As filed with the Securities and Exchange Commission on August 4, 1999
Registration No. 333-82615
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
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)
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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)
---------------
Mr. O. Bruton Smith
Chairman and Chief Executive Officer
5401 East Independence Boulevard
P.O. Box 18747
Charlotte, North Carolina 28212
Telephone (704) 532-3320
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)
Copies to:
Peter J. Shea, Esq.
Parker, Poe, Adams & Bernstein L.L.P.
2500 Charlotte Plaza
Charlotte, North Carolina 28244
Telephone (704) 372-9000
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Approximate date of commencement of proposed sale to the public:
From time to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [X] If this Form is
filed to register additional securities for an offering pursuant to Rule 462(b)
under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of Each Class Additional Proposed Maximum Proposed Maximum
of Securities to Amount to be Offering Price Aggregate Amount of Additional
be Registered Registered (1) Per Unit(2) Offering Price(1)(2) Registration Fee(1)
<S> <C> <C> <C> <C>
Class A Common Stock, par value
$0.01 per share................... 1,398,902 $ 13.3125 $18,622,883 $ 5,200.00(3)
</TABLE>
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(1) The number of shares being registered is being increased from 1,056,839 to
2,455,741. The above calculation pertains only to the additional 1,398,902
shares being registered. The registration for resale of such additional
securities of the Registrant includes only the addition of shares of Class
A common stock issued in a transaction not involving a public offering.
Estimated solely for purposes of calculating the registration fee in
connection with this Registration Statement; assumes that 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 $14.425 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 30, 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 $13.3125 on July 30, 1999.
(3) Reflects additional registration fee for the additional 1,398,902 shares. A
registration fee of $4,200 pertaining to the 1,056,839 shares originally
covered by this Registration Statement was previously paid upon the filing
of this Registration Statement.
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>
PROSPECTUS
2,455,741 Shares*
[GRAPHIC OMITTED]
Class A Common Stock
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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 August 2, 1999 was $13 1/2 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.
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* The shares offered hereby include the resale of 2,206,365 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 30, 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 30, 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 August 3, 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 ..................... 20
Certain Manufacturer Restrictions ................ 23
Legal Matters .................................... 24
Experts .......................................... 24
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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
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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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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.
5
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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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BMW 8 Volkswagon 3
Ford 7 Audi 2
Chevrolet 7 GMC 2
Cadillac 6 Hyundai 2
Chrysler 6 Infiniti 2
Oldsmobile 6 Lexus 2
Plymouth 6 Lincoln 2
Dodge 5 Porsche 2
Jeep 5 Acura 1
Volvo 4 Buick 1
Isuzu 3 Honda 1
KIA 3 Pontiac 1
Mercedes 3 Range Rover 1
Mercury 3 Subaru 1
Mitsubishi 3
Nissan 3
Toyota 3
</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 19,979,182 shares held or issuable
on July 30, 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.
2,101,862(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 $14.425 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 $9.3 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.
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 $14.425
being the 20-day average closing price of our Class A common stock.
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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.
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
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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 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
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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.
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.
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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);
(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
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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 August 3, 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 *
Joseph L. Herson(5) ................ 478,089 478,089 0 *
John Jaffe(5)(6) ................... 339,332 339,332 0 *
Mollye Mills(5) .................... 478,089 478,089 0 *
Richard H. Mills(5) ................ 103,392 103,392 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 30, 1999 is the conversion date for his preferred
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.
Although Mr. Newsome has agreed to convert his 3,750 shares of preferred stock
before September 1, 1999, the actual number of shares of Class A common
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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. Mr. Newsome has also agreed not to sell,
offer to sell, or otherwise transfer any interest in, the 176,030 shares of
Class A common stock he currently holds before November 13, 1999.
(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.
(5) Messrs. Henson, Jaffe and Mills and Ms. Mills have agreed not to offer,
sell or otherwise dispose of, or contract to sell or dispose of, except to his
or her spouse or in connection with his or her death, any of their Class A
common stock before January 30, 2000.
(6) Mr. Jaffe is currently employed by Sonic pursuant to an employment
agreement entered into in August 1999. Prior to joining Sonic, Mr. Jaffe was a
controlling stockholder of Manhattan Auto, Inc. and was a stockholder, and
served as president, of Manhattan Imported Cars, Inc., vice-president of
L.O.R., Inc., and secretary of Waldorf Automotive, Inc., each of which was
acquired by Sonic on August 3, 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.
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<PAGE>
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 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 approved 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.
On August 3, 1999, Sonic completed its acquisition of all of the
outstanding stock of Manhattan Auto, Inc., and its acquisition of all of the
assets of L.O.R., Inc. and Waldorf Automotive, Inc. and substantially all of
the assets of Manhattan Imported Cars, Inc. related to its Porshe and Audi
automobile dealership businesses. In connection with these acquisitions, Sonic
issued cash and 1,398,902 shares of its Class A common stock.
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.
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<PAGE>
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 August 3, 1999, Sonic had 23,405,462 outstanding shares
of Class A common stock, 12,300,000 outstanding shares of Class B common stock
and 29,824 outstanding shares of Class A convertible preferred stock. In
connection with pending acquisitions, Sonic has agreed to issue approximately
$9.3 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.
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<PAGE>
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 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.
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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 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
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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 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:
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Sonic will deliver to GM copies of all Schedules 13D and 13G, and all
amendments thereto and terminations thereof, received by Sonic, within five
days of receipt of such Schedules. If Sonic is aware of any ownership of
its stock that should have been reported to it on Schedule 13D but that is
not reported in a timely manner, it will promptly give GM written notice of
such ownership, with any relevant information about the owner that Sonic
possesses.
If Sonic, through its Board of Directors or through shareholder action,
proposes or if any person, entity or group sends Sonic a Schedule 13D, or
any amendments thereto, disclosing (a) an agreement to acquire or the
acquisition of aggregate ownership of more than 20% of the voting stock of
Sonic and (b) Sonic, through its Board of Directors or through shareholder
action, proposes or if any plans or proposals which relate to or would
result in the following: (i) the acquisition by any person of more than 20%
of the voting stock of Sonic other than for the purposes of ordinary
passive investment; (ii) an extraordinary corporate transaction, such as a
material merger, reorganization or liquidation, involving Sonic or a sale
or transfer of a material amount of assets of Sonic and its subsidiaries;
(iii) any change which, together 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>
- --------------------------------------------------------------------------------
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[SONIC LOGO APPEARS HERE]
Class A Common Stock
---------------
P R O S P E C T U S
---------------
August 3, 1999
- --------------------------------------------------------------------------------
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<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 ................ $10,100
NYSE Listing Fee .................... 8,595
Printing and Engraving Expenses ..... 10,000
Legal Fees and Expenses ............. 20,000
Accounting Fees and Expenses ........ 15,000
Miscellaneous Expenses .............. 305
-------
Total ............................... $64,000
=======
</TABLE>
- ---------
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.
4.10 Agreement and Plan of Merger dated as of April 6, 1999 by and among Sonic, Manhattan
Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe and Richard Mills ("Manhattan Merger
Agreement").
4.11 Letter Agreement dated as of August 3, 1999 regarding amendment to Manhattan Merger
Agreement.
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.
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 Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Charlotte, State of North Carolina,
on this 3rd day of August, 1999.
SONIC AUTOMOTIVE, INC.
By: /S/ THEODORE M. WRIGHT
-------------------------------------
Theodore M. Wright
Chief Financial Officer,
Vice President-Finance,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------- ------------------------------------------ ---------------
<S> <C> <C>
* Chief Executive Officer August 3, 1999
----------------------------------
O. Bruton Smith (principal executive officer)
and Chairman
* President, Chief Operating Officer and August 3, 1999
----------------------------------
B. Scott Smith Director
/S/ THEODORE M. WRIGHT Chief Financial Officer, Vice President- August 3, 1999
----------------------------------
Theodore M. Wright Finance, Treasurer, Secretary
(principal financial and accounting
officer) and Director
* President of Retail Operations and August 3, 1999
----------------------------------
Dennis D. Higginbotham Director
* Vice President of Retail August 3, 1999
----------------------------------
Jeffrey C. Rachor Operations and Director
* Director August 3, 1999
----------------------------------
William R. Brooks
* Director August 3, 1999
----------------------------------
William P. Benton
* Director August 3, 1999
----------------------------------
William I. Belk
</TABLE>
*By: /S/ THEODORE M. WRIGHT
---------------------------------
eodore M. Wright
(Attorney-in-fact for each
of the persons indicated)
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.
4.10 Agreement and Plan of Merger dated as of April 6, 1999 by and among Sonic,
Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe and Richard Mills
("Manhattan Merger Agreement").
4.11 Letter Agreement voted as of August 3, 1999 regarding amendment to Manhattan Merger
Agreement.
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.
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER dated as of April 6, 1999 (this
"AGREEMENT") by and among SONIC AUTOMOTIVE, INC., a Delaware corporation (the
"BUYER"), MANHATTAN AUTO, INC., a Delaware corporation ("MAI" or the "COMPANY"),
JOSEPH HERSON, MOLLYE MILLS, JOHN JAFFE and RICHARD MILLS (collectively, the
"SELLERS").
W I T N E S S E T H:
WHEREAS, the Sellers own beneficially and, subject to the Voting Trust
Agreement (as defined in Section 3.1), of record all of the issued and
outstanding shares (the "SHARES") of common stock of MAI, no par value (the "MAI
COMMON STOCK"), in the amounts set forth opposite their respective names on
Exhibit 3.1 hereto; and
WHEREAS, contemporaneously with the execution of this Agreement, Buyer has
entered into a Contract to Purchase and Sell Property with Marco LP ("MARCO")
and its general partners (the "MARCO REAL PROPERTY PURCHASE AGREEMENT -
Fairfax") whereby Buyer has agreed to buy and Marco LP has agreed to sell the
property at which the Company conducts certain of its automobile dealership
businesses; and
WHEREAS, contemporaneously with the execution of this Agreement, Buyer has
entered into a Contract to Purchase and Sell Property with OGTR II LP ("OGTR")
and its general partners (the AOGTR REAL PROPERTY PURCHASE AGREEMENT," which
shall sometimes be referred to herein, together with the Marco Real Property
Purchase Agreement - Fairfax, as the "MANHATTAN REAL PROPERTY PURCHASE
Agreements") whereby Buyer has agreed to buy and OGTR II LP has agreed to sell
the property at which the Company conducts certain of its automobile dealership
businesses; and
WHEREAS, contemporaneously with the execution of this Agreement, the Buyer
has entered into an Asset Purchase Agreement (the "ASSET PURCHASE AGREEMENT")
with MIC, L.O.R., Inc., a Maryland corporation ("LOR"), Waldorf Automotive,
Inc., a Maryland corporation ("WALDORF"), and the shareholders named therein
with respect to the sale to the Buyer of certain automobile dealership assets;
and
WHEREAS, the consummation of the transactions contemplated by this
Agreement is, to the extent described in Sections 7.15 and 8.8, subject to the
consummation of the transactions contemplated by the Manhattan Real Property
Purchase Agreements; and
WHEREAS, the Buyer desires to acquire the Shares from the Sellers, and the
Sellers are willing to transfer 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 Company with and into one wholly-owned
subsidiary of the Buyer
<PAGE>
(the "SUB"), to be formed by the Buyer prior to the consummation of the
transactions contemplated hereby (the "CLOSING"), on the terms and subject to
the conditions set forth herein.
WHEREAS, although the transactions contemplated hereby are not subject to
the consummation of the transactions contemplated by the Asset Purchase
Agreement, the parties hereto nonetheless fully intend to and, to the extent
practicable, will coordinate the consummation of the transactions contemplated
hereby with the consummation of the transactions contemplated by the Asset
Purchase Agreement in such a manner as to close both transactions on the same
day.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and representations hereinafter stated, and intending to be legally bound
hereby, 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 1.1 attached hereto (the
"ARTICLES OF MERGER"), upon the filing of the Articles of Merger in connection
with the Closing the Company shall be merged with and into the Sub in accordance
with the provisions of the Delaware General Corporation Law and the law of the
jurisdiction of incorporation of the Sub (collectively, "MERGER LAW"), whereupon
the existence of the Company shall cease and the Sub shall be the surviving
corporation (the Sub and the Company are sometimes herein referred to as the
"MERGING COMPANIES" and the Sub after the Merger is sometimes herein referred to
as the "SURVIVING COMPANY").
(b) As soon as practicable after satisfaction of, or, to the
extent permitted hereunder, waiver of all conditions to the Merger, the Merging
Companies shall execute and file the Articles of Merger with the Secretary of
State of the State of Delaware 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 Delaware (the "EFFECTIVE TIME").
(c) At the Effective Time, the separate existence of the
Company shall cease and the Company shall be merged with and into the Sub and
the Sub shall be the Surviving Company, whose name thereafter shall be as
designated by Buyer.
(d) From and after the Effective Time: (i) the Articles of
Incorporation and the Bylaws of the Sub, both as in
2
<PAGE>
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation and the Bylaws of the Surviving Company, until thereafter amended
in accordance with applicable law; (ii) the directors of the Sub at the
Effective Time shall become the directors of the Surviving Company, until their
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 boards of directors of the Surviving Company.
(1) At the Effective Time, by virtue of the Merger and the applicable
provisions of the Merger Law and without any further action on the part of the
Merging Companies or on the part of the Company's shareholders:
(i) each share of common stock of the Sub outstanding
immediately prior to the Effective Time shall, automatically and without any
action on the part of the holder thereof, be converted into one share of common
stock of the Surviving Company; and
(ii) all of the Shares shall, automatically and without any
action on the part of the Sellers, cease to be outstanding and shall be
converted into the right to receive the Merger Consideration (as defined in
Section 1.2(a) 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 Sellers
holding Shares shall cease to have any rights with respect thereto, except the
right to receive the Merger Consideration in accordance with provisions of said
Section 1.2.
(2) The Merger is intended to be a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE"),
and this Agreement is intended to be a "plan of reorganization" within the
meaning of the regulations promulgated under Section 368(a) of the Code.
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) Ten Million Five Hundred Thousand Dollars
($10,500,000), plus (ii) the Net Book Value (as defined in Section 1.2(e)(i)
below).
(b) PAYMENT OF THE MERGER CONSIDERATION. Upon the terms and subject
to the conditions hereof, the Merger Consideration shall be paid as follows:
(i) Subject to Section 1.2(b)(ii), the Buyer shall:
3
<PAGE>
(A) issue and deliver at Closing the Registered Common
Stock (as defined below), if any, OR the Restricted Common Stock (as defined
below) in accordance with Sections 1.2(c) and 1.2(d), respectively; and
(B) satisfy and pay any Net Book Value Excess, or the
Sellers shall satisfy and pay any Net Book Value Shortfall, in either case, in
accordance with Section 1.2(e)(iii).
(ii) (A) At the Closing, Buyer shall place the Escrowed Shares
into escrow with First Union National Bank or another escrow agent mutually
acceptable to the parties hereto (the "ESCROW AGENT"), all in accordance with
the escrow agreement in the form of Exhibit 1.2(b) hereto, with such other
changes thereto as the Escrow Agent shall reasonably request (the "ESCROW
AGREEMENT"). As used herein, the term "ESCROWED SHARES" shall mean: such number
of whole shares of Nonmarket Protected Shares (as defined below) due to the
Sellers hereunder, of which the Market Price (as defined in Section 1.2(c))
thereof as of the Closing Date equals One Million Dollars ($1,000,000) (plus the
Market Price of any requisite fractional share). 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.
(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(e) 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(e) below), the Buyer
shall have made no claims in respect of any Net Book Value Shortfall (as defined
in Section 1.2(e)(iii) below), the Buyer shall at such time execute a joint
instruction with the Sellers pursuant to the Escrow Agreement to instruct the
Escrow Agent to deliver all of the Escrowed Shares to the Sellers pursuant to
the terms of the Escrow Agreement.
