9 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of South Carolina, without giving
effect to its rules governing conflict of laws.
12.10 WAIVERS. Any party to this Agreement may, by written notice to
the other parties hereto, waive any provision of this Agreement from which such
party is entitled to receive a benefit. The waiver by any party hereto of a
breach by another party of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach by such other party of such
provision or any other provision of this Agreement.
12.11 SEVERABILITY. In the event that any provision, or part thereof,
in 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;
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PROVIDED, HOWEVER, this Section 12.11 shall not be applied if the effect thereof
would be to invalidate any provision contained herein which requires the
contemporaneous closings of all transactions under this Agreement and under the
Other Basic Agreements.
12.12 KNOWLEDGE. Whenever any representation or warranty of the Seller
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of the Seller, such knowledge shall be
deemed to include (A) the best actual knowledge, information and belief of the
Seller and (B) any information which the Seller 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 the Companies.
12.13 JURISDICTION; ARBITRATION.
(a) Subject to the other provisions of this Section 12.13, any
judicial proceeding brought with respect to this Agreement must be brought in
any court of competent jurisdiction in the State of South Carolina, and, by
execution and delivery of this Agreement, each party hereto (i) accepts,
generally and unconditionally, the exclusive jurisdiction of such courts and any
related appellate court, and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement, and (ii) irrevocably waives
any objection it may now or hereafter have as to the venue of any such suit,
action or proceeding brought in such court or that such court is an inconvenient
forum.
(b) Any dispute, claim or controversy arising out of or
relating to this Agreement (except for accounting matters provided for in
Section 1.2(c) hereto) or to the Other Basic Agreements, or the interpretation
or breach hereof or thereof (including, without limitation, any of the foregoing
based upon a claim to any termination fee hereunder or thereunder), 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. To the extent practicable, all
existing disputes or controversies or claims under this Agreement and the Other
Basic Agreements shall be consolidated as one action. 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
party hereto 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 Charlotte, North Carolina. 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).
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(c) Nothing contained in this Section 12.13 shall prevent any
party hereto from seeking any equitable relief to which it would otherwise be
entitled from a court of competent jurisdiction.
[SIGNATURES NEXT PAGE]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered on the date first above written.
SONIC AUTOMOTIVE, INC.
By: /s/ O. Bruton Smith
-------------------------------
Name: O. Bruton Smith
Title: Chief Executive Officer
JN MANAGEMENT CO.
By: /s/ John H. Newsome, Jr.
-------------------------------
Name: John H. Newsome, Jr.
Title: President
NEWSOME AUTOWORLD, INC.
By: /s/ John H. Newsome, Jr.
-------------------------------
Name: John H. Newsome, Jr.
Title: President
NEWSOME CHEVROLET WORLD, INC.
By: /s/ John H. Newsome, Jr.
-------------------------------
Name: John H. Newsome, Jr.
Title: President
/s/ John H. Newsome, Jr.
-------------------------------
John H. Newsome, Jr.
EXHIBIT 4.9
AMENDMENT NO. 1
AND
SUPPLEMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS AMENDMENT NO. 1 AND SUPPLEMENT TO AGREEMENT AND PLAN OF
MERGER (this "AMENDMENT") is made and entered into as of this 17th day of May,
1999, by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the "BUYER"),
JN MANAGEMENT CO., a South Carolina corporation ("JN"), NEWSOME CHEVROLET WORLD,
INC., a South Carolina corporation ("CHEVROLET" and, together with JN,
collectively, the "COMPANIES"), and JOHN H. NEWSOME, JR. (the "SELLER").
W I T N E S S E T H:
WHEREAS, the parties hereto and Newsome Autoworld, Inc., a South
Carolina corporation ("AUTOWORLD"), have entered into that certain Agreement and
Plan of Merger dated as of December 15, 1998 (the "MERGER AGREEMENT")
(capitalized terms used herein and not otherwise defined herein shall have the
meanings assigned to them in the Merger Agreement); and
WHEREAS, Autoworld was merged into JN on February 19, 1999 (the
"AUTOWORLD MERGER");
WHEREAS, the parties hereto wish to amend and supplement the Merger
Agreement as hereinafter provided;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, including the cross-indemnification of John H. Newsome,
III and Patricia M. Newsome set forth below, and intending to be legally bound,
the parties hereto hereby agree as follows:
1. SCHEDULES. The following Schedules to the Merger Agreement
have been agreed to by the parties and are attached to this Amendment:
Schedule Description
-------- -----------
Schedule 3.2(b) Consents and Approvals for the Seller
Schedule 3.5 Interest in other Entities
Schedule 3.7 Qualification
Schedule 3.8 Capitalization
Schedule 3.10 No Violation; Conflicts
Schedule 3.11 Encumbrances
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Schedule 3.13 Financial Statements
Schedule 3.16(b) Leased Premises
Schedule 3.16(f) Zoning, Etc.
Schedule 3.16(g) Owned Equipment
Schedule 3.16(h) Leased Equipment
Schedule 3.17 Intellectual Property
Schedule 3.18 Certain Liabilities
Schedule 3.19 No Undisclosed Liabilities
Schedule 3.20 Absence of Changes
Schedule 3.21 Tax Matters
Schedule 3.22 Compliance with Laws
Schedule 3.23 Litigation Regarding the Companies
Schedule 3.24 Permits, Etc.
Schedule 3.25 Employees
Schedule 3.26 Compensation
Schedule 3.27 Employee Benefits
Schedule 3.29(a) Material Agreements
Schedule 3.29(b) Required Consents for Transfers of
Material Agreements
Schedule 3.31 Bank Accounts, Credit Cards and Safe
Deposit Boxes
Schedule 3.32(a) Insurance Policies
Schedule 3.32(b) Property Damage and Personal Injury
Claims
Schedule 3.33 Warranties
Schedule 3.34 Directors and Officers
Schedule 3.36 Environmental Matters
Schedule 3.37 Year 2000 Plan and Timetable
Schedule 3.38 Business Generally
Schedule 4.2(b) Consents and Approvals for the Buyer
Schedule 10.1(f) Due Diligence Materials
2. AMENDMENTS.
(a) Section 1.1 of the Merger Agreement is hereby amended
to read in its entirety as follows:
"1.1 THE MERGER
(a) Immediately prior to the Effective Time (as
defined in Section 1.1(b) below), the Seller will cause the following
transactions to occur:
(i) Chevrolet will be merged into JN
(the "CHEVROLET MERGER") in accordance with the Merger Law (as defined
below) and in a manner satisfactory to the Buyer in its sole
discretion;
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(ii) all of the issued and outstanding
stock or other securities held by JN in each of Isuzu of Florence,
Inc., Action Ford Mercury, Inc., and John Newsome Buick Oldsmobile
Pontiac, Inc. will be distributed by JN to the Seller (such
distributions being hereinafter collectively called the "SPIN-OFFS";
the Spin-Offs and the Autoworld Merger and the Chevrolet Merger being
hereinafter collectively called the "REORGANIZATION").
(b) Subject to the provisions of this Agreement and
the Articles of Merger substantially in the form of Exhibit A attached
hereto (the "ARTICLES OF MERGER") and immediately subsequent to the
Chevrolet Merger and the Spin-Offs, JN shall be merged, in a
transaction intended by the parties to be a tax free reorganization
under Section 368(A) of the Internal Revenue Code of 1986, as amended,
with and into Sonic-Newsome Chevrolet World, Inc., a wholly-owned South
Carolina subsidiary of the Buyer (the "SUB"), in accordance with the
provisions of the South Carolina Business Corporation Act (the "MERGER
LAW"), whereupon the existence of JN shall cease and the Sub shall be
the surviving corporation (the Sub and JN are sometimes herein referred
to as the "MERGING COMPANIES" and the Sub after the Merger is sometimes
herein referred to as the "SURVIVING COMPANY"). 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
South Carolina 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 South Carolina (the
"EFFECTIVE TIME").