(c) ISSUANCE OF REGISTERED COMMON STOCK. The Buyer will use its best
reasonable efforts to deliver to the Sellers prior to the Closing a prospectus
(a "PROSPECTUS") with respect to the Buyer's offer and sale to the Sellers of
the Registered Common Stock to the Sellers no later than the thirtieth (30th)
Business Day prior to the Closing Date. The Sellers shall provide Buyer with a
notice (the "SELLERS' NOTICE") not sooner than twenty (20) Business Days after
the receipt by the Sellers from the Buyer of the Prospectus, and not later than
five (5) Business Days before the Closing Date. The Sellers' Notice shall
indicate whether the Sellers desire to receive Registered Common Stock (as
defined below) or Restricted Common Stock (as defined below). In the event that
the Sellers' Notice provides for the issuance of shares of Registered Common
Stock, the Buyer shall issue and deliver to the Sellers at the Closing, in the
respective percentages set forth opposite their names on Exhibit 3.1, that
number of whole shares
4
<PAGE>
(the "REGISTERED COMMON STOCK") of Buyer's Class A Common Stock, par value $.01
per share (the "COMMON STOCK") with an aggregate Market Price (as of the Closing
Date) equal to Eighteen Million Dollars ($18,000,000). As used herein, the term
"MARKET PRICE" shall mean the average of the daily closing prices on the New
York Stock Exchange for one share of Common Stock for the twenty (20)
consecutive trading days ending on the last trading day immediately prior to the
date of determination. In lieu of the issuance of any fractional share of Common
Stock under this Section, the Buyer shall pay to the Sellers in cash or by bank
or cashier's check an amount equal to the Market Price of such share as of the
date payment is due multiplied by the fraction of such share.
(d) ALTERNATIVE ISSUANCE OF STOCK. In the event that: (i) Buyer
shall fail, for any reason, to satisfy its "best reasonable efforts" obligation
to deliver timely to the Sellers the Prospectus in accordance with Section
1.2(c), (ii) if the Sellers' Notice indicates the Sellers' preference for the
issuance and delivery of Registered Common Stock and Buyer shall for any reason
fail to deliver the Registered Common Stock to the Sellers at the Closing, or
(iii) if the Sellers' Notice indicates the Sellers' preference for the issuance
and delivery of Restricted Common Stock then, in any such case, notwithstanding
anything contained in Section 1.2(c) to the contrary, the Buyer shall issue and
deliver to the Sellers at the Closing, in the respective percentages set forth
opposite their names on Exhibit 3.1, that number of whole shares (the
"RESTRICTED COMMON STOCK") of Common Stock with an aggregate Market Price (as of
the Closing Date) equal to Eighteen Million Dollars ($18,000,000). Subject to
the terms and conditions hereof, the issuance and delivery of such shares shall
satisfy in full all of Buyer's obligations under Section 1.2(c). In lieu of the
issuance of any fractional share of Common Stock under this Section, the Buyer
shall pay to the Sellers in cash or by bank or cashier's check an amount equal
to the Market Price of such share as of the date payment is due multiplied by
the fraction of such share.
(e) ADJUSTMENT PROCEDURES.
(i) Not later than 60 days after the Closing Date, the Buyer
will prepare and deliver to Joseph Herson (the "SELLERS' AGENT") an unaudited
balance sheet (the "CLOSING BALANCE SHEET") of the Company as of the Closing
Date, consisting of a computation of the net book value of the tangible assets
(including without limitation receivables, security deposits and assets in
respect of Taxes) of the Company (excluding the Distributed Assets, as defined
in Section 1.7) as of the Closing Date, less the book value of the liabilities
of the Company (excluding the Distributed Liabilities, as defined in Section
1.7) as of the Closing Date, all in accordance with generally accepted
accounting principles consistently applied ("GAAP"), except as provided below.
The tangible net book value reflected on the Closing Balance Sheet is
hereinafter called the "NET BOOK VALUE." The Closing Balance Sheet will be
prepared in accordance with the following principles: (A) it will utilize the
first in-first out (FIFO) method of inventory accounting; (B) the liabilities of
the Company shall include any Tax liabilities associated with the conversion
from the last in-first out (LIFO) method of accounting to the FIFO method of
accounting; (C) there shall be included appropriate write-offs for doubtful
accounts receivable and bad debts, to the extent not already reserved for in the
listing of accounts receivable, and for damaged, spoiled or obsolete inventory;
(D) any receivables due the Company from any of the Sellers, any of the
directors, officers, employees or Affiliates of the Company or any of the
persons or entities contemplated by Section 7.8 shall be excluded as assets
(except that any cash received contemporaneously with the Closing in
satisfaction and payment of such receivables shall be included as assets); (E)
the liabilities of the Company shall
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include appropriate accruals for all Tax liabilities of the Company associated
with the distribution of the Distributed Assets and Distributed Liabilities or
the forgiveness of any of the Company's indebtedness or other liabilities or
obligations owed to any of the persons or entities referred to in Section 7.8 of
this Agreement; (F) any amounts loaned or contributed by the Company to the
Leasing Subsidiary (as defined in Section 1.7) shall not be included as an
asset; (G) all goodwill carried on the Company's books shall not be included as
an asset; (H) the Inducement Fee will not be included as a liability of the
Company; (I) any liability of the Company owed to any persons or entities
contemplated by Section 7.8 which is satisfied in connection with the Closing
shall not be included as a liability; and (J) the values of the following asset
categories shall be calculated as follows:
(I) NEW VEHICLES. The value of the Company's untitled
new 1999 and 1998 motor vehicles in stock and unsold as of the Closing Date
(collectively, the "NEW VEHICLES") shall be the price at which the New Vehicle
was invoiced to the Company by the applicable Manufacturer (as defined in
Article 2), as adjusted pursuant to clauses (III) and (IV) below.
(II) DEMONSTRATORS. The value of the Company's
untitled 1999 and 1998 motor vehicles in stock and unsold as of the Closing Date
which are used in the ordinary course of business for the purpose of
demonstration and that have, as of the Closing Date, 6,000 miles or less on its
odometer (collectively, the "DEMONSTRATORS") shall be the price at which the
Demonstrator was invoiced to the Company by the Manufacturer, as adjusted
pursuant to clauses (III) and (IV) below, and as reduced by an amount equal to
ten cents ($.10) multiplied by the total mileage on such odometer.
(III) ADJUSTMENT TO VALUE OF NEW VEHICLES AND
DEMONSTRATORS. The value of each New Vehicle and each Demonstrator shall be: (I)
increased by the dealer cost of any equipment and accessories which have been
installed by the Company; and (II) decreased by (1) the dealer cost of any
equipment and accessories which have been removed from such vehicles, (2) all
paid or unpaid rebates, discounts, holdback for dealer account and other factory
incentives to the extent not already deducted from dealer cost (including
without limitation rebates applied for and paid but not earned, incentive monies
claimed on pre-reported units and carryover allowances on 1998 models), and (3)
refundable advertising allowances, if any.
(IV) DAMAGED NEW VEHICLES AND DEMONSTRATORS. If any
New Vehicles or Demonstrators shall have suffered any damage on or prior to the
Closing Date, the Sellers and the Buyer will attempt to agree on the cost to
cover reasonably required repairs prior to sale, which amount shall be deducted
from the value of such New Vehicle or Demonstrator to the extent not repaired
prior to Closing. With respect to any New Vehicle or Demonstrator which shall
have been damaged and repaired prior to the Closing Date, the Sellers and the
Buyer will attempt to agree on an adjustment to the price to reflect the
decrease, if any, in the wholesale value of such New Vehicle or Demonstrator
resulting from such damage and repair, which amount shall be deducted from the
value of such New Vehicle or Demonstrator. In the event the Buyer and the
Sellers cannot agree on the cost of repairs, the amount of reduction or such
adjustment, the Closing Balance Sheet shall allocate no value to such damaged
New Vehicle or Demonstrator, and the Sellers may divest any such damaged New
Vehicle or Demonstrator prior to Closing in accordance with Section 1.7.
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(V) USED VEHICLES. The value of each motor vehicle
owned by the Company that is not a New Vehicle or a Demonstrator as of the
Closing Date shall be equal to a value mutually agreed upon by Buyer and the
Sellers. In the event the Buyer and the Sellers cannot agree upon a price, the
Closing Balance Sheet shall allocate no value to such motor vehicle, and the
Sellers may divest any such motor vehicle prior to Closing in accordance with
Section 1.7.
(VI) INVENTORY. The Buyer and the Sellers shall engage
a mutually acceptable third party engaged in the business of appraising, valuing
and preparing inventories for automobile dealerships (hereinafter referred to as
the "INVENTORY SERVICE") to prepare an inventory list (the "INVENTORY") of the
parts and accessories, as well as the Miscellaneous Inventories, owned by the
Company. The Inventory (insofar as it relates to parts and accessories) shall be
posted to each Manufacturer's approved system of inventory control. The
Inventory shall be completed as of the Closing Date. The Inventory shall
identify each part and accessory and its purchase price. The cost of the
Inventory shall be borne equally by the Buyer, on the one hand, and the Sellers,
on the other hand, and paid at or promptly after the Closing.
(1) RETURNABLE AND NON-RETURNABLE PARTS AND
ACCESSORIES. The Inventory shall classify parts and accessories as "returnable"
or "nonreturnable." For purposes of this Agreement, the terms "returnable parts"
and "returnable accessories" shall describe and include only those new parts and
new accessories for vehicles which are listed (coded) in the latest current
Master Parts Price List Suggested List Prices and Dealer Prices, or other
applicable similar price lists, of the Manufacturer (as defined in Article 2)
with supplements or the equivalent in effect as of the Closing Date (the "MASTER
PRICE LIST"), as returnable to the Manufacturer at not less than the purchase
price reflected in the Master Price List or in the most recent applicable price
list. All parts and accessories listed (coded) in the Master Price List as
non-returnable to the Manufacturer shall be classified as "nonreturnable." The
value of each "returnable part" and "returnable accessory" will be the price
listed in the Master Price List. The value of each "nonreturnable" part and
accessory, of which type the Company has made no sales during the ninety (90)
day period prior to the Closing Date, shall be sixty percent (60%) of the price
listed therefor in the Master Price List. The value of each Anonreturnable" part
and accessory, of which type the Company has made retail sales to one or more
customers during the ninety (90) day period prior to the Closing Date, shall be
one hundred percent (100%) of the price therefor listed in the Master Price
List. The value of all "Jobber" and/or "NPN" parts shall be equal to the
Company's original cost of such parts. The value of all nuts, bolts and any
other parts not addressed in this Section shall equal the fair market value
thereof as determined by the Inventory Service. The Closing Balance Sheet shall
allocate no value to any damaged parts or accessories, parts and accessories
with component parts missing, superseded or obsolete parts or accessories, or
used parts or accessories, and the Sellers may
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divest any such parts or accessories prior to Closing in accordance with Section
1.7.
(2) MISCELLANEOUS INVENTORIES. "MISCELLANEOUS
INVENTORIES" shall include all useable gas, oil and grease, all undercoat
material and body materials in unopened cans and such other miscellaneous
useable and saleable articles in unbroken lots (including office supplies) which
are owned by the Company on the Closing Date provided that Miscellaneous
Inventories shall not include any miscellaneous inventories which represent more
than a sixty (60) day supply of any particular item(s). The value of the
Miscellaneous Inventories shall be equal to the replacement cost of the
Miscellaneous Inventories as determined by the Inventory Service and set forth
on the Inventory. The Closing Balance Sheet shall allocate no value to any
miscellaneous items that are not included in the Miscellaneous Inventories, and
the Sellers may divest any such miscellaneous items prior to Closing in
accordance with Section 1.7.
(VII) WORK IN PROGRESS. The value of any repair orders
which are in process at the close of business on the Closing Date shall be the
Company's actual cost for parts and labor for such orders as the Company shall
have performed prior to the Closing Date.
(VIII) FIXTURES AND EQUIPMENT. The value of all
fixtures, machinery, equipment (including special tools and shop equipment),
furniture, leasehold improvements and all signs and office equipment owned by
the Company shall be the Company's depreciated book value thereof; provided,
however, that all leasehold improvements subject to the Renovations (as defined
in Section 11.2(a)) shall be valued at an amount equal to the costs incurred and
paid by Seller in connection with the Renovations in accordance with Section
11.2 prior to the Closing Date without any adjustment for depreciation.
(ii) 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 Sellers' Agent has not given the Buyer notice of the Sellers' objection to
the computation of the Net Book Value as set forth in the Closing Balance Sheet
(such notice to contain a statement in reasonable detail of the nature of the
Sellers' objection), then the Net Book Value reflected in the Closing Balance
Sheet will be deemed mutually agreed by the Buyer and the Sellers. If the
Sellers' Agent shall have given such notice of objection in a timely manner,
then the issues in dispute will be submitted to a "Big Five" accounting firm not
in the employ of Buyer or Seller and mutually acceptable to the Buyer and the
Sellers' Agent (the "ACCOUNTANTS") for resolution. If issues in dispute are
submitted to the Accountants for resolution: (A) each party will furnish to the
Accountants such work papers and other documents and information relating to the
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disputed issues as the Accountants may request and are available to the party or
its subsidiaries (or its independent public accountants), and will be afforded
the opportunity to present to the Accountants any material relating to the
determination and to discuss the determination with the Accountants; (B) the
Accountants will be instructed to determine the Net Book Value in accordance
with the terms hereof based upon their resolution of the issues in dispute as
soon as reasonably practicable; (C) such determination by the Accountants of the
Net Book Value, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (D) the Buyer
and the Sellers shall each bear 50% of the fees and expenses of the Accountants
for such determination.
(iii) To the extent that the Net Book Value, as deemed
mutually agreed by the parties or as determined by the Accountants, as
aforesaid, is greater than Seven Million Five Hundred Thousand Dollars
($7,500,000) (the "ESTIMATED NET BOOK VALUE"), the Buyer shall be obligated to
pay the amount of such excess, together with interest on the amount of such
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, promptly to
the Sellers (such excess together with such interest being referred to as the
"NET BOOK VALUE EXCESS"). If the Buyer issued to the Sellers Registered Common
Stock under Section 1.2(c) and if the Acquisition Shelf Registration Statement
(as defined below) is then current, the payment of the Net Book Value Excess
shall be made through the issuance and delivery of additional shares of Common
Stock with an aggregate value equal to the Net Book Value Excess, the offer and
sale of which shall be registered under the Acquisition Shelf Registration
Statement in accordance with Section 1.8, and such shares shall be considered
Registered Common Stock under the terms hereof. If the Buyer issued to the
Sellers Registered Common Stock under Section 1.2(c) but the Acquisition Shelf
Registration Statement is not then current, the payment of the Net Book Value
Excess shall be made in immediately available funds by check, bank or cashier's,
or wire transfer. If the Buyer issued to the Sellers Restricted Common Stock
under Section 1.2(d), the payment of the Net Book Value Excess shall be made
through the issuance and delivery of additional whole shares of Common Stock
with an aggregate value equal to the Net Book Value Excess, and such shares
shall be considered Restricted Common Stock under the terms hereof. To the
extent that the Net Book Value, as deemed mutually agreed by the parties or as
determined by the Accountants, as aforesaid, is less than the Estimated Net Book
Value, the Sellers shall be obligated, jointly and severally, to pay the amount
of such shortfall, together with interest on the amount of such shortfall at the
Interest Rate from the Closing Date to the date of such payment promptly to the
Buyer (such shortfall together with such interest being referred to as the "NET
BOOK VALUE SHORTFALL"). In furtherance of such
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obligation of the Sellers, the parties shall execute and deliver to the Escrow
Agent a joint instruction to deliver some or all whole Escrowed Shares to the
Buyer in accordance with Section 5 of the Escrow Agreement. To the extent that
the Net Book Value Shortfall exceeds the value of the Escrowed Shares, the
Sellers shall be obligated, jointly and severally, to pay in cash or by wire
transfer and/or by return of Registered Common Stock or Restricted Common Stock
the amount of such excess promptly to the Buyer. In lieu of the issuance of any
fractional share of Common Stock under this Section, the Buyer shall pay to the
Sellers in cash or by bank or cashier's check an amount equal to the Market
Price of such share as of the date payment is due multiplied by the fraction of
such share. For purposes of this Section 1.2(e)(iii), the value of a share of
Common Stock shall be the Market Price as of the date of such payment.