(c) At the Effective Time, the separate existence of
JN shall cease and JN shall be merged with and into the Sub and the Sub
shall be the Surviving Company, whose name thereafter shall be as
specified in the Articles of Merger.
(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 the applicable law; (ii) the directors of
the Sub at the Effective Time shall become the directors of the
Surviving Company, until their respective successors are duly elected
or appointed and qualified in accordance with 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 JN's
shareholders:
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(1) 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
(2) all of the Shares shall,
automatically and without any action on the part of the Seller, cease
to be outstanding and shall be converted into the right to receive the
Merger Consideration (as defined in Section 1.2 below) in accordance
with the provisions of said Section 1.2. All Shares, when so converted,
shall no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and the Seller shall cease to have
any rights with respect thereto, except the right to receive the Merger
Consideration in accordance with provisions of said Section 1.2."
(b) All references in the Merger Agreement to the "Subs" and
the "Surviving Companies" shall be deemed to be references to the "Sub" and the
"Surviving Company", as defined in amended Section 1.1 above, and all references
in the Merger Agreement to the "Shares" shall be deemed to be references to all
of the issued and outstanding shares of JN.
(c) Sections 1.2(a) and (b) of the Merger Agreement are hereby
amended to read in their entirety as follows:
"1.2 THE MERGER CONSIDERATION.
(a) THE MERGER CONSIDERATION. The consideration to be
paid by the Buyer for the Shares pursuant to the Merger (the "MERGER
CONSIDERATION") shall consist of the sum of (i) $4,000,000, plus (ii)
the Net Book Value (as defined in Section 1.2(c)(1) below).
(b) PAYMENT OF THE MERGER CONSIDERATION. The Merger
Consideration shall be paid as follows:
(1) (A) At the Closing, the sum of
$5,081,000 shall be payable by the Buyer to the Seller by wire transfer
of immediately available funds to the account of the Seller, which
shall be designated by the Seller in writing at least one full Business
Day prior to the Closing Date (as defined in Article 2 hereof). The sum
of $500,000 (the "ESCROW AMOUNT") shall be placed in escrow with First
Union National Bank or another escrow agent mutually acceptable to the
parties hereto (the "ESCROW AGENT") by the Buyer in accordance with the
escrow agreement in the form of Exhibit B hereto, with such other
changes thereto as the Escrow Agent shall reasonably request (the
"ESCROW AGREEMENT"). For purposes of this Agreement, a "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 North Carolina.
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(B) The term of the Escrow
Agreement shall be for a period of ninety (90) days from the Closing
Date (or such longer period of time as shall be necessary to complete
the determination of Net Book Value pursuant to Section 1.2(c) below).
If, as of the date which is ninety (90) days from the Closing Date (or
such later date as shall be necessary to complete the determination of
the Net Book Value pursuant to Section 1.2(c) below), the Buyer shall
have made no claims in respect of any Net Book Value Shortfall (as
defined in Section 1.2(c) below), the Buyer will execute a joint
instruction with the Seller pursuant to the Escrow Agreement to
instruct the Escrow Agent to pay all of the Escrow Amount to the Seller
pursuant to the terms of the Escrow Agreement.
(2) (A) At the Closing, the Buyer
shall issue to the Seller 3,750 shares of the Buyer's Class A
Convertible Preferred Stock, Series II (the "PREFERRED STOCK"). The
Preferred Stock will be convertible into shares of the Buyer's Class A
Common Stock, par value $.01 per share (the "COMMON STOCK"), as
provided in the Certificate of Designation, Preferences and Rights with
respect to the Preferred Stock, a copy of which is attached as Exhibit
C-1 hereto. At the Closing, the Seller will execute and deliver to the
Buyer a Certificate Regarding Restricted Securities in substantially
the form of Exhibit C-2 hereto.
(B) At the Closing, the Buyer
shall also issue to the Seller that number of unregistered shares of
Common Stock obtained by dividing $2,250,000 by an amount equal to
eighty-five percent (85%) of the Market Price (as defined in the
Certificate of Designation, Preferences and Rights with respect to the
Preferred Stock) determined as of the Closing Date (such unregistered
shares of Common Stock being hereinafter called the "LOCK-UP COMMON
SHARES"). The Seller hereby agrees that, notwithstanding the
effectiveness of the Shelf Registration Statement (as defined in
Subsection 1.2(b)(3) below), he will not offer, sell, contract to sell,
pledge, or otherwise dispose of in any way, directly or indirectly, any
of the Lock-up Common Shares for a period of one hundred eighty (180)
days from the Closing Date. The Lock-up Common Shares will be
registered by the Buyer in the Shelf Registration Statement referred to
and defined in Subsection 1.2(b)(3) below.
(3) As promptly as possible after the
Closing, but in no event later than July 31, 1999, the Buyer shall
cause all of the Lock-up Common Shares and all of shares of Common
Stock issuable upon conversion of the Preferred Stock (the "CONVERSION
COMMON SHARES") to be registered for resale by the Seller under a
"shelf" registration statement (the "SHELF REGISTRATION STATEMENT")
filed with the Securities and Exchange Commission (the "SEC")under the
Securities Act of 1933, as amended (the "SECURITIES ACT"). Upon the
effectiveness of the Shelf Registration Statement, the Seller will
convert all shares of the Preferred Stock then held by it into the
Conversion Common Shares not later than September 1, 1999.
Notwithstanding the effectiveness of the Shelf Registration Statement,
the Seller hereby agrees that he will not offer, sell, contract to
sell, pledge or otherwise dispose
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<PAGE>
of in any way, directly or indirectly, any of the Conversion Common
Shares until August 1, 1999. All Lock-up Common Shares and Conversion
Common Shares registered pursuant to this Subsection (3) are
hereinafter called the "REGISTERED COMMON SHARES."
(4) The Seller also agrees and acknowledges, with
regard to the offer or resale by him of any of the Registered Common
Shares, that:
(A) all resales by him of Registered
Common Shares shall be effected only pursuant to a current prospectus
or supplements thereto which are a part of the Shelf Registration
Statement (the "RESALE PROSPECTUS");
(B) any offering of any of the
Registered Common Shares under the Resale Prospectus by the Seller will
be effected in an orderly manner through a securities dealer, acting as
broker or dealer, selected by the Buyer in its sole discretion (the
"DESIGNATED BROKER");
(C) if requested by the Buyer, the
Seller will enter into one or more custody agreements with one or more
banks with respect to the Registered Common Shares so that all such
Shares are held in the custody of such bank or banks until offered
pursuant to clause (B) above;
(D) the Seller 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 ("RULE 145"), the certificates
representing the Registered Common Shares will be issued by the Buyer
to the Seller 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 by the Seller 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 Seller;
(F) the Seller shall provide the Buyer
with all information concerning the Seller and his resale of the
Registered Common Shares as may then be required by the Securities Act
and shall indemnify the Buyer for any liabilities arising under the
Securities Act, the Securities Exchange Act of 1934 or any state
securities laws resulting from any material misstatements in, or
omissions of material information from, such information provided by
the Seller to the Buyer pursuant to this clause (F);
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(G) the Seller 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 the Buyer;
(H) the Buyer shall have no obligation
to maintain the currency of any prospectus, permit the use of any
prospectus or maintain the effectiveness of the Shelf Registration
Statement for the resale of the Registered Common Shares once all of
the Registered Common Shares that remain unsold may be sold by the
Seller without restriction pursuant to Rule 145; and
(I) the Seller has received a copy of
the Buyer's most recent Annual Report on Form 10-K, Quarterly Report on
Form 10-Q and proxy statement as well as all its Current Reports on
Form 8-K since the end of the Buyer's last fiscal year.