(f) MARKET PROTECTION FOR SONIC COMMON SHARES.
(2) As used herein, the term "CLOSING DATE MARKET PRICE" shall
mean the Market Price as of the Closing Date. As used herein, the term
"RESTRICTIVE PERIOD MARKET PRICE" shall mean the Market Price, as determined as
of the later of (A) the first trading day after the date of the expiration of
the Restrictive Period and (B) the first trading day after the date on which
Sellers are first able to utilize a prospectus supplement to the Acquisition
Shelf Registration Statement or the S-3 Registration Statement for resales. As
used herein, the term "MARKET PROTECTED SHARES" shall mean all Sonic Common
Shares issued and delivered hereunder to the Sellers except for that number of
whole (plus any requisite fractional share) Sonic Common Shares which are issued
and delivered hereunder to the Sellers with an aggregate Market Price, as of the
Closing Date, equal to Two Million Dollars ($2,000,000). As used herein, the
term "NONMARKET PROTECTED SHARES" shall mean all Sonic Common Shares issued
hereunder other than the Market Protected Shares.
(ii) In the event that the Restrictive Period Market Price is
less than the Closing Date Market Price, then Buyer shall pay to the Sellers, in
the respective percentages set forth opposite their names on Exhibit 3.1, no
later than the third Business Day after the date the Restrictive Period Market
Price may be determined, an amount equal to the number of Market Protected
Shares issued hereunder and then held by them multiplied by the difference
between the Restrictive Period Market Price and the Closing Date Market Price.
If Registered Common Shares were issued to the Sellers at the Closing and if the
Acquisition Shelf Registration Statement is then current and effective in
accordance with Section 1.8 (including Section 1.8(a)(ii)), such payment shall
be made through the issuance and delivery of additional whole shares of Common
Stock with an aggregate Restrictive Period Market Price equal to the amount due
under this Section 1.2(f)(ii), and the offer and resale of such
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shares of Common Stock shall be registered under the Acquisition Shelf
Registration Statement in accordance with Section 1.8. Such shares shall be
considered Registered Common Stock under the terms hereof. If the Acquisition
Shelf Registration Statement is not then current and effective in accordance
with Section 1.8 (including Section 1.8(a)(ii)), such payment shall be made in
immediately available funds by bank or cashier's check or wire transfer. Any
fractional share amount shall be paid by bank or cashier's check or wire
transfer. Notwithstanding anything contained in this Section 1.2(f)(ii) to the
contrary, in the event that Sonic Common Shares are redeemed pursuant to Section
1.2(f)(iv), no payment shall be made under this Section 1.2(f)(ii).
(iii) In the event that the Restrictive Period Market Price
exceeds the Closing Date Market Price, then the Sellers shall return to Buyer,
no later than the third Business Day after the date the Restrictive Period
Market Price may be determined, pro rata according to their respective amounts
set forth opposite their names on Exhibit 3.1 hereto, an aggregate amount of
whole Sonic Common Shares with an aggregate Restrictive Period Market Price
equal to the number of Market Protected Shares issued hereunder and then held by
the Sellers multiplied by the difference between the Closing Date Market Price
and the Restrictive Period Market Price. Any fractional share amount shall be
paid by bank or cashier's check or wire transfer. Notwithstanding anything
contained in this Section 1.2(f)(iii) to the contrary, in the event that Sonic
Common Shares are redeemed pursuant to Section 1.2(f)(iv), no payment shall be
made under this Section 1.2(f)(iii).
(iv) Notwithstanding any other provision of this Agreement, if on or
prior to the ninetieth (90th) day after the Restrictive Period Expiration Date
all steps on the part of Buyer necessary to register the resale of all Sonic
Common Shares by Sellers shall not have been taken (including, without
limitation the filing of the Acquisition Shelf Registration Statement and/or the
S-3 Registration Statement together with the appropriate S-3 Resale Prospectus
and/or the Resale Prospectus (as hereinafter defined)), the Buyer shall, as and
to the extent permitted by the Delaware General Corporation Law, immediately
redeem all of the Sonic Common Shares issued hereunder and then held by the
Sellers and deliver to the Sellers therefor, in immediately available funds by
bank or cashier's check or wire transfer, an amount equal to (A) the aggregate
Market Price, as of the Closing Date, of all such Market Protected Shares plus
(B) the aggregate Market Price, as of the date of redemption, of all such
Nonmarket Protected Shares, together, in either case, with any accrued and
unpaid interest thereon required under Section 1.8(b)(i). Any such payment shall
be made to the Sellers in the respective percentages set forth opposite their
names on Exhibit 3.1. In such an event, Sellers shall deliver to Buyer
certificates representing such Sonic Common Shares, duly endorsed for transfer
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to Buyer or accompanied by appropriate stock powers and vesting unto Buyer good
and marketable title to all of such shares, free and clear of any and all
Encumbrances. In addition, in such event, the Sellers and Buyer shall take such
steps as are necessary to release the Escrowed Shares to Buyer.
1.3 Delivery of the Shares.
(a) At the Closing, each Seller shall deliver to the Buyer a
certificate or certificates representing the number of Shares owned beneficially
or of record by such Seller, duly endorsed in blank or with a fully executed
stock power attached, all in proper form for transfer with all transfer taxes,
if any, paid by such Seller. If such certificate or certificates cannot, after a
diligent search, be located, in lieu of such certificate or certificates, such
Seller shall provide an affidavit of lost certificate and indemnity in a form
reasonably satisfactory to the Buyer. Upon such surrender by all the Sellers,
the Sellers shall be entitled to the Merger Consideration, as more fully
provided in Section 1.2 above. Until surrendered in accordance with Section 1.3,
each such certificate for Shares shall be deemed for all purposes to evidence
only the right to receive the Merger Consideration payable pursuant to Section
1.2 (subject to any taxes required to be withheld).
(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").
1.4 Non-Competition Agreements; Employment Agreement AND
TERMINATION AGREEMENT
(1) At the Closing, each of the Sellers (other than Richard
Mills) will enter into a non-competition agreement with the Buyer and the Sub
substantially in the form of Exhibit 1.4(a) hereto (the "NON-COMPETITION
AGREEMENT"). The amount of the Merger Consideration allocated to the
Non-Competition Agreement shall be Ten Thousand Dollars ($10,000).
(c) At the Closing, the Buyer and John Jaffe will enter into
an employment agreement substantially in the form of Exhibit 1.4(b) hereto (the
"EMPLOYMENT AGREEMENT").
(c) The Sellers shall cause the Company and each of Marco LP
and OGTR II to execute and deliver to Buyer at Closing a termination agreement,
in recordable form, of the leases with respect to the Leased Premises (as
defined in Section 3.16(b)). The Sellers will record, at their expense, such
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termination agreements where appropriate promptly after Closing.
1.5 The Sellers' Covenant to Close. The Sellers further covenant
and agree to vote all of the Shares held by them in favor of the Merger, and
otherwise to take all officer, director, or shareholder actions necessary to
cause the Company to adopt, approve and consummate, the Merger.
1.6 [INTENTIONALLY DELETED]
1.7 Certain Divestitures Prior to Closing. Prior to the Closing,
the Company will distribute to its stockholders or otherwise divest itself of
the stock of BMW of Fairfax Leasing, Inc., a Virginia corporation and a
wholly-owned subsidiary of Seller (the "LEASING SUBSIDIARY"), together with
certain other assets, as more fully described on Exhibit 1.7 hereto
(collectively, the "DISTRIBUTED ASSETS"). In connection with such distribution,
the Company shall also distribute to its stockholders or otherwise divest itself
of certain liabilities, also as more fully described on Exhibit 1.7 hereto
(collectively, the "DISTRIBUTED LIABILITIES"). The term "DISTRIBUTED ASSETS"
shall also include any divested New Vehicles, Demonstrators, Used Vehicles,
parts and accessories, or Miscellaneous Inventories, as contemplated by Section
1.2(e)(i) above.
1.8 Additional Terms Relating to the Issuance of Common Stock.
(a) ISSUANCE UNDER SECTION 1.2(C). In the event that Buyer
issues and delivers Registered Common Stock to the Sellers hereunder, the
parties agree as follows:
(i) ACQUISITION SHELF REGISTRATION STATEMENT. The offer
and sale of the Registered Common Stock 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").
(ii) PROSPECTUS SUPPLEMENT. To the extent required by law,
the Buyer shall prepare as soon as reasonably practicable after the issuance of
such shares a prospectus supplement or post-effective amendment to the
Acquisition Shelf Registration Statement that would permit the offer and resale
of the Registered Common Stock from time to time by the Sellers after the
Restrictive Period. Promptly after Buyer has prepared such supplement or
amendment, Buyer will provide the Sellers with notice thereof.
(iii) LISTING. The Buyer shall cause the Registered Common
Stock to be listed for trading on the New York Stock Exchange prior to the
termination of the Restrictive Period.
(iv) CURRENCY OF SHELF. The Buyer shall maintain the
effectiveness of the Acquisition Shelf Registration Statement for the resale of
the Registered Common Stock and maintain a current resale prospectus to permit
the resale of the Registered Common Stock until
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all of the shares of Registered Common Stock that remain unsold may be sold by
the Sellers without restriction pursuant to clause (d) of Rule 145 or any
successor regulation thereto ("RULE 145"), promulgated by the SEC under the
Securities Act of 1933, as amended (the "SECURITIES ACT"). So long as the
Acquisition Shelf Registration Statement is effective, the Sellers agree that
they shall effect each resale of Registered Common Stock only as permitted by
Rule 145(d) or 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.
(b) ISSUANCE UNDER SECTION 1.2(d). In the event that Buyer
issues and delivers Restricted Common Stock to the Sellers hereunder, the
parties agree as follows:
(i) S-3 REGISTRATION STATEMENT. The Buyer shall use its
best reasonable efforts to register the resale of the Restricted Common Stock
pursuant to a registration statement on Form S-3 (the "S-3 REGISTRATION
Statement") effective as of the first Business Day after the expiration of the
Restrictive Period (the "RESTRICTIVE PERIOD EXPIRATION DATE") or as soon
thereafter as reasonably practicable. Promptly after the S-3 Registration
Statement becomes effective, Buyer shall notify the Seller thereof. In the event
that the S-3 Registration Statement shall not be effective as of the Restrictive
Period Expiration Date, the Buyer shall be obligated to pay to the Sellers,
during the period commencing upon the Restrictive Period Expiration Date and
ending upon the date the S-3 Registration Statement becomes effective and an S-3
Resale Prospectus (as hereinafter defined) is current and effective, interest in
the amount of the Interest Rate upon (A) the aggregate Market Price, as of the
Closing Date, of the Market Protected Shares issued hereunder and then held by
the Sellers and (B) the aggregate Market Price, as of the Restrictive Period
Expiration Date, of the Nonmarket Protected Shares issued hereunder and then
held by the Sellers. Any such interest payments shall be made to the Sellers in
the respective percentages set forth opposite their names on Exhibit 3.1. Any
such interest payments shall be made monthly in arrears and shall be paid, with
respect to any calendar month, no later than the fifth Business Day of the
following calendar month.
(ii) LISTING. The Buyer shall cause the Restricted Common
Stock to be listed for trading on the New York Stock Exchange prior to the
termination of the Restrictive Period.
(iii) CURRENCY OF S-3 REGISTRATION STATEMENT. The Buyer
shall maintain the effectiveness of the S-3 Registration Statement for the
resale of the Restricted Common Stock and maintain a current resale prospectus
to permit the resale of the Restricted Common Stock until all of the Restricted
Common Stock that remains unsold may be sold by the Sellers without restriction
pursuant to clause (k) of Rule 144, or any successor regulation thereto. So long
as the S-3 Registration Statement is effective, the Sellers agree that they
shall effect each resale of Restricted Common Stock only as permitted by Rule
144 or any successor regulation thereto ("RULE 144"), promulgated by the SEC
under the Securities Act, or pursuant to a current prospectus or supplements
thereto that is a part of the S-3 Registration Statement (the "S-3 RESALE
PROSPECTUS") with respect to which the Buyer, for each such resale, has granted
its prior consent to the use thereof.
(c) ADDITIONAL SELLERS' OBLIGATIONS. The Sellers agree and
acknowledge, with regard to the offer or resale by either of them of any shares
of Common Stock issued to them hereunder (as used herein the term "SONIC COMMON
SHARES" shall refer to such shares), that:
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(i) any offering of any of the Sonic Common Shares under
the Resale Prospectus or under the S-3 Resale Prospectus by a Seller will be
effected in an orderly manner through one or more of three (3) reputable
securities dealers (including, unless otherwise indicated by Buyer, Merrill
Lynch & Co., BancBoston Robertson Stephens and Stephens, Inc.), acting as broker
or dealer, selected by the Buyer in its sole discretion (each a "DESIGNATED
BROKER");
(ii) if requested by the Buyer, in connection with a
resale of Sonic Common Shares under the Acquisition Shelf Registration Statement
or the S-3 Registration Statement, the Sellers will enter into one or more
custody agreements with one or more banks with respect to such Sonic Common
Shares so that all such Sonic Common Shares are held in the custody of such bank
or banks provided however that any Sonic Common Shares not sold pursuant to the
Acquisition Shelf Registration Statement or the S-3 Registration Statement shall
be released from custody on request of the Sellers;
(iii) each Seller will make resales of Registered Common
Stock only by one or more methods described in the Resale Prospectus (including
resales pursuant to Rule 144 or Rule 145, as applicable, as appropriately
supplemented or amended when required; and each Seller will make resales of
Restricted Common Stock only by one or more methods described in the S-3 Resale
Prospectus (including resales pursuant to Rules 145 or 144, as applicable, as
appropriately supplemented or amended when required;
(iv) since the Sonic Common Shares may be subject to
restrictions on resale under Rules 144 or 145, as applicable, the certificates
representing the Sonic Common Shares will be issued by the Buyer to the Sellers
with such legends as the Buyer may reasonably require until such Sonic Common
Shares are offered pursuant to the foregoing terms under the Resale Prospectus,
the S-3 Resale Prospectus or pursuant to Rules 144 or 145, as applicable, at
which time such certificates shall be tendered to the Buyer by the Sellers and a
new certificate or certificates without legends shall be issued by the Buyer to
the Designated Broker in order to settle any resales by the Sellers;
(v) the Sellers shall provide the Buyer, in writing, with
all information concerning the Sellers and their resale of the Sonic Common
Shares as may be reasonably requested by the Buyer in order to comply with the
Securities Act, and the Sellers shall indemnify the Buyer for any liabilities
(the "SELLERS' LIABILITIES") arising under the Securities Act, the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), or any state securities
or blue sky laws resulting from any material misstatements in, or omissions of
material information from, such information provided by the Sellers to the Buyer
pursuant to this clause (E); and
(vi) the Sellers shall pay the commissions or fees of the
Designated Brokers in connection with the resale of the Sonic Common Shares, and
Buyer shall pay all fees related to the registration, listing and maintaining
the registered status of the Sonic Common Shares and the fees and expenses of
the custodial bank or banks holding such Sonic Common Shares, if applicable.
(d) ADDITIONAL BUYER OBLIGATIONS. The Buyer agrees that:
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(i) the Buyer shall pay all expenses, including legal and
accounting fees, in connection with the preparation, filing and maintenance of,
as applicable, the Acquisition Shelf Registration Statement, the S-3
Registration Statement (including any amendments to either Registration
Statement), the Resale Prospectus, the S-3 Resale Prospectus (including any
supplements to either Prospectus), the issuance of certificates representing the
Sonic Common Shares and other expenses incurred by the Buyer in meeting its
obligations set forth in Sections 1.2 and 1.8; and
(ii) the Buyer shall indemnify the Sellers for any
liabilities arising under the Securities Act, the Exchange Act, or any state
securities or blue sky laws resulting from any material misstatements in, or
omissions of material information from, the Resale Prospectus, the S-3 Resale
Prospectus, the Acquisition Shelf Registration Statement and the S-3
Registration Statement, including the information incorporated by reference
therein, except for the Sellers' Liabilities.