(5) The Buyer also agrees that, in connection
with Subsection (3) above:
(A) the Buyer shall pay all expenses,
including legal and accounting fees, in connection with the
preparation, filing and maintenance of the Shelf Registration
Statement, including amendments thereto, the Resale Prospectus,
including supplements thereto, the issuance of certificates
representing the Registered Common Shares, and other expenses incurred
by the Buyer in meeting its obligations as set forth in Subsection (3)
above;
(B) the Buyer shall indemnify the Seller
for any liabilities arising under the Securities Act, the Securities
Exchange Act of 1934 or any state securities laws resulting from any
material misstatements in, or omissions of material information from,
the Resale Prospectus or the Shelf Registration Statement, including
the information incorporated by reference therein, except for
liabilities required to be indemnified by Seller under Subsection
(4)(F) above;
(C) The Buyer shall also list the
Registered Common Shares for trading on the New York Stock Exchange;
and
(D) Subject to the provisions of
Subsection (4) (H) above, the Buyer shall maintain the currency of the
Shelf Registration Statement and the prospectus related thereto.
(6) Notwithstanding any provision of this Agreement
to the contrary, the Seller shall not have any right to take any action
(and the Seller hereby agrees that he shall not take any action) to
restrain, enjoin or otherwise delay any
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registration as a result of any controversy that might arise with
respect to the interpretation or implementation of this Agreement.
Nothing contained in this subsection (6) shall prevent Seller from
making a claim for monetary relief.
(d) Section 3.20 of the Merger Agreement is hereby amended to
delete the date of "December 31, 1997" as it appears on the first line thereof
and to insert in its place the date of "December 31, 1998."
3. CONCERNING THE CLOSING BALANCE SHEET ADJUSTMENT PROCEDURES.
(a) Notwithstanding the provisions of Section 1.2 (c)(1) of
the Merger Agreement, the Closing Balance Sheet shall give effect to the
Reorganization. Accordingly, (i) references to the "Companies" shall be deemed
references only to JN, after the Autoworld Merger, the Chevrolet Merger and the
Spin-Offs, and (ii) the tax liabilities of the Companies reflected in the
Closing Balance sheet shall include any and all tax liabilities associated with
the Spin-Offs as well as with the Autoworld Merger and the Chevrolet Merger.
Except as herein provided, the Closing Balance Sheet shall be determined as
provided in Section 1.2 (c)(1) of the Merger Agreement.
(b) The reserve in the Closing Balance Sheet for liabilities
in connection with the issuance of extended warranties, as referred to in clause
(F) of Section 1.2(c)(1) of the Merger Agreement, shall include reserves with
respect to the Hartsville operations and shall not exceed an aggregate total of
$540,000, and the reserve in the Closing Balance Sheet for finance and insurance
chargebacks shall not exceed $25,000. The parties also agree that the Closing
Balance Sheet shall reflect a used vehicle valuation of $1,654,903.
(c) Section 1.2 (c)(3) of the Merger Agreement is hereby
amended to read in its entirety as follows:
(3) (A) 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 $7,581,000 (the "NET BOOK
VALUE EXCESS"), the Buyer shall be obligated to pay the amount of the
Net Book Value Excess promptly to the Seller. Payment of fifty-one
percent (51%) of the Net Book Value Excess shall, subject to the
provisions of Subparagraphs (B), (C), and (D) below, be by the issuance
of additional shares of Preferred Stock at the rate of one whole share
of Preferred Stock for each $1,000 of such Net Book Value Excess (no
fractional shares of Preferred Stock are to be issued; any such
fractional shares are to be paid in cash). Such additional shares of
Preferred Stock are hereinafter called the "ADDITIONAL PREFERRED
SHARES." Payment of forty-nine percent (49%) of the Net Book Value
Excess shall be made in cash in the same manner as the payment of the
cash portion of the Merger Consideration at the Closing. Payment of the
Net Book Value Excess (whether the same be paid in shares of the
Buyer's stock or in cash) shall be made together with interest, payable
in cash, on the amount of the Net Book Value Excess at the Buyer's
floor plan financing rate from time to time in effect (the "INTEREST
RATE") from the
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Closing Date to the date of such payment. Notwithstanding the foregoing
agreement of the parties regarding the payment of the cash portion of
any Net Book Value Excess, the Seller may request a larger number of
Additional Preferred Shares (and/or Additional Common Shares or
Additional Lock-up Common Shares pursuant to Subparagraphs (B), (C) and
(D) below), and a corresponding smaller amount of cash, if the Seller
believes that the reimbursement by the Buyer of the Seller's capital
gains tax liability on such cash portion pursuant to Section 1.2(c)(4)
below will cause more than forty-nine percent (49%) of the Merger
Consideration to be paid in cash. Such request shall be made in writing
by the Seller to the Buyer prior to the payment of the Net Book Value
Excess and shall specify the larger number of Additional Preferred
Shares and/or Additional Common Shares or Additional Lock-up Common
Shares pursuant to Subparagraphs (B), (C) and (D) below) and the
corresponding reduction of such cash. In the event that such request
shall be made, the Buyer will pay the Net Book Value Excess in the
respective portions of Additional Preferred Shares (and/or Additional
Common Shares or Additional Lock-up Common Shares pursuant to
Subparagraphs (B), (C) and (D) below) and cash specified in such
request, and the Buyer's obligation to reimburse the Seller for capital
gains taxes pursuant to Section 1.2(c)(4) below will be calculated
based upon such reduced cash portion specified in such request by the
Seller. 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 $7,581,000 (the "NET BOOK VALUE SHORTFALL"),
the Seller shall be obligated to pay the amount of the Net Book Value
Shortfall promptly to the Buyer. In furtherance of such obligation of
the Seller, the parties shall execute and deliver to the Escrow Agent a
joint instruction to deliver up to all of the Escrow Amount to the
Buyer. To the extent that the Net Book Value Shortfall exceeds the
Escrow Amount, the Seller shall be obligated to pay the amount of such
excess promptly to the Buyer, together with interest, payable in cash,
on the amount of such excess at the Interest Rate from the Closing Date
to the date of such payment. Any interest earned on the Escrow Amount
shall be paid to the Buyer and/or the Seller in proportion to their
respective shares of the Escrow Amount paid to them.
(B) The Seller may, by written request
delivered to the Buyer at any time on or prior to the twentieth (20th)
day after the Closing, request the Buyer to provide the Seller with a
prospectus (the "PROSPECTUS") with respect to the Buyer's offer and
sale to the Seller of registered shares of Common Stock in lieu of up
to all of the Additional Preferred Shares. In the event that the Seller
shall deliver such request to the Buyer, the Buyer shall use its best
reasonable efforts to deliver the Prospectus to the Seller within fifty
(50) days after the Closing. At the option of the Seller, exercisable
by written notice to the Buyer (the "SELLER'S NOTICE") not sooner than
twenty (20) days after the receipt by the Seller from the Buyer of the
Prospectus, the Buyer shall be obligated to issue to the Seller, not
later than ten (10) days after receipt of the Seller's Notice, in lieu
of up to all of the Additional Preferred Shares, that number of
registered shares of Common Stock (the "ADDITIONAL COMMON SHARES")
which would be issued on conversion of the number
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of such Additional Preferred Shares specified in the Seller's Notice if
such number of Additional Preferred Shares specified in the Seller's
Notice were converted on the date of delivery to the Buyer of the
Seller's Notice; provided, however, as to any and all of the Additional
Preferred Shares, the Seller may, in the Seller's Notice, elect to take
the value of up to all of the Additional Preferred Shares (valued at
$1,000 per share) in that number of whole shares of registered Common
Stock (the "ADDITIONAL LOCK-UP COMMON SHARES") which would be issuable
upon conversion of the number of Additional Preferred Shares specified
in the Seller's Notice if such Additional Preferred Shares specified in
the Seller's Notice were converted on the date of delivery to the Buyer
of the Seller's Notice utilizing a Market Price equal to eighty-five
percent (85%) of the Market Price which would otherwise be applicable
to such conversion on such date.