(e) NO INJUNCTION. Notwithstanding any provision of this
Agreement to the contrary, the Sellers shall not have any right to take any
action (and the Sellers hereby agree that none of them shall take any action) to
restrain, enjoin or otherwise delay any registration as a result of any
controversy that might arise with respect to the interpretation or
implementation of this Agreement. Nothing contained in this Section 1.2(e) shall
prevent the Sellers from making a claim for monetary relief.
(f) RESTRICTIVE PERIOD. The Sellers shall not offer, sell or
otherwise dispose of, or contract to sell or dispose of, any of the Sonic Common
Shares for a period of one hundred eighty (180) days after the Closing Date (the
"RESTRICTIVE PERIOD"); provided, however, that each Seller may transfer his or
her Sonic Common Shares during the Restrictive Period: (A) to his or her spouse
or issue or to a trust for the benefit of his or her spouse or issue or (B) in
connection with his or her death; provided, further, that in the event of any
such transfer contemplated by clause (A) or (B) above, such Sonic Common Shares
shall remain subject to the restrictions on transfer in this Section 1.8(f).
1.9 [Intentionally Deleted]
1.10 Inducement Fee. As an inducement to the Buyer to negotiate
and enter into this Agreement and to undertake the further cost and expense of
conducting its due diligence investigation and preparing to satisfy its
obligations at Closing, the Sellers hereby agree to cause the Company to pay to
the Buyer not later than nine (9) months after the date hereof, the sum of
$1,500,000 (the "INDUCEMENT Fee"). The Inducement Fee will be included in the
liabilities of the Company and will become an obligation of any person or entity
(including any holder of a right of first refusal, preemptive right or other
similar right, with respect to any of the assets of the Company or the Shares)
who purchases the assets of the Company or the Shares, or any portion thereof,
as a result of the execution and delivery by Sellers of this Agreement. This
Section 1.10 shall survive the termination hereof except that the Inducement Fee
will be canceled if this Agreement is terminated for any reason other than the
exercise of a right of first refusal, preemptive
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right or other similar right, by an applicable automobile manufacturer or
distributor or any person or entity claiming by, through or under it.
ARTICLE 2
CLOSING
The Closing shall take place at the offices of Seller's counsel in
Washington, D.C., at 9:30 a.m., local time, on the Closing Date. The Closing
Date shall be the date designated by the Buyer, which date shall be as soon as
reasonably practicable after: (a) the receipt by Buyer of the approval of BMW of
North America, Inc. (the "MANUFACTURER") contemplated in Section 7.10; (b) the
satisfaction of the conditions set forth in Section 7.14; and (c) the completion
of the audited financial statements contemplated in Section 7.13. In no event
shall the Closing Date be later than the sixtieth (60th) day after the date
hereof (the "CLOSING DATE DEADLINE"); PROVIDED, HOWEVER, if, as of the Closing
Date Deadline, (x) the Buyer shall not have obtained such approvals under
Section 7.10, (y) the conditions set forth in Section 7.14 shall not have been
satisfied; and/or (z) such audited financial statements shall not have been
completed, either Seller or 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 SELLERS
Each of the Sellers, jointly and severally, hereby represents and warrants
to the Buyer, as follows:
1.11 Ownership of Shares. Each Seller beneficially owns the number
of Shares set forth opposite such Seller's name on Exhibit 3.1 hereto. Each
Seller owns of record, subject to the terms of that certain Voting Trust
Agreement dated as of December 15, 1984 among Joseph Herson, Mollye Mills, John
Jaffe and Richard Mills (the "VOTING TRUST AGREEMENT"), the number of Shares set
forth opposite such Seller's name on Exhibit 3.1 hereto. Each Seller has,
subject to the Voting Trust Agreement, good and valid title to the Shares to be
sold by such Seller hereunder, free and clear of all Encumbrances. Each Seller
will have, at the time of the Closing, good and valid title to the Shares to be
sold by such Seller hereunder, free and clear of all Encumbrances.
1.12 The Sellers' Power and Authority; Consents and Approvals.
(1) Each Seller has full capacity, right, power and authority
to execute and deliver this Agreement and the other
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agreements, documents and instruments to be executed and delivered by each
Seller in connection herewith, to consummate the transactions contemplated
hereby and thereby and to perform his or her obligations hereunder and
thereunder.
(2) Except as set forth on Schedule 3.2(b) hereto, or as
specifically contemplated hereby, 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 each Seller and by the Company of this Agreement and the other agreements,
documents and instruments to be executed and delivered by each Seller or the
Company in connection herewith, the consummation of the transactions
contemplated hereby and thereby and the performance by each Seller and the
Company of his, her or its obligations hereunder and thereunder.
(c) Each Seller understands that the Restricted Common Stock,
if any, will not be registered, except for resales as expressly contemplated
hereby, under the Securities Act or applicable state securities laws on the
basis that the sale provided for in this Agreement and the issuance of such
Restricted Common Stock hereunder is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and that the Buyer's reliance
on such exemption is predicated on the representations and warranties of such
Seller.
(d) The Restricted Common Stock, if any, is being acquired for
the account of each Seller for the purposes of investment and not with a view to
the distribution thereof, as those terms are used in the Securities Act and the
rules and regulations promulgated thereunder.
(e) Each Seller is an "accredited investor" within the meaning
of Rule 501(a) of Regulation D promulgated under the Securities Act; and each
Seller has sufficient knowledge and experience in financial and business matters
so as to be capable of evaluating the merits and risks of acquiring the
Restricted Common Stock; each Seller has delivered to the Buyer an Investor
Qualification Questionnaire with respect to such Seller's status as an
"accredited investor."
(f) Each Seller has received copies of: (i) the Prospectus
dated November 10, 1997; (ii) the Form 10-K filing of Buyer for the year ended
December 31, 1997 (without exhibits); (iii) the Form 10-Q filings of Buyer for
the first, second and third quarters of 1998 (without exhibits); (iv) the Form
8-K filings of Buyer filed March 24, 1998 and July 9, 1998 (without exhibits);
and has been furnished such other information, and has had an opportunity to ask
such questions and have them answered by the Buyer, as he or she has deemed
necessary in order to make an informed investment decision with respect to the
acquisition of the Restricted Common Stock.
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(g) Each Seller understands, and has the financial capability
of assuming, the economic risk of an investment in the Restricted Common Stock
for an indefinite period of time.
(h) Each Seller has been advised that such Seller will not be
able to sell, pledge or otherwise dispose of the Restricted Common Stock, or any
interest therein, without first complying with the relevant provisions of the
Securities Act and any applicable state securities laws, and that the provisions
of Rule 144 or 145, permitting routine sales of securities of certain issuers
subject to the terms and conditions thereof, may not currently be available to
such Seller with respect to the Restricted Common Stock.
(i) Each Seller has, to the extent such Seller has deemed
necessary, consulted with his or her own investment advisors, legal counsel and
tax advisors regarding an investment in the Restricted Common Stock.
(j) Each Seller acknowledges that, except as set forth in this
Agreement, the Buyer is not under any obligation (i) to register the Restricted
Common Stock, or (ii) to furnish any information or to take any other action to
assist the Sellers in complying with the terms and conditions of any exemption
which might be available under the Securities Act or any state securities laws
with respect to sales of the Restricted Common Stock by the undersigned in the
future.
1.13 Execution and Enforceability. This Agreement and the other
agreements, documents and instruments to be executed by the Sellers in
connection herewith, and the consummation by each Seller of the transactions
contemplated hereby and thereby, have been duly authorized, executed and
delivered by each Seller and constitute, and the other agreements, documents and
instruments contemplated hereby, when executed and delivered by each Seller,
shall constitute, the legal, valid and binding obligations of each Seller,
enforceable against each such Seller in accordance with their respective terms.
1.14 Litigation Regarding the Sellers. There are no actions,
suits, claims, investigations or legal, administrative or arbitration
proceedings pending or, to each of the Sellers' knowledge, threatened or
probable of assertion, against such Seller relating to the Shares, this
Agreement or the transactions contemplated hereby before any court, governmental
or administrative agency or other body. None of the Sellers knows 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 any
Seller relating to the Shares, this Agreement or the transactions contemplated
hereby.
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1.15 Interest in Competitors and Related Entities; Certain
Transactions.
(a) Except as set forth on Schedule 3.5 hereto, neither any
Seller nor any Affiliate of any 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 the Company, (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, the Company, or (iii) has a beneficial
interest in any contract or agreement to which the Company 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 such 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.
(1) Except as set forth in Schedule 3.5 hereto, there are no
transactions between the Company and any of the Sellers (including the Sellers'
Affiliates), or any of the directors, officers or salaried employees of the
Company, 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, any of the Sellers, 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.
1.16 The Sellers Not Foreign Persons. Each Seller is a "United
States person" as that term is defined in Section 7701(a)(30) of the Code, and
the regulations promulgated thereunder.
1.17 Organization; Good Standing; Qualifications; and Power. The
Company is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has all requisite power and
authority to own, lease and operate its properties and to carry on its business
as now being conducted. The Company is qualified to do business as a foreign
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corporation and is in good standing in the State of Virginia, which is the only
jurisdiction where the nature of its business and assets requires such
qualification.
1.18 Capitalization. The authorized capital stock of MAI consists
of 500 shares of common stock, no par value, of which 315.6 shares are issued
and outstanding, which constitute all of the Shares. All of the Shares are duly
authorized, validly issued, fully paid and non-assessable and are held by the
Sellers in the amounts indicated on Exhibit 3.1 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 Company, and there are no
outstanding options, warrants, "phantom" stock plans, subscriptions, agreements,
plans or other commitments pursuant to which the Company is or may become
obligated to sell or issue any shares of its capital stock or any other debt or
equity security, and there are no outstanding securities convertible into shares
of such capital stock or any other debt or equity security.
1.19 Subsidiaries and Investments. Except for the stock of the
Leasing Subsidiary, the Company does not own or maintain, directly or
indirectly, any capital stock of or other equity or ownership or proprietary
interest in any other corporation, partnership, association, trust, joint
venture or other entity and does not have any commitment to contribute to the
capital of, make loans to, or share in the losses of, any such entity.
1.20 No Violation; Conflicts. Except as set forth on Schedule 3.10
hereto, the execution and delivery by the Sellers of this Agreement and the
other agreements, documents and instruments to be executed and delivered by the
Sellers in connection herewith, the consummation by the Sellers of the
transactions contemplated hereby and thereby and the performance by the Sellers
of their respective 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 the Company, (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
the Company, (c) provided that the transactions contemplated hereby and (to the
extent required in Sections 7.15 and 8.8) by the Manhattan Real Property
Purchase Agreements are consummated, violate or conflict with the terms of, or
result in the acceleration of, any indebtedness or obligation of the Company
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 the Company is a party or by which the Company 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 the Company,
(e) constitute an event permitting termination of any agreement, license or
other
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right of the Company, or (f) except as specifically contemplated hereby, 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 the Company or any of its properties or assets.
1.21 Title to Assets; Related Matters. The Company has good and
valid title to all assets, rights, interests and other properties, real,
personal and mixed, tangible and intangible, owned by it, other than the
Distributed Assets (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 the Company; and (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.
1.22 Possession. The tangible assets included within the Assets
are in the possession or control of the Company 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) under their respective contracts and leases.
1.23 Financial Statements. The Sellers have delivered to the Buyer
the financial statements of the Company listed in Schedule 3.13 attached hereto
(the "FINANCIAL STATEMENTS"). The Financial Statements (a) are in accordance
with the books and records of the Company, which books and records are true,
correct and complete, (b) fully and fairly present the financial condition of
the Company as of the dates indicated and the results of operations changes in
stockholders' equity and cash flow of the Company for the periods indicated, and
(c) except as set forth in Schedule 3.13, have been prepared in accordance with
GAAP consistently applied. No financial statements of any person or entity other
than the Company and the Leasing Subsidiary are required by GAAP to be included
in the Financial Statements.
1.24 Accounts Receivable. All accounts receivable of the Company
are collectible at the aggregate recorded amounts thereof, except as otherwise
provided in the Company's agreements with the Manufacturer.
1.25 Inventories. All inventories of the Company consist of items
of a quality and quantity usable and saleable in the ordinary course of business
of the Company, and the levels of inventories are consistent with the levels
maintained by the Company in the ordinary course consistent with past practice
and the Company's obligations under their agreements with all
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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 GAAP by the Sellers at the lower of historic cost or market.
1.26 REAL PROPERTY; MACHINERY AND EQUIPMENT.
(a) OWNED REAL PROPERTY. The Company does not own any interest
in real property, except its leasehold interests in the Leased Premises. The
only real property used by the Company in connection with the Company's business
is the Leased Premises.
(b) LEASED PREMISES. Schedule 3.16(b) hereto contains a
complete list and legal description of all real property of which the Company is
a tenant (herein collectively referred to as the "LEASED PREMISES," and
sometimes referred to 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 (other than the building which, in accordance with
Schedule 11.2, will be converted into the Company's automobile body repair shop
(the "NEW BODY SHOP BUILDING")) are in good physical condition and, with respect
to each Lease, no event or condition currently exists which would give rise to a
material repair or restoration obligation if such Lease were to terminate. The
Sellers have 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 except as such might arise as a result of the Renovations). The
improvements and building systems which comprise a part of the Leased Premises
(other than with respect to the New Body Shop Building) as to which the Company
is responsible for the maintenance and repair thereof are in good condition,
maintenance and repair.
(c) CLAIMS. Except in connection with the Renovations, 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 Company in or
entitled to possession of the Real Property.
(d) EASEMENTS, ETC. The Company has (or pursuant to its leases
has the benefit of and the right to use) all easements and rights, including,
but not limited to, easements for power lines, water lines, sewers, roadways and
other means of
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ingress and egress, necessary to conduct the business the 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 Sellers do 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 Sellers have no
knowledge of any pending assessments which would affect the Real Property.
(f) ZONING, ETC. 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 the Company 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 the 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.
(g) OWNED EQUIPMENT. Schedule 3.16(g) hereto sets forth a list
of all material machinery, equipment, motor vehicles (other than vehicles held
for sale), furniture and fixtures owned by the Company (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 the
Company 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 which currently is actively used in the operation of the
Company's business are in good operating condition, maintenance and repair in
accordance with industry standards taking into account the age thereof.
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1.27 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
or other proprietary information, know-how and intellectual property rights,
whether patentable or unpatentable, that are owned or leased by the Company or
used in the conduct of the Company's business. The Company is not a party to,
and does not pay a royalty to anyone under, any license or similar agreement.
There is no existing claim, or, to the knowledge of the Sellers, any basis for
any claim, against the Company that any of its operations, activities or
products infringe the patents, trademarks, trade names, copyrights or other
property rights of others or that the Company is wrongfully or otherwise using
the property rights of others.
(b) The Company has the right to use the names "BMW of
Fairfax" and "Manhattan Auto" in the State of Virginia and, to the knowledge of
the Sellers, no person or entity 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.
1.28 Certain Liabilities.
(a) All accounts payable by the Company to third parties as of
the date hereof arose in the ordinary course of business and none are delinquent
or past-due.
(b) Schedule 3.18 hereto sets forth a list of all indebtedness
of the Company, other than indebtedness expressly identified on the Financial
Statements and accounts payable in the ordinary course of business, as of the
close of business on the day preceding the date hereof, including, without
limitation, money borrowed, indebtedness of the Company owed to stockholders and
former stockholders, the deferred purchase price of assets, letters of credit
and capitalized leases, indicating, in each case, the name or names of the
lender, the date of maturity, the rate of interest, any prepayment penalties or
premiums and the unpaid principal amount of such indebtedness as of such date.
1.29 No Undisclosed Liabilities. The Company does not have any
material liabilities or obligations of any nature, known or unknown, fixed or
contingent, matured or unmatured, other 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
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Statements, or (c) disclosed specifically on Schedule 3.19 hereto.
1.30 Absence of Changes. Since December 31, 1998, the business of
the Company has 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, except as contemplated in Sections 1.7 and
11.2:
(a) any damage, destruction or loss (whether or not covered by
insurance), adversely affecting the business or assets of the Company in excess
of $50,000; (b) any strikes, work stoppages or other labor disputes involving
the employees of the Company; (c) any sale, transfer, pledge or other
disposition of any of the Assets of the Company 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(a) or any
termination, amendment, waiver or cancellation of any material right or claim of
the Company 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 the Company (including,
without limitation, any increase pursuant to any bonus, pension, profit-sharing,
deferred compensation or other plan or commitment) other than as required under
existing written contracts, (2) increase in any such compensation payable to any
individual officer, director, consultant or agent thereof other than as required
under existing written contracts, or (3) loan or commitment therefor made by the
Company to any officer, director, stockholder, employee, consultant or agent of
the Company; (g) any change in the accounting methods, procedures or practices
followed by the Company or any change in depreciation or amortization policies
or rates theretofore adopted by the Company; (h) any material change in
policies, operations or practices of the Company with respect to business
operations followed by the Company, 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 the Company concerning the employees
of the Company; (i) any capital appropriation or expenditure or commitment
therefor on behalf of the Company in excess of $50,000 individually; (j) any
write-down or write-up of the value of any inventory or equipment of the Company
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 the Company 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
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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 the Company which has, or could
reasonably be expected to have, a material adverse effect on the assets,
business or operations of the Company; or (m) any agreement, whether in writing
or otherwise, for the Company to take any of the actions enumerated in this
Section 3.20.
1.31 Tax Matters.
(a) All federal, state and local tax returns and tax reports
for taxable periods ending prior to the date hereof which are required to be
filed on or 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
Company 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 Company for all
periods prior to the date hereof have been fully paid or adequately reserved for
by the Company or, with respect to Taxes required to be accrued, the Company has
properly accrued or will properly accrue such Taxes in the ordinary course of
business consistent with past practice of the Company.
(c) Except as set forth on Schedule 3.21, the federal and
state income tax returns of the Company have been audited by the Internal
Revenue Service ("IRS") or are closed by the applicable statute of limitations
for all taxable years. Except as set forth on Schedule 3.21 hereto, the Company
has not received any notice of any assessed or proposed claim or deficiency
against it in respect of, or of any present dispute between it and any
governmental agency concerning, any Taxes. Except as set forth on Schedule 3.21
hereto, no examination or audit of any tax return or report of the Company by
any applicable taxing authority is currently in progress and there are no
outstanding agreements or waivers extending the statutory period of limitation
applicable to any tax return or report of the Company. Copies of all federal,
state and local tax returns and reports required to be filed by the Company for
the years ended 1997, 1996, 1995, 1994, and 1993, together with all schedules
and attachments thereto, have been delivered by the Sellers to the Buyer.
(d) The Company is not now, and has never 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
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affecting the Company. The Company is not a party to any agreement or
arrangement that would result in the payment of any "excess parachute payments"
under Code Section 280G. The Company is not required to make any adjustment
under Code Section 481(a). No power of attorney relating to Taxes is currently
in effect affecting the Company.
1.32 Compliance with Laws, Etc. The Company has conducted its
operations and business in material compliance with, and all of the Assets
(including all of the Real Property) comply in all material respects 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) and (ii) all applicable orders, rules, writs,
judgments, injunctions, decrees and ordinances. The Company has not 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, decrees and other awards of any court or governmental
agency applicable to the Company and/or its businesses or operations. The
Sellers have delivered to the Buyer copies of all reports, if any, of the
Company 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 Company and any deficiencies noted by inspection through the
Closing Date will have been corrected by the Company by the Closing Date.
Neither any of the Sellers, nor any stockholder, director or officer of the
Company or, to the knowledge of the Sellers, any other person or entity
associated with or acting for or on behalf of the Company, has, directly or
indirectly, made any unlawful contribution, gift, bribe, rebate, payoff,
influence payment, kickback, or other payment to any person or entity,
regardless of form, whether in money, property or services: (x) to obtain
favorable treatment in securing business, (y) to pay for favorable treatment for
business secured, or (z) to obtain special concessions or for special
concessions already obtained, for or in respect of the Company.
1.33 Litigation Regarding the Company. Except as set forth on
Schedule 3.23 hereto, there are no actions, suits, claims, investigations or
legal, administrative or arbitration proceedings pending (excluding any actions,
suits, claims, investigations or legal, administrative or arbitration
proceedings for which process has not been served) against the Company or
relating to any of its assets, business or operations or the transactions
contemplated by this Agreement. To the Sellers' knowledge, there are no actions,
suits, claims,
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investigations or legal, administrative or arbitration proceedings pending or
threatened or probable of assertion, against the Company or relating to any of
its assets, business or operations or the transactions contemplated by this
Agreement, and the Sellers do not know of any basis for the institution of any
action, suit, claim, investigation 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 the
Company relating to the Company or any of its assets, businesses or operations.
1.34 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
Company to own and operate its businesses as presently conducted (collectively,
the "Permits"). All such Permits have been duly and lawfully secured or made by
the Company and are in full force and effect. There is no proceeding pending,
or, to the Sellers' knowledge, threatened or probable of assertion, to revoke or
limit any such Permit. None of the transactions contemplated by this Agreement
will terminate, violate or limit the effectiveness of any such Permit.
1.35 Employees; Labor Relations. As of the date hereof, the
Company employed a total of approximately ninety (90) employees. As of the date
hereof, (a) the Company is not 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 the
Company and labor unions or organizations representing any employees of the
Company; (c) no collective bargaining agreement is currently being negotiated by
the Company; (d) to the knowledge of the Sellers, there are no union
organizational drives in progress and there has been no formal or informal
request to the Company for collective bargaining or for an employee election
from any union or from the National Labor Relations Board; and (e) no dispute
exists between the Company and any of its sales representatives or, to the
knowledge of the Sellers, between any such sales representatives with respect to
territory, commissions, products or any other terms of their representation.
1.36 Compensation. Schedule 3.26 contains a schedule of all
employees (including sales representatives) and consultants of the Company whose
individual cash compensation for the year ended December 31, 1998, is in excess
of $100,000, together with the amount of total compensation paid to each such
person for the
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twelve month period ended December 31, 1998 and the current aggregate base
salary or hourly rate (including any bonus or commission) for each such person.
1.37 Employee Benefits.
(a) The Sellers have listed on Schedule 3.27 and have
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 Company (which shall include for this purpose and for the purpose of all
of the representations in this Section 3.27, the Sellers and all employers,
whether or not incorporated, that are treated together with the Company 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 Company and maintained or contributed to by
the Company.
(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. The Company does
not maintain or contribute 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 have resulted in a "prohibited
transaction" of a material nature. There are no facts relating to any Employer
Plan that have resulted or are reasonably likely to result in the imposition of
a material excise tax, penalty or liability pursuant to Section 4975 of the
Code. There are no facts relating to any Employer Plan that: (i) have resulted
in a material breach of fiduciary duty or violation of Part 4 of Title I of
ERISA, or (ii) have resulted or is reasonably likely to result in any material
liability (whether or not asserted as of the date hereof) of the Company 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(a) 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
Sellers, 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.
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No Employee Plan has an "accumulated funding deficiency" as of the date hereof,
whether or not waived, and no waiver has been applied for. The Company has not
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 Company,
except as specifically required by law. There are no claims (other than routine
claims for benefit) or lawsuits pending (excluding any claims or lawsuits for
which process has not been served) or, to the best knowledge of the Sellers,
threatened with respect to the Company's Employee Plans. As used in this Section
3.27, all technical terms enclosed in quotation marks shall have the meaning set
forth in ERISA.
1.38 Powers of Attorney. There are no persons, firms,
associations, corporations or business organizations or entities holding general
or special powers of attorney from the Company.
1.39 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
Company or its 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. The Company has in
all material respects performed all of its obligations required to be performed
by it to the date hereof, and is not in default or alleged to be in default in
any material respect, under any 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 Sellers, 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.
1.40 Brokers' or Finders' Fees, Etc. No agent, broker, investment
banker, person or firm acting on behalf of the Company or any of the Sellers or
any person, firm or corporation affiliated with any of the Sellers or under
their 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
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contemplated hereby, other than any such fee or commission the entire cost of
which will be borne by the Sellers.
1.41 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 Company, and all cellular
telephones provided and/or paid for by the Company, and details about the
persons having access to or authority over such accounts, credit cards, safe
deposit boxes and cellular telephones.
1.42 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 Company on its properties, operations, inventories, assets,
businesses or personnel (specifying the insurer, amount of coverage, type of
insurance, policy number and any pending claims in excess of $25,000
thereunder). Each such insurance policy identified therein is and shall remain
in full force and effect on and as of the Closing Date and the Company is not in
default with respect to any provision contained in any such insurance policy and
has not failed to give any notice or present any claim under any such insurance
policy in a due and timely fashion. The insurance maintained by, or on behalf
of, the Company is adequate in accordance with the standards of business of
comparable size in the industry in which the Company operates and no notice of
cancellation or termination has been received with respect to any such policy.
The Company has not, during the last three (3) fiscal years, been denied or had
revoked or rescinded any policy of insurance.
(b) Set forth on Schedule 3.32(b) hereto is a summary of
information pertaining to material property damage and personal injury claims in
excess of $5,000 against the Company during the past five (5) years, all of
which are fully satisfied or are being defended by the insurance carrier and
involve no exposure to the Company beyond any applicable deductible.
1.43 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 Company (separate and distinct from any manufacturer's,
suppliers' or other third-parties' warranties or disclaimers of warranties)
during the past five (5) years to customers or users of the vehicles, parts,
products or services of the Company. There have been no breach of warranty or
breach of representation claims against the Company during the past five (5)
years which have resulted in any cost, expenditure or exposure to the Company of
more than $50,000 individually or in the aggregate.
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1.44 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
the Company.
1.45 Suppliers and Customers. The Company is not required to
provide bonding or any other security arrangements in connection with any
transactions with any of its respective customers and suppliers. To the
knowledge of the Sellers, no such supplier, customer or creditor intends or has
threatened, or reasonably could be expected, to terminate or modify any of its
relationships with the Company.
1.46 Environmental Matters.
(a) For purposes of this Section 3.36, the following terms
shall have the following meaning: (i) "ENVIRONMENTAL LAW" means all present and
future federal, state and local laws, statutes, regulations, rules, ordinances
and common law, and all judgments, decrees, orders, agreements, or permits,
issued, promulgated, approved or entered thereunder by any 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) The Company 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 the Company ("ENVIRONMENTAL
PERMITS"). All such Environmental Permits are in good standing, the Company 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.
(c) The Company and its businesses, operations and assets are
and have been in compliance with all Environmental Laws.
(d) Except as listed on Schedule 3.36(d), neither the Company
nor any of the Sellers has received any written or oral 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
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Material or any other environmental condition on, in or under the Real Property
or any other property formerly owned, used or leased by the Company, (ii) any
other circumstances forming the basis of any actual or alleged violation by the
Company or the Sellers of any Environmental Law or any liability of the Company
or the Sellers under any Environmental Law, (iii) any remedial or removal action
required to be taken by the Company or the Sellers 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 are the Sellers aware of any facts which might reasonably give
rise to such notice or communication. Neither the Company nor any of the Sellers
has entered into any agreements concerning any removal or remediation of
Hazardous Materials.
(e) No lawsuits, claims, civil actions, criminal actions,
administrative proceedings, investigations or enforcement or other actions are
pending (excluding any lawsuits, claims, civil actions, criminal actions,
administrative proceedings, investigations or enforcement or other actions for
which process has not been served) under any Environmental Law with respect to
the Company, the Sellers or the Real Property. To the knowledge of the Sellers,
no lawsuits, claims, civil actions, criminal actions, administrative
proceedings, investigations or enforcement or other actions are pending,
threatened or probable of assertion under any Environmental Law with respect to
the Company, the Sellers or the Real Property.
(f) Except as listed on Schedule 3.36(f), no Hazardous
Materials are or have been released, discharged, spilled or disposed of onto, or
migrated onto, the Real Property or any other property previously owned,
operated or leased by the Company, and 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 the Company, or to the Company's 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) Neither the Company nor any of the Sellers, nor 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 the Company or the Sellers has received or
has reason to expect to receive a potentially responsible party notice or other
notice under any Environmental Law.
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(h) No environmental lien has attached or, to Sellers'
knowledge, is threatened to be attached to the Real Property.
(i) No employee of the Company in the course of his or her
employment with the Company has been exposed to any Hazardous Materials or other
substance, generated, produced or used by the Company which could give rise to
any claim (whether or not such claim has been asserted) against the Company.
(j) Except as set forth on Schedule 3.36(j) hereto, 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(k), there have been
no environmental studies or reports made by or for the benefit of the Company or
the Sellers relating to the Real Property or any other property or facility
previously owned, operated or leased by the Company.
(l) Except as set forth on Schedule 3.36(l), the Company has
not 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 or entity under any Environmental Law
for environmental matters or conditions.
1.47 Year 2000 Matters. The Company has (i) initiated a review and
assessment of all areas within its business and operations (including those
affected by the manufacturers, suppliers, vendors and customers) that could be
adversely affected by the "Year 2000 Problem" (that is, the risk that computer
applications used by the Company may be unable to recognize and perform properly
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), (ii) developed a plan and 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.
1.48 Business Generally. Except as listed on Schedule 3.38, none
of the Sellers is aware of the existence of any conditions, including, without
limitation, any actual or potential competitive factors in the markets in which
the Company participates, 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 the Company, other than general business and economic
conditions generally affecting the industry and markets in which the Company
participates.
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3.1 MISSTATEMENTS AND OMISSIONS. No representation and warranty by
the Sellers contained in this Agreement, and no statement contained in any
certificate or Schedule furnished or to be furnished by the Sellers 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.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Sellers as follows:
1.49 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. The Buyer has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
The Buyer is qualified to do business as a foreign entity and is in good
standing in each of the jurisdictions in which the nature of its business and
assets require such qualification.
1.50 Buyer's Power and Authority; Consents and Approvals.
(a) The Buyer has, or will have prior to Closing, 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.
1.51 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, or will be prior to Closing, duly
and validly authorized, executed and delivered by all necessary corporate action
on the part of the Buyer and this Agreement
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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.
1.52 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.
1.53 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, 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.
1.54 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.
1.55 Authorization of the Stock. The issuance hereunder of the
Sonic Common Shares have been, or prior to Closing will be, duly authorized by
all necessary corporate action of the Buyer. Upon the issuance of the Sonic
Common Shares pursuant to this Agreement, the Sonic Common Shares shall be
validly issued, fully paid and non-assessable.
1.56 Capitalization. The authorized capital stock of the Buyer
consists of:
(a) As of the date hereof, 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
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"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 March 29, 1999, approximately 14,410 shares of Series I Preferred
Stock were issued and outstanding and/or were committed to be issued by the
Buyer, approximately 20,088 shares of Series II Preferred Stock were issued and
outstanding and/or were committed to be issued by the Buyer, and approximately
49,610 shares of Series III Preferred Stock were issued and outstanding and/or
were 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 12,155,963 shares were issued and outstanding as of March
29, 1999; and
(c) 15,000,000 shares of Class B Common Stock, par value $0.01
per share, of which 12,400,000 shares were issued and outstanding as of March
29, 1999.
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.
1.57 Disclosure Materials. The Buyer has delivered to the Sellers'
Agent copies of (i) the Prospectus dated November 10, 1997 (the "1997
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 or 1999, 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 1997
Prospectus nor any of the Reports contained, at the time of filing thereof with
the SEC, any untrue statement of any material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances in which they were made, not
misleading.
1.58 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 Sellers
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 SELLERS
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The Sellers hereby jointly and severally covenant and agree that, from and
after the date hereof until the Closing:
1.59 Provide Access to Information; Cooperation with Buyer.
(a) ACCESS. The Sellers have delivered to the Buyer all of the
due diligence materials described on Schedule 5.1 hereto. The Sellers shall
afford, and cause the Company 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
Company, and to interview personnel, suppliers and customers of the Company, in
order that the Buyer may have a full opportunity to make such investigation
(including the Environmental Audit contemplated by Section 5.11) as it shall
reasonably desire of the assets, businesses and operations of the Company
(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
Company as the Buyer shall from time to time reasonably request. The Buyer's
representatives shall coordinate all visits to the Seller's business location
and all interviews with Seller's personnel with the Seller's principal officers
or their designee and shall use reasonable efforts to minimize any disruption of
Seller's business while conducting such visits and interviews. Buyer shall
provide the Sellers with copies of all reports and Environmental Audits that it
receives with respect to the Company or the Real Property.