(C) The offer and sale of the Additional
Conversion Common Shares and/or the Additional Lock-up Common Shares by
the Buyer shall be registered under an effective registration statement
filed by the Buyer with the SEC. Such Additional Common Shares and/or
Additional Lock-up Common Shares shall be deemed to be "Registered
Common Shares" and the provisions of Sections 1.2(b)(4) and (5) above
shall be applicable thereto. To the extent required by law, the Buyer
shall prepare as soon as reasonably practicable after the issuance of
the Additional Conversion Common Shares and/or the Additional Lock-up
Common Shares a prospectus supplement or post-effective amendment to
such registration statement that would permit the offer and resale of
such Registered Common Shares from time to time by the Seller. The
Buyer shall also use its best reasonable efforts to list such
Registered Common Shares for trading on the New York Stock Exchange.
(D) The Seller hereby agrees not to
offer, sell, contract to sell, pledge, or otherwise dispose of in any
way, directly or indirectly, any of the Additional Lock-up Common
Shares for a period of one hundred eighty (180) days from their date of
issuance. Provided that the Additional Conversion Common Shares are
issued prior to August 1, 1999, the Seller also agrees not to offer,
sell, contract to sell, pledge, or otherwise dispose of in any way,
directly or indirectly, any of the Additional Conversion Common Shares
until August 1, 1999.
(E) In the event that the Seller shall
fail to give the Seller's Notice, the Buyer's sole obligation with
respect to the Additional Preferred Shares shall be to make available
"current public information" within the meaning of subsection (c)(1) of
Rule 144 promulgated by the SEC under the Securities Act ("RULE 144"),
and to remove stock transfer instructions and restrictive legends from
certificates representing the shares of Common Stock issuable upon
conversion of the Additional Preferred Shares when such shares of
Common Stock issuable upon conversion of the Additional Preferred
Shares may be sold without restriction under Rule 144.
10
<PAGE>
4. DARRELL HUDSON ASSIGNMENT AND AGREEMENT TO INDEMNIFY.
Immediately prior to the Chevrolet Merger, the Seller shall
cause Chevrolet to assign, sell and transfer unto the Seller, his heirs and
assigns, all rights, title and interest of Chevrolet in and to the following
(all of the following being the "HUDSON ASSETS"):
(a) All claims to the return of Chevrolet funds expended
at the premises located at 4779 Sunset Boulevard,
Lexington, South Carolina;
(b) All Personal property located (or previously located)
at, and the lease in connection with, 4779 Sunset
Boulevard, Lexington, South Carolina;
(c) All claims for overpayment of compensation to Darrell
Hudson;
(d) Equipment and personal property owned by Chevrolet
and in the possession of Darrell Hudson or Bob
Hudson;
(e) Ricon Lift franchise; and
(f) Any other restitution due to Chevrolet from Darrell
Hudson.
The Seller does hereby agree to assume and become responsible for the payment or
performance of any and all liabilities and obligations, of any kind, character
and description, fixed or contingent, if any, of the Companies to Darrell and/or
Bob Hudson (the "HUDSON LIABILITIES").
5. INDEMNIFICATION BY THE SELLER. The Seller hereby agrees to indemnify
and hold all Buyer Indemnitees harmless, in accordance with he provisions of
Article 9 of the Merger Agreement, for any and all Buyer's Damages arising out
of, based upon, in connection with, or as a result of any and all of the
following:
(a) TERRY W. FORDAROY, ET. AL. V. NEWSOME AUTO WORLD AND
ALLSTATE INSURANCE COMPANY, Civil Action No.
97-CP-21-94, and all other claims, suits or causes of
action arising out of or based upon the occurrence
which gave rise to such litigation;
(b) all claims, suits or causes of action by Mt. Hope
Cemetery Association;
(c) the Reorganization; and
(d) the Hudson Liabilities and all claims, suits or
causes of action by Darrell Hudson and/or Bob Hudson
arising out of or based upon the Lexington, South
Carolina operations between the Seller and/or more of
his Affiliates and Darrell Hudson including, without
limitation, the matters set forth in Section 4 above
and the transfer of the Hudson Assets.
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<PAGE>
6. MERGER AGREEMENT CONFIRMED. Except as provided in this Amendment,
the Merger Agreement is hereby confirmed, as amended hereby, and shall continue
in full force and effect.