(b) COOPERATION IN OBTAINING MANUFACTURER APPROVAL. The
Sellers shall promptly notify the Manufacturers 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 Manufacturers, as soon as
practicable after the date hereof, of an application and any other information
necessary to obtain the respective Manufacturers' consents to or the approval of
the transactions contemplated by this Agreement.
1.60 Operation of Businesses of the Company. Except as expressly
authorized in Sections 5.5(b) or 5.6, the Sellers shall cause the Company 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 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
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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 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.
1.61 Books of Account. The Sellers shall cause the Company to
maintain its books and records of account in the usual, regular and ordinary
manner except that the Company will not be required to perform a review for its
tax year ending 1998.
1.62 Employees. The Sellers shall (i) use their reasonable best
efforts to encourage such personnel of the Company as the Buyer may designate in
writing to remain employees of the Company after the date of the Closing, and
(ii) not take any action, or permit the Company to take any action, to encourage
any of the personnel of the Company to leave their positions with the Company.
1.63 Certain Prohibitions.
(a) The Sellers shall not permit the Company to (i) except as
contemplated in Section 5.5(b), issue any equity securities, (ii) issue any debt
security or any options or warrants, (iii) enter into any subscriptions,
agreements, plans or other commitments pursuant to which the Company is or may
become obligated to issue any of debt securities or, except as contemplated in
Section 5.5(b), equity securities, (iv) otherwise change or modify its capital
structure, (v) except as contemplated by Section 1.7, engage in any
reorganization or similar transaction or sell or otherwise dispose of any of its
assets, other than sales of inventory in the ordinary course of business or (vi)
except as contemplated in Section 5.5(b), 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.
(b) Buyer acknowledges that the Sellers may cause the Company
to declare and pay cash dividends, subject to the Company's obligations under
its agreements with the Manufacturer, to the Sellers prior to the Closing. The
Company shall not, however, declare or pay any such dividends without giving to
the Buyer prior written notice thereof, which notice shall set forth the amount
of such dividends and the anticipated date of payment thereof. Buyer
acknowledges that the Sellers may cause the Company to issue additional shares
of MAI Common Stock to John Jaffe. The parties agree that Jaffe will sell, and
Buyer will purchase, such additional shares pursuant to the merger
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contemplated hereby, without any additional consideration, but otherwise upon
the terms and conditions hereof. As used herein, the term "SHARES" shall include
such additional shares. Prior to the issuance of any such additional shares, the
parties hereto shall execute an amendment hereto whereby Exhibit 3.1 will be
adjusted to reflect such issuance.
1.64 Other Changes. The Sellers shall not permit the Company to
take, cause, agree to take or cause to occur any of the actions or events set
forth in Section 3.20 other than the satisfaction or release of indebtedness
owed to the Company or the satisfaction or release of indebtedness owed by the
Company, each as contemplated by Section 7.8, or payments of bonuses to officers
and directors. The Sellers shall give Buyer prior written notice of any such
bonus payment.
1.65 Additional Information. The Sellers shall furnish and cause
the Company 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 Sellers or any information contained in any Schedule
hereto or in other information supplied in connection herewith then inaccurate
or incomplete. The receipt of such additional information by the Buyer shall not
operate as a waiver by Buyer of the conditions to Closing set forth in Section
7.1.
1.66 Publicity. Except as may be required by law or the applicable
rules or regulations of any securities exchange, the Sellers shall not (i) make
or permit the Company 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 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, and employees of the Company as
appropriate, all of whom shall be subject to this nondisclosure obligation as
agents of the Sellers, as the case may be. The Sellers shall cooperate with the
Buyer in the preparation and dissemination of any public announcements of the
transactions contemplated by this Agreement. Buyer approves of the Company
making its employees aware of this Agreement upon execution thereof. Buyer
recognizes that the presence of its representatives at the Company's dealership
location will cause speculation by the Company's employees concerning the
transactions contemplated hereby and that Sellers have no control over such
speculation.
1.67 Other Negotiations. The Sellers 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 Sellers shall cause the
Company and their
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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 the Company or
any merger or similar transaction involving the Company.
1.68 Closing Conditions. The Sellers shall use all reasonable best
efforts to satisfy promptly the conditions to Closing set forth in Articles 7
and 8 required herein to be satisfied by the Sellers prior to the Closing.
1.69 Environmental Audit. The Sellers shall cause the Company 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
Sellers shall cause the Company 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 Company and the last known addresses of former employees of the
Company who are most familiar with the matters which are the subject of the
Environmental Audit (the Sellers agreeing to use reasonable efforts to have such
former employees respond to any reasonable requests or inquiries by the
Environmental Auditor). The Sellers shall otherwise cooperate and cause the
Company to cooperate with the Environmental Auditor in connection with the
Environmental Audit. The Environmental Auditor shall coordinate all visits to
the Real Property and conversations with the employees of the Company, with the
principal officers of the Company or their designee and shall use reasonable
efforts to minimize any disruption of the Company's business while conducting
such investigations and conversations. The Buyer shall pay all of the costs,
fees and expenses incurred in connection with the Environmental Audit.
1.70 Audited Financial Statements. The Sellers shall allow,
cooperate with and assist Buyer's accountants, and shall instruct the Company'
accountants to cooperate, in the preparation of audited financial statements of
the Company as necessary for any required filings by the Buyer with the SEC or
with the Buyer's lenders; PROVIDED that the expense of such audit shall be borne
by the Buyer.
1.71 Hart-Scott-Rodino. Subject to the determination by the Buyer
that any of the following actions are not required, the Sellers 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
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Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "ANTITRUST DIVISION"), and respond as promptly as practicable to all
inquiries received from the FTC or the Antitrust Division for additional
information or documentation. Buyer shall pay the filing fee payable with
respect to the filing of such forms.
ARTICLE 6
PRE-CLOSING COVENANTS OF BUYER
The Buyer hereby covenants and agrees that, from and after the date hereof
until the Closing:
1.72 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 Sellers' Agent, 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.
1.73 Closing Conditions. The Buyer shall use all reasonable best efforts
to satisfy promptly the conditions to Closing set forth in Articles 7 and 8
required herein to be satisfied by the Buyer prior to the Closing.
1.74 Application to Manufacturer. Subject to the reasonable cooperation
of the Sellers, 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 consent of Manufacturer to the transactions contemplated
by this Agreement.
1.75 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.
1.76 Access. The Buyer shall afford to the Sellers, their 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
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the Sellers may have a full opportunity to make such investigation as
they shall reasonably desire of the assets, business and operations of the
Buyer.
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:
1.77 Representations and Warranties. The representations and warranties
made by the Sellers 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. 1.1
1.78 Performance of Obligations of the Sellers. The Sellers shall have
performed all obligations required to be performed by the Sellers under this
Agreement, and complied with all covenants for which compliance by the Sellers
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.
1.79 Closing Documentation. The Buyer shall have received the following
documents, agreements and instruments from the Sellers:
(a) a certificate signed by the Sellers and dated the date of
the Closing certifying as to the satisfaction of the conditions set forth in
Sections 7.1 and 7.2;
(b) [Intentionally Deleted]
(c) an opinion of Whiteford, Taylor & Preston L.L.P., counsel
for the Sellers, dated the date of the Closing and addressed to the Buyer, in
the form attached hereto as Exhibit 7.3(c);
(d) copies of all authorizations, approvals, consents,
notices, registrations and filings referred to in Schedules 3.2(b), 3.10 and
3.29(b), other than from the Manufacturers,
(e) certificates dated as of a recent date from (i) the
Secretary of State of the State of Delaware to the effect that MAI is duly
incorporated and in good standing in such state and, if available, stating that
the Company owes no franchise taxes in such state and listing all documents of
the Company on file with said Secretary of State, and (ii) the Secretary of
State of the State of Virginia to the effect that the Company is
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duly qualified as a foreign corporation and is in good standing in such
jurisdiction;
(f) a copy of the Articles of Incorporation of MAI, including
all amendments thereto, certified as of a recent date by the Secretary of State
of the State of Delaware;
(g) evidence, reasonably satisfactory to the Buyer, of the
authority and incumbency of the persons acting on behalf of the Company in
connection with the execution of any document delivered in connection with this
Agreement;
(h) Uniform Commercial Code Search Reports on Form UCC-11 or
its equivalent with respect to the Company from the states and local
jurisdictions where the principal places of business of the Company and its
assets are located;
(i) a certificate of each of the Sellers as to such Seller's
non-foreign status in appropriate form;
(j) the corporate minute books and stock record books of MAI,
and all other books and records of, or pertaining to, the business and
operations of the Company;
(k) (i) estoppel letters of lenders to the Company, in form
and substance reasonably satisfactory to the Buyer, with respect to amounts
owing by the Company as of the Closing; (ii) estoppel letters of Marco LP and
OGTR II LP, as landlords of the Leased Premises, in form and substance
reasonably satisfactory to the Buyer; and (iii) the Company, Marco LP and OGTR
II LP shall have executed and delivered to Buyer the termination agreements
contemplated by Section 1.4(c).
(l) such other instruments and documents as the Buyer shall
reasonably request not inconsistent with the provisions hereof.
1.80 Approval of Legal Matters. The form of all instruments, certificates
and documents to be executed and delivered by the Sellers to the Buyer pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Buyer and its counsel, none
of whose approval shall be unreasonably withheld or delayed.
1.81 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
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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.
1.82 No Material Adverse Change or Undisclosed Liability. Other than as
contemplated in Sections 5.5(b), 5.6 and 7.8, there shall have been no material
adverse change or development in the business, prospects, properties, earnings,
results of operations or financial condition of the Company, or any of its
assets. This provision does not relate to general business and economic
conditions generally effecting the industry and markets in which the respective
companies participate.
1.83 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 the Company.
1.84 Affiliate and Other Transactions. All amounts owed to the Company
from, and all amounts owed by the Company to, any of the following: (a) any
Seller, Waldorf, LOR, Manhattan Imported Cars, Inc., a Maryland corporation
("MIC"), the Leasing Subsidiary, Rockville Rent A Car, Inc., a Maryland
corporation, Marco, OGTR or WAI Limited Partnership, (b) any shareholder or
limited or general partner of any of the foregoing entities, (c) any Affiliate
of any person or entity referred to in clauses (a) and (b) or (d) any of the
Company's officers and employees shall have been paid in full or otherwise
released and forgiven on or prior to the Closing Date.
1.85 Escrow Agreement. The Sellers and the Escrow Agent shall have duly
executed and delivered to the Buyer the Escrow Agreement. 1.1
1.86 Manufacturer Approvals. 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 Company's dealership franchise with the Manufacturer, and
the Manufacturer shall have executed any required dealer agreements and/or
amendments or supplements thereto in connection with the foregoing.
1.87 Non-Competition and Employment Agreement. Each of the Sellers (other
than John Jaffe and Richard Mills) shall have executed and delivered to the
Buyer and the Surviving Company the Non-Competition Agreement. John Jaffe shall
have executed and delivered to the Buyer the Employment Agreement.
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1.88 Cancellation of Stock Options. All outstanding options, warrants,
"phantom" stock options and other plans, agreements or arrangements of the
Company with respect to the purchase, or the issuance of, any capital stock or
other securities of the Company 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.
1.89 Audited Financial Statements. The Buyer shall have completed
preparation of such audited financial statements of the Company as may be
required by applicable regulations of the SEC or by any of the Buyer's lenders.
1.90 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.
1.91 Other Basic Agreements. All conditions to the Buyer's obligations to
close under the Marco Real Property Purchase Agreement - Fairfax shall have been
satisfied or waived by the Buyer and the closing under the Marco Real Property
Purchase Agreement - Fairfax shall have occurred or shall be occurring
contemporaneously with the Closing. All conditions to the Buyer's obligations to
close under the OGTR Real Property Purchase Agreement shall have been satisfied
or waived by the Buyer and the closing under the OGTR Real Property Purchase
Agreement shall have occurred or shall be occurring contemporaneously with the
Closing.
7.16 [INTENTIONALLY DELETED]
7.17 DEFERRED COMPENSATION AND STOCKHOLDER AGREEMENTS. At or prior to
Closing, each Seller shall have waived all rights he or she has arising under or
with respect to any deferred compensation agreements he or she has with the
Company, including without limitation, the Employment Contract dated January 10,
1982 between the Company and Bernard Mills and the Employment Contract dated
January 10, 1980 between the Company and Joseph Herson (collectively, the
"DEFERRED COMPENSATION AGREEMENTS"), and the Buyer shall have received
reasonably satisfactory evidence thereof. At or prior to the Closing, the
Company and the Sellers shall have terminated, and released all parties from any
obligations with respect to the following agreements: (a) the Voting Trust
Agreement dated as of December 15, 1984 among Manhattan Auto, Inc., Joseph L.
Herson, Mollye Mills, John Jaffe and Richard H. Mills; (b) the Stock Purchase
Agreement between Stockholders and Corporation dated as of 1982 among Manhattan
Porsche-Audi, Inc. (as predecessor to the Company), Joseph L.
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Herson and Mollye Mills, as amended by the Amendment to Stock Purchase Agreement
dated as of August 27, 1992 among MIC, Joseph L. Herson and Mollye Mills, and
(c) the Stockholders Agreement dated as of December 30, 1983 among Joseph L.
Herson, Mollye Mills, John Jaffe and Richard H. Mills, and Buyer shall have
received reasonably satisfactory evidence thereof (collectively, the
"STOCKHOLDER AGREEMENTS").
7.18 APPRAISAL/DISSENTERS' RIGHTS. No holder of capital stock of the
Company shall have any appraisal or dissenters' rights under applicable law.
7.19 RELEASE FROM DISTRIBUTED LIABILITIES. The Company shall have been
released from all Distributed Liabilities by the respective holders thereof.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF THE SELLERS AT THE CLOSING
The obligations of the Sellers 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 Sellers:
1.92 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.
1.93 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).
1.94 Closing Documentation. The Sellers 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;
(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
Sellers, with respect to the matters identified on Exhibit 8.3(b);
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(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;
(1) certificates dated as of a recent date from the Secretary
of State of the State of the Sub's organization to the effect that the Sub is
duly incorporated and in good standing in such State;
(d) a copy of the Buyer's Certificate of Incorporation,
including all amendments thereto, certified by the Secretary of State of the
State of Delaware;
(e) evidence, reasonably satisfactory to the Sellers, of the
authority and incumbency of the persons acting on behalf of the Buyer in
connection with the execution of any document delivered in connection with this
Agreement;
(f) such other instruments and documents as the Sellers shall
reasonably request not inconsistent with the provisions hereof; and
(g) a copy of the Sub's Articles of Incorporation including
all amendments thereby certified by the Secretary of State of the State of
Maryland.
1.95 Approval of Legal Matters. The form of all certificates, instruments
and documents to be executed or delivered by the Buyer to the Sellers pursuant
to this Agreement and all legal matters in respect of the transactions as herein
contemplated shall be reasonably satisfactory to the Sellers and their counsel,
none of whose approval shall be unreasonably withheld or delayed.
1.96 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.
1.97 Escrow Agreement. The Buyer and the Escrow Agent shall have duly
executed and delivered the Escrow Agreement to the Sellers.
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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 ANCILLARY AGREEMENTS. All conditions to the Seller's (as defined in
the Marco Real Property Purchase Agreement - Fairfax) obligations under the
Marco Real Property Purchase Agreement - Fairfax shall have been satisfied or
waived by such Seller and the closing under the Marco Real Property Purchase
Agreement - Fairfax shall have occurred or shall be occurring contemporaneously
with the Closing. All conditions to the Seller's (as defined in the OGTR Real
Property Purchase Agreement) obligations to close under the OGTR Real Property
Purchase Agreement shall have been satisfied or waived by such Seller and the
closing under the OGTR Real Property Purchase Agreement shall have occurred or
shall be occurring contemporaneously with the Closing.
8.9 [INTENTIONALLY DELETED]
8.10 EMPLOYMENT AGREEMENT. The Buyer shall have executed and delivered to
John Jaffe the Employment Agreement.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION, ETC.
1.98 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 Sellers 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 two years with the exception of (i) the representations
and warranties of the Sellers contained in Section 3.21, which shall survive the
Closing for seven years except that, in the case of fraud, such representations
and warranties shall survive indefinitely; (ii) the representations and
warranties of the Sellers contained in Sections 3.22 and 3.36, which shall
survive the Closing for a period of three years, and (iii) the representations
and warranties of the Sellers contained in Sections 3.1 and 3.11, which shall
survive the Closing indefinitely. As to each representation and warranty of the
parties hereto, the date to
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which such representation and warranty shall survive is hereinafter referred to
as the "SURVIVAL DATE".
1.99 Agreement to Indemnify by the Sellers. Subject to the terms and
conditions of this Article 9, the Sellers hereby, jointly and severally, agree
to indemnify and save the Buyer, the Surviving Company, their respective
shareholders, officers, directors and employees, and the successors and assigns
of each of the foregoing (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 Sellers 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 Sellers contained in this Section 9.2(a), the
Sellers 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 Section 9.2(a) shall exceed a cumulative aggregate total of $150,000;
(b) the untruth, inaccuracy or breach of any representation and
warranty of the Sellers 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 any
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 or generation, of Hazardous Materials generated,
stored, used, disposed of, treated, handled or shipped by the Company on or
before the Closing Date;
(e) any cleanup of Hazardous Materials released, disposed of or
discharged: (i) on, in, beneath or around 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,
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stored, treated, transported or released by the Company prior to or on the
Closing Date;
(f) (i) all known or unknown environmental liabilities and claims of
the Company 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; or (ii) any
matter, item, circumstance or condition listed, contained or otherwise referred
to on Schedules 3.36(d), 3.36(f), 3.36(j), 3.36(k), or 3.36(l);
(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;
(h) any and all Taxes arising out of or based upon the Distributed
Assets or the Distributed Liabilities or the distribution thereof as
contemplated by Section 1.7; or
(i) any actions, suits, claims, investigations or proceedings
disclosed, or required to be disclosed, on Schedule 3.23.
1.100 Agreement to Indemnify by Buyer. Subject to the terms and conditions of
this Article 9, the Buyer hereby agrees to indemnify and save the Sellers and
their heirs and permitted 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 any 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;
(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; or
(c) any liabilities or obligations of the Company accrued or
incurred after the Closing Date but only to the extent that Buyer is not
entitled to indemnification from any of the
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persons or entities referred to in Section 7.8 with respect to such liabilities
or obligations.
1.101 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 Sellers 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.
1.102 Procedures Regarding Third Party Claims. The procedures to be
followed by the Buyer and the Sellers 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, 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
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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. Notwithstanding
the foregoing, the Indemnified Party shall have the right to pay, settle or
compromise any such action, proceeding or claim, provided that in such event the
Indemnified Party shall waive any right to indemnity therefor hereunder unless
the Indemnified Party shall have sought the consent of the Indemnifying Party to
such payment, settlement or compromise and such consent was unreasonably
withheld or delayed, in which event no claim for indemnity therefor hereunder
shall be waived.
(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 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, 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, 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.
1.103 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.
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1.104 LIMITATIONS ON INDEMNITY. Notwithstanding any provision herein to
the contrary:
(1) The aggregate amount of liability for indemnification obligations
under Section 9.2 for each of the Sellers shall not exceed an amount equal to
the product of the Merger Consideration multiplied by his or her percentage
equity ownership of the Company at the Closing.
(2) Provided the transactions contemplated hereby are consummated,
each Indemnified Party's rights under this Article 9 (as specifically limited
hereby) shall be the exclusive means (other than with respect to fraud) by which
such party shall seek money damages against another party in connection with the
transactions contemplated hereby.
(3) In the event a Buyer Indemnitee has a claim against a Seller
Indemnitee hereunder, such Buyer Indemnitee shall first proceed against the
Escrowed Shares, if any, held pursuant to the Escrow Agreement.
(4) Indemnity obligations of the Sellers hereunder may, at their
election, be satisfied through the payment of cash or the delivery of Common
Stock. For purposes of calculating the value of Common Stock paid as
contemplated under this Section 9.7(d), the value of a share of Common Stock
shall be the Market Price as of the date of Closing for indemnity obligations of
the Sellers which are satisfied during the period of "market protection" for
Common Stock as provided pursuant to Section 1.2(f), after which time the value
shall be the Market Price as of the date of such payment. Indemnity obligations
of the Buyer shall be satisfied through the payment of cash.
(5) Except as specifically set forth in this Agreement, no party
shall be entitled to indemnity for claims or conditions which have been waived
by such party. In the event that (i) the certificate referenced in Section 7.1,
as delivered at Closing, accurately and comprehensively discloses any breach, as
of the date of this Agreement, of any of the Sellers' representations and
warranties contained herein and (ii) the Closing nonetheless occurs, Buyer shall
be deemed to have waived its indemnification rights arising under Section 9.2(a)
and 9.2(b) but only to the extent of the disclosure of such breach. In the event
that (i) the certificate referenced in Section 8.1, as delivered at Closing,
accurately and comprehensively discloses any breach, as of the date of this
Agreement, of any of the Buyer's representations and warranties contained herein
and (ii) the Closing nonetheless occurs, the Sellers shall be deemed to have
waived their respective indemnification rights arising under Section 9.3(c) but
only to the extent of the disclosure of such breach.
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(6) Upon making a claim for indemnification, the Indemnifying Party
shall be subrogated, to the extent of such payment, to any rights that the
Indemnified Party may have against any third parties with respect to the subject
matter underlying such indemnified claim.
ARTICLE 10
TERMINATION
1.105 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
Sellers;
(b) At any time prior to the Closing Date Deadline (as the
same may have been extended pursuant to Article 2) by the Buyer or the Sellers,
as the case may be, in the event of a material breach by the Sellers or the
Buyer, respectively, as the case may be, of any of their or its, as the case may
be, representations, warranties or covenants contained in this Agreement;
(c) At any time after the Closing Date Deadline (as the same
may have been extended pursuant to Article 2), by written notice by the Buyer or
the Sellers 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);
(d) By written notice by the Buyer to the Sellers' Agent 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;
(e) By the Buyer, by written notice to the Sellers, in the
event that approval by the Manufacturer is not received by the Closing Date
Deadline (as the same may have been extended pursuant to Article 2);
(1) By the Buyer, by written notice to the Sellers, 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 Company;
(2) By the Buyer (by written notice to the Sellers) or by the
Sellers (by written notice to the Buyer), in the event that any of the following
occur: (i) the Marco Real Property Purchase Agreement - Fairfax is terminated on
or prior
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to the Closing; or (ii) the OGTR Real Property Purchase Agreement is terminated
on or prior to the Closing; or
(f) By the Buyer (by written notice to the Sellers) or by the
Sellers (by written notice to the Buyer) if either Buyer or the Sellers
terminate the Asset Purchase Agreement pursuant to Section 10.13(a)(v) thereof.
PROVIDED, HOWEVER, no party may terminate this Agreement pursuant to Section
10.1(b) or (c) above if such party is in material breach of any representation,
warranty or covenant of such party contained in this Agreement.
1.106 Procedure and Effect of Termination. In the event of termination of
this Agreement pursuant to Section 10.1, this Agreement shall, subject to
Section 1.10, 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 Sellers 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.
1.107 Payment of Buyer's Termination Fee. If this Agreement is terminated
by the Sellers pursuant to Section 10.1(c) above and the failure to complete the
Closing on or before the Closing Date Deadline shall have been due to the
Buyer's material breach of its representations and warranties or its covenants
or obligations under this Agreement, then the Buyer shall, within ten days after
receipt by the Buyer of written notice from the Seller's Agent, promptly pay to
the Sellers in immediately available funds, as liquidated damages for the loss
of the transaction and not as a penalty, a termination fee of One Million
Dollars ($1,000,000) (the "BUYER'S TERMINATION FEE"); PROVIDED, HOWEVER, that if
the Sellers are paid the Buyer Termination Fee (as defined in the Asset Purchase
Agreement) pursuant to the Asset Purchase Agreement, then the Sellers shall not
be entitled to payment of the Buyer's Termination Fee hereunder.
1.108 Payment of the Sellers' Termination Fee. If this Agreement is
terminated by the Buyer pursuant to Section 10.1(c) above and the failure to
complete the Closing on or before the Closing Date Deadline shall have been due
to the Sellers' material breach of any of their representations and warranties
or any of their covenants or obligations under this Agreement, then the Sellers,
jointly and severally, shall, within ten days after
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receipt by the Sellers' Agent 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 One Million Dollars
($1,000,000) (the "SELLERS' TERMINATION FEE"); PROVIDED, HOWEVER, that if the
Buyer is paid the Seller Termination Fee (as defined in the Asset Purchase
Agreement) pursuant to the Asset Purchase Agreement, then the Buyer shall not be
entitled to payment of the Sellers' Termination Fee hereunder.
1.109 Termination Fees Exclusive Remedies for Damages. In the case of a
termination of this Agreement pursuant to 10.1(c) above, the rights of the
terminating party to be paid the Sellers' Termination Fee or the Buyer's
Termination Fee, as the case may be, shall be such party's sole and exclusive
remedies for damages; in the event of such termination by either party, such
party shall have no right to equitable relief for any breach or alleged breach
of this Agreement, other than for specific performance for the payment of the
Sellers' Termination Fee or the 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.
ARTICLE 11
OTHER COVENANTS
1.110 Certain Taxes and Expenses.
(1) 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 Sellers.
(2) Except as otherwise herein provided, the Sellers 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.
1.111 Renovations.
(1) DEVELOPMENT OF REAL PROPERTY. The Buyer acknowledges that, prior
to the Closing, the Company plans to commence the renovation of certain
improvements ("RENOVATIONS") located on the Real Property as described on the
Schedule of Work
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attached hereto as Schedule 11.2 (the "SCHEDULE OF WORK"). The Sellers have
delivered, or promptly after the date hereof will deliver, a complete set of
plans and specifications (the "PLANS AND SPECIFICATIONS") for the Renovations.
The Sellers shall cause the Plans and Specifications to be in full compliance
with all laws, building codes, ordinances and statutes of the City and County in
which the Real Property is located. The Sellers shall cause the Company to
commence the Renovations in accordance with the Schedule of Work and the Plans
and Specifications and diligently pursue the completion of the Renovations
through Closing. The Sellers shall cause the Renovations to be constructed in
accordance with the Plans and Specifications and all applicable laws, building
codes, ordinances and statutes. The Sellers shall cause the Company to obtain
all necessary building, land disturbing and other permits required by any
applicable governmental agency to commence and complete the Renovations
(collectively, the "PERMITS"). The Sellers have delivered, or will deliver, to
Buyer a copy of all Permits obtained in connection with the Renovations. The
Sellers shall cause the Company to construct the Renovations: (i) entirely on
the Real Property and not encroach upon or overhang any easement, right-of-way
or upon the land of others; and (ii) wholly within applicable building
restriction and setback lines. The Sellers shall cause the Company to promptly
correct any defects in the Renovations which are discovered during the
construction of the Renovations.
(2) COOPERATION WITH BUYER. Buyer may elect to inspect the Real
Property and the Renovations from time to time and at all reasonable times
during construction of the Renovations. The Sellers shall cause the Company to
permit Buyer and its representatives and agents to enter upon the Real Property
and to inspect the progress of the Renovations and the materials to be used in
the construction thereof. The Sellers shall cause the Company to cooperate, and
cause any contractor or sub-contractor to cooperate, with Buyer and its
representatives and agents during such inspections.
(3) APPROVALS REQUIRED OF BUYER. The Sellers shall cause the Company
to provide Buyer with a reasonable opportunity to review and comment on the
following documents prior to the finalization thereof: (i) the Plans and
Specifications; (ii) the construction contract ("CONSTRUCTION CONTRACT") with
the general contractor ("GENERAL CONTRACTOR") who will construct the
Renovations; and (iii) any contracts ("CONTRACTS"), other than the Construction
Contract, which relate to the construction of the Renovations. Neither the
Sellers nor the Company may modify or amend the Plans and Specifications (as
finally approved by the local authorities), the Construction Contract or the
Contracts without the prior written consent of Buyer, which consent shall not be
unreasonably withheld. The Sellers will cause the Company
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to give reasonable consideration to Buyer's comments and suggestions.
(4) PAYMENTS WITH RESPECT TO THE RENOVATIONS. The Sellers shall
cause the Company to be responsible for: (i) all payments and advances, if any,
with respect to the Construction Contract and the Contracts which are due and
payable prior to the Closing; and (ii) all other costs and expenses associated
with the Renovations which are due and payable prior to the Closing. Before any
such payment or advance, if any, is made with respect to the Renovations, the
Sellers shall advise the Buyer. If, prior to being advised of an intended
payment, Buyer has requested any or all of the following, the Sellers, as
appropriate, shall obtain same prior to making such payment or advance.
(1) CERTIFICATES OF COMPLETION. An architect's and/or engineer's
certificate of progress describing the nature and extent of all work done,
including the state to which construction has progressed, and certification that
all work has been done and materials installed in substantial compliance with
the Plans and Specifications.
(2) PROOF OF PAYMENT, LIEN WAIVERS, ETC. Proof as to payment of
construction bills, lien waivers for work completed and paid for, statements
showing itemization of present and prospective expenditures, a statement of
items due and unpaid.
(5) NO LIABILITY FOR INSPECTIONS AND APPROVALS. No inspection made
or approval given by Buyer shall be deemed to impose upon Buyer any duty or
obligation to correct any defects in the Plans and Specifications and/or the
Renovations or to notify any person or entity with respect thereto. No liability
shall be imposed upon Buyer or deemed or construed to arise by reason of any
inspection of the Real Property or approval by Buyer. No warranties (either
express or implied) are made by Buyer as to the quality or fitness of the Plans
and Specifications and/or the Renovations.
(6) INSURANCE. The Sellers shall cause the Company to maintain with
respect to the Real Property the following insurance policies, copies of which
the Sellers shall furnish to Buyer:
(1) Insurance against loss or damage by fire and other casualties
and hazards by insurance written on an "all risks" basis, including specifically
windstorm and/or hail damage (and flood and earthquake coverage, where
available), in an amount not less than the replacement cost thereof, naming
Buyer as an additional insured.
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(2) Liability insurance providing coverage in such amount as
Buyer may require but in no event less than $3,000,000 combined single limit,
naming Buyer as an additional insured.
(7) CLOSING DELIVERIES. At the Closing, the Sellers shall deliver to
Buyer:
(1) ASSIGNMENT OF CONTRACTS. An assignment to Buyer of all of the
rights, title and interest of Marco LP and OGTR II LP in and to: (A) the
Construction Contract; (B) all Contracts to which Buyer consents; (C) the
Permits; and (D) the Renovations.
(2) ESTOPPEL CERTIFICATES. An estoppel certificate executed by
the General Contractor and any sub-contractor with which any of Sellers or the
Company have contracted stating: (A) that the Construction Contract or Contract
(as the case may be) to which they are a party is in full force and effect and
neither party (including the Sellers or the Company) is in default thereunder;
(B) the amount that has been paid by any of Sellers or the Company under such
contract; (C) that such contract is current, with no payments outstanding beyond
the due date on any uncontested amount due; (D) the amount and a brief
description of any contested matters; and (E) the amount (or if unavailable an
estimate of the amount) which will be payable upon completion of the work done
pursuant to such contract.
(3) OWNER'S AFFIDAVIT/LIEN WAIVERS. An affidavit of Marco LP and
OGTR II LP stating that all contractors have been paid any uncontested amounts
due to them and the amount and a brief description of any contested matters and
an affidavit/lien waiver from the General Contractor with respect to payments
received.