7. CONCERNING WACHOVIA. The Buyer will cause the Seller to be released
from his personal guaranty to Wachovia Bank N.A., with respect to the floor plan
indebtedness of Newsome Automotive, LLC and Imports of Florence, LLC, within 30
days after the Closing. Pending such release, the Buyer will indemnify the
Seller to the fullest extent contemplated by Section 9.3 of the Merger
Agreement, for any amounts paid by him under such guaranty.
[REMAINDER OF PAGE INTENTIONALLY BLANK - SIGNATURES FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed as of the day, month and year first above written.
BUYER: SONIC AUTOMOTIVE, INC.
By: /s/ B. Scott Smith
---------------------------
Name: B. Scott Smith
Title: President
SELLER: JOHN H. NEWSOME, JR.
/s/ John H. Newsome, Jr.
----------------------------
THE COMPANIES: JN MANAGEMENT CO.
By: /s/ John H. Newsome, Jr.
---------------------------
Name: John H. Newsome, Jr.
Title: President
NEWSOME CHEVROLET WORLD, INC.
By: /s/ John H. Newsome, Jr.
---------------------------
Name: John H. Newsome, Jr.
Title: President
CROSS-INDEMNIFICATION BY MEMBERS. The undersigned, being the "Members"
under the Asset Purchase Agreement, as an inducement for the execution and
delivery by the Buyer of the foregoing Amendment No. 1 and Supplement to the
Merger Agreement, do hereby, jointly and severally among themselves and with the
Seller, agree to indemnify all Buyer Indemnitees for all Buyer's Damages for the
matters specified in Section 9.2 of the Merger Agreement, as well as for the
matters specified in Section 5 above, to the fullest extent provided in Article
9 of the Merger Agreement.
/s/ John H. Newsome, III /s/ Patricia M. Newsome
- ------------------------------- -----------------------------
John H. Newsome, III Patricia M. Newsome
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Sonic Automotive, Inc.:
We consent to the incorporation by reference in this Registration Statement of
Sonic Automotive, Inc. on Form S-3 of (i) our report dated February 16, 1999 on
the consolidated financial statements of Sonic Automotive, Inc. and Subsidiaries
as of December 31, 1997 and 1998 and for each of the three years in the period
ended December 31, 1998; (ii) our report dated March 26, 1999 on the combined
financial statements of Williams Automotive Group as of and for the year ended
December 31, 1998; (iii) our report dated March 16, 1999 on the financial
statements of Economy Cars, Inc. as of and for the year ended December 31, 1998;
(iv) our report dated March 26, 1999 on the financial statements of Global
Imports, Inc. as of and for the year ended December 31, 1998; (v) our report
dated March 12, 1999 on the combined financial statements of Newsome Automotive
Group as of and for the year ended December 31, 1998; (vi) our report dated
March 15, 1999 on the combined financial statements of Lloyd Automotive Group as
of and for the year ended December 31, 1998; and (vii) our report dated March
24, 1999 on the financial statements of Lute Riley Motors, Inc. as of and for
the year ended December 31, 1998, all appearing in the Prospectus dated April
29, 1999 that was included in Sonic Automotive, Inc.'s Registration Statement on
Form S-3 (Registration No. 333-71803). We also consent to the incorporation by
reference in this Registration Statement of Sonic Automotive, Inc. on Form S-3
of our report dated May 22, 1998 on the combined financial statements of
Hatfield Automotive Group as of December 31, 1996 and 1997 and for each of the
three years in the period ended December 31, 1997, our report dated June 4, 1998
on the financial statements of Casa Ford of Houston, Inc. as of and for the year
ended December 31, 1997 and our report dated August 21, 1998 on the financial
statements of Higginbotham Automotive Group as of and for the year ended
December 31, 1997, all appearing in the Prospectus dated November 5, 1998 that
was included in Sonic Automotive, Inc.'s Registration Statement on Form S-4
(Registration Nos. 333-64397 and 333-64397-001 through 333-64397-044).
We also consent to the reference to us under the heading "Experts" in the
Prospectus, which is part of this S-3 Registration Statement.
/s/ Deloitte & Touche LLP
Charlotte, North Carolina
July 9, 1999