1.112 Deferred Compensation and Stockholder Agreements. At or prior to
Closing, (a) the Company and appropriate Sellers shall terminate the Deferred
Compensation Agreement, (b) each Seller shall waive all rights he or she has
arising under or with respect to the Deferred Compensation Agreements and (c)
the Company and the Sellers shall terminate, and release all parties from any
obligations with respect to, the Stockholder Agreements.
1.113 Profit Sharing Plan. The profit sharing plan in which the Company
participates is maintained by MIC. The Sellers will take the necessary action to
cause a partial termination of the MIC plan and distribution of assets pursuant
to Section 401(k)(10) of the Code with respect to the employees of the Company.
The Buyer shall not assume any sponsorship of the profit sharing plan, nor shall
any contributions be made to the plan with respect to compensation earned on or
after the Closing.
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1.114 Asset Purchase Agreement. Although the transactions contemplated
hereby are not subject to the consummation of the transactions contemplated by
the Asset Purchase Agreement, the parties hereto nonetheless fully intend and,
to the extent practicable, will coordinate the consummation of the transactions
contemplated hereby with the consummation of the transactions contemplated by
the Asset Purchase Agreement in such a manner as to close both transactions on
the same date.
ARTICLE 12
MISCELLANEOUS
1.115 Certain Tax Returns. The Sellers shall cooperate with and provide
assistance to the Buyer and the Surviving Company in connection with the
preparation and filing of all federal, state, local and foreign income tax
returns which relate to the Surviving Company and to periods prior to Closing
but which are not required to be filed until after the Closing.
1.116 Parties in Interest; No Third-Party Beneficiaries. Subject to
Section 12.4, this Agreement will be binding upon, inure to the benefit of, and
be enforceable by, the respective successors and assigns of the parties hereto.
Nothing in this Agreement, expressed or implied, is intended or shall be
construed to confer upon or give to any employee of the Company or the Buyer, or
any other person, firm, corporation or legal entity, other than the parties
hereto and their respective heirs, successors and permitted assigns, any rights,
remedies or other benefits under or by reason of this Agreement.
1.117 Entire Agreement; Amendments. This Agreement (including all
Exhibits and Schedules hereto which Exhibits and Schedules are hereby
incorporated herein by this reference) 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. 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. Unless expressly stated herein to the contrary,
any reference herein to (a) a Section or Article shall refer to a Section or
Article hereof, respectively, and (b) a Schedule or Exhibit shall refer to a
Schedule or Exhibit hereto, respectively.
1.118 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, without the consent of the other parties, assign its
rights and obligations hereunder to
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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 the Surviving Company (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 Sellers. Nothing
contained in this Agreement shall prohibit its assignment by the Buyer as
collateral security and the Sellers hereby agree to execute any acknowledgment
of such assignment by the Buyer as may be required by any lender to the Buyer.
1.119 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.
1.120 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.
1.121 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 for next business day delivery, 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.
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: John R. Hairr III
Telecopier No.: (704) 334-4706
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If to the Sellers or the Company, to the Sellers' Agent at:
Personal and Confidential
Mr. Joseph Herson
Manhattan Auto, Inc.
11617 Old Georgetown Road
Rockville, MD 20852
Telecopier No.: (301) 881-3038
With a copy to:
Whiteford, Taylor & Preston, L.L.P.
1025 Connecticut Avenue, N.W. #400
Washington, D.C. 20036-5405
Attn: Glenn R. Bonard
Telecopier No.: (202) 331-0573
1.122 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.
1.123 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Virginia, without giving effect to its
rules governing conflict of laws.
1.124 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.
1.125 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.
1.126 Knowledge. Whenever any representation or warranty of any Seller
contained herein or in any other document executed and delivered in connection
herewith is based upon the knowledge of such Seller, (i) such knowledge shall be
deemed to include (A) the best actual knowledge, information and belief of such
Seller and (B) any information which such Seller would reasonably be expected to
be aware of in the prudent discharge of his or her duties in the ordinary course
of business (including consultation with legal counsel) on behalf of the
Company, and (ii) the knowledge of any Seller shall be deemed to be the
knowledge of all of the Sellers.
64
<PAGE>
1.127 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 North 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(e) hereto), or the interpretation or breach hereof (including,
without limitation, any of the foregoing based upon a claim to any termination
fee hereunder), shall be resolved by binding arbitration under the commercial
arbitration rules of the American Arbitration Association (the "AAA RULES") to
the extent such AAA Rules are not inconsistent with this Agreement. Judgment
upon the award of the arbitrators may be entered in any court having
jurisdiction thereof or such court may be asked to judicially confirm the award
and order its enforcement, as the case may be. The demand for arbitration shall
be made by any party hereto within a reasonable time after the claim, dispute or
other matter in question has arisen, and in any event shall not be made after
the date when institution of legal proceedings, based on such claim, dispute or
other matter in question, would be barred by the applicable statute of
limitations. The arbitration panel shall consist of three (3) arbitrators, one
of whom shall be appointed by each party hereto within thirty (30) days after
any request for arbitration hereunder. The two arbitrators thus appointed shall
choose the third arbitrator (who shall not be currently nor have been during the
last ten years living in, or practicing his or her profession from a base in,
North Carolina) 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).
65
<PAGE>
(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 APPEAR ON FOLLOWING PAGE]
66
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement and Plan
of Merger 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
MANHATTAN AUTO, INC.
By: /s/ Joseph Herson
---------------------------------------------
Name: Joseph Herson
------------------------
Title: President
------------------------
/s/ Joseph Herson
----------------------------------------------------
Joseph Herson
/s/ Mollye Mills
----------------------------------------------------
Mollye Mills
/s/ John Jaffe
---------------------------------------------------
John Jaffe
/s/ Richard Mills
---------------------------------------------------
Richard Mills
67
Exhibit 4.11
August 3, 1999
Sonic Automotive, Inc.
5401 East Independence Blvd.
Charlotte, NC 28218
Attn: Theodore M. Wright
RE: SONIC AUTOMOTIVE / MANHATTAN AUTO GROUP
Dear Mr. Wright:
The parties hereto hereby agree as follows:
1. Reference is hereby made to the Agreement and Plan of Merger dated as
of April 6, 1999, as amended (the "MERGER AGREEMENT"), among Sonic Automotive,
Inc. ("SONIC"), Manhattan Auto, Inc., and Joseph Herson, Mollye Mills, John
Jaffe and Richard Mills (collectively, the "SELLERS"). Each capitalized term
used herein and not defined herein shall have the meaning ascribed to such term
in the Merger Agreement.
2. ORIGINAL ISSUANCE SHARES.
(a) (i) As used herein, the term "ORIGINAL ISSUANCE SHARES" shall
mean all shares of Sonic's Class A Common Stock, par value $.01 per share, which
are originally issued on the date hereof to a Seller, individually, except for
those shares for which registration rights are expressly set forth in the Merger
Agreement. As used herein, the term "CLOSING DATE MARKET PRICE" shall mean the
Market Price as of the Closing Date. As used herein, the term "RESTRICTIVE
PERIOD MARKET PRICE" shall mean the Market Price, as determined as of the later
of (A) the first trading day after the date of the expiration of the Restrictive
Period and (B) the first trading day after the date on which Sellers are first
able to utilize a prospectus supplement to the S-3 Registration Statement (as
defined in Section 2(b)(i) hereof) for resales.
(ii) In the event that the Restrictive Period Market Price is
less than the Closing Date Market Price, then Sonic shall pay to the Sellers, in
their respective ownership percentages of Original Issuance Shares, no later
than the third Business Day after the date the Restrictive Period Market Price
may be determined, an amount equal to the number of Original Issuance Shares
then held by them multiplied by the difference between the Restrictive Period
Market Price and the Closing Date Market Price. Such payment shall be made in
immediately available funds by bank or cashier's check or wire transfer.
Notwithstanding anything contained in this Section 2(a)(ii) to the contrary, in
the event that Original Issuance Shares are redeemed pursuant to Section
2(a)(iv) hereof, no payment shall be made under this Section 2(a)(ii).
<PAGE>
(iii) In the event that the Restrictive Period Market Price
exceeds the Closing Date Market Price, then the Sellers shall return to Sonic,
no later than the third Business Day after the date the Restrictive Period
Market Price may be determined, pro rata according to their respective ownership
amounts of the Original Issuance Shares, an aggregate amount of whole Original
Issuance Shares with an aggregate Restrictive Period Market Price equal to the
number of Original Issuance Shares then held by the Sellers, multiplied by the
difference between the Closing Date Market Price and the Restrictive Period
Market Price. Any fractional share amount shall be paid by bank or cashier"s
check or wire transfer. Notwithstanding anything contained in this Section
2(a)(iii) to the contrary, in the event that the Original Issuance Shares are
redeemed pursuant to Section 2(a)(iv) hereof, no payment shall be made under
this Section 2(a)(iii).
(iv) Notwithstanding any other provision of this letter
agreement, if on or prior to the ninetieth (90th) day after the Restrictive
Period Expiration Date all steps on the part of Sonic necessary to register the
resale of all Original Issuance Shares by Sellers shall not have been taken
(including, without limitation the filing of the S-3 Registration Statement
together with the S-3 Resale Prospectus (as hereinafter defined)), Sonic shall,
as and to the extent permitted by the Delaware General Corporation Law,
immediately redeem all of the Original Issuance Shares then held by the Sellers
and deliver to the Sellers therefor, in immediately available funds by bank or
cashier's check or wire transfer, an amount equal to the aggregate Market Price,
as of the Closing Date, of all such Original Issuance Shares, together with any
accrued and unpaid interest thereon required under Section 2(b)(i) hereof. Any
such payment shall be made to the Sellers in their respective ownership
percentages of Original Issuance Shares. In such an event, Sellers shall deliver
to Sonic certificates representing such Original Issuance Shares, duly endorsed
for transfer to Sonic or accompanied by appropriate stock powers and vesting
unto Sonic good and marketable title to all of such shares, free and clear of
any and all Encumbrances.
(b) (i) S-3 REGISTRATION STATEMENT. Sonic shall use its best
reasonable efforts to register the resale of the Original Issuance Shares
pursuant to a registration statement on Form S-3 (the "S-3 REGISTRATION
STATEMENT") effective as of the first Business Day after the expiration of the
Restrictive Period (the "RESTRICTIVE PERIOD EXPIRATION Date") or as soon
thereafter as reasonably practicable. Promptly after the S-3 Registration
Statement becomes effective, Sonic shall notify the Sellers thereof. In the
event that the S-3 Registration Statement shall not be effective as of the
Restrictive Period Expiration Date, Sonic shall be obligated to pay to the
Sellers, during the period commencing upon the Restrictive Period Expiration
Date and ending upon the date the S-3 Registration Statement becomes effective
and an S-3 Resale Prospectus (as hereinafter defined) is current and effective,
interest in the amount of the Interest Rate upon the aggregate Market Price, as
of the Closing Date, of the Original Issuance Shares then held by the Sellers.
Any such interest payments shall be made to the Sellers in their respective
ownership percentages of Original Issuance Shares. Any such interest payments
shall be made monthly in arrears and shall be paid, with respect to any calendar
month, no later than the fifth Business Day of the following calendar month.
<PAGE>
(ii) LISTING. Sonic shall cause the Original Issuance Shares
to be listed for trading on the New York Stock Exchange prior to the termination
of the Restrictive Period.
(iii) CURRENCY OF THE S-3 REGISTRATION STATEMENT. Sonic shall
maintain the effectiveness of the S-3 Registration Statement for the resale of
the Original Issuance Shares and maintain a current resale prospectus to permit
the resale of the Original Issuance Shares until all of the Original Issuance
Shares that remain unsold may be sold by the Sellers without restriction
pursuant to clause (d) of Rule 145 or clause (k) of Rule 144, as applicable, or
any successor regulation thereto. So long as the S-3 Registration Statement is
effective, the Sellers agree that they shall effect each resale of Original
Issuance Shares only as permitted by Rule 144 or pursuant to a current
prospectus or supplements thereto that is a part of the S-3 Registration
Statement (the "S-3 RESALE PROSPECTUS") with respect to which Sonic, for each
such resale, has granted its prior consent to the use thereof.
(c) ADDITIONAL SELLERS' OBLIGATIONS. The Sellers agree and
acknowledge, with regard to the offer or resale by any of them of any Original
Issuance Shares, that:
(i) any offering of any of the Original Issuance Shares under
the S-3 Resale Prospectus by a Seller will be effected in an orderly manner
through one or more of the Designated Brokers;
(ii) if requested by Sonic, in connection with a resale of
Original Issuance Shares under the S-3 Registration Statement, the Sellers will
enter into one or more custody agreements with one or more banks with respect to
such Original Issuance Shares so that all such Original Issuance Shares are held
in the custody of such bank or banks provided however that any Original Issuance
Shares not sold pursuant to the S-3 Registration Statement shall be released
from custody on request of the Sellers;
(iii) each Seller will make resales of Original Issuance
Shares only by one or more methods described in the S-3 Resale Prospectus
(including resales pursuant to Rule 145 or 144, as applicable), as appropriately
supplemented or amended when required;
(iv) since the Original Issuance Shares may be subject to
restrictions on resale under Rules 144 or 145, as applicable, the certificates
representing the Original Issuance Shares will be issued by Sonic to the Sellers
with such legends as Sonic may reasonably require until such Original Issuance
Shares are offered pursuant to the foregoing terms under the S-3 Resale
Prospectus or pursuant to Rules 144 or 145, as applicable, at which time such
certificates shall be tendered to Sonic by the Sellers and a new certificate or
certificates without legends shall be issued by Sonic to the Designated Broker
in order to settle any resales by the Sellers;
(v) the Sellers shall provide Sonic, in writing, with all
information concerning the Sellers and their resale of the Original Issuance
Shares as may be reasonably requested by Sonic in order to comply with the
Securities Act, and the Sellers shall indemnify Sonic for any liabilities
arising under the Exchange Act, or any state securities or blue sky laws
resulting from any material misstatements in, or omissions of material
information from, such
<PAGE>
information provided by the Sellers to Sonic pursuant to this clause (v); and
(vi) the Sellers shall pay the commissions or fees of the
Designated Brokers in connection with the resale of the Original Issuance
Shares, and Sonic shall pay all fees related to the registration, listing and
maintaining the registered status of the Original Issuance Shares and the fees
and expenses of the custodial bank or banks holding such Original Issuance
Shares, if applicable.
(d) ADDITIONAL SONIC OBLIGATIONS. Sonic agrees that:
(i) Sonic shall pay all expenses, including legal and
accounting fees, in connection with the preparation, filing and maintenance of,
as applicable, the S-3 Registration Statement (including any amendments
thereto), the S-3 Resale Prospectus (including any supplements thereto), the
issuance of certificates representing the Original Issuance Shares and other
expenses incurred by Sonic in meeting its obligations set forth herein; and
(ii) Sonic shall indemnify the Sellers for any liabilities
arising under the Securities Act, the Exchange Act, or any state securities or
blue sky laws resulting from any material misstatements in, or omissions of
material information from, the S-3 Resale Prospectus and the S-3 Registration
Statement, including the information incorporated by reference therein, except
for the liabilities referred to in Section 2(c)(v) hereof.
(e) RESTRICTIVE PERIOD. The Sellers shall not offer, sell or
otherwise dispose of, or contract to sell or dispose of, any of the Original
Issuance Shares during the Restrictive Period; provided, however, that each
Seller may transfer his or her Original Issuance Shares during the Restrictive
Period: (i) to his or her spouse or issue or to a trust for the benefit of his
or her spouse or issue or (ii) in connection with his or her death; provided,
further, that in the event of any such transfer contemplated by clause (i) or
(ii) above, such Original Issuance Shares shall remain subject to the
restrictions on transfer in this Section 2(e).
[SIGNATURES APPEAR ON THE FOLLOWING PAGE]
<PAGE>
Please indicate our mutual agreement by signing a copy of this letter in
the space provided below and returning it to the undersigned.
Very truly yours,
/s/ Joseph Herson
----------------------------
Joseph Herson
/s/ Mollye Mills
----------------------------
Mollye Mills
/s/ Richard Mills
----------------------------
Richard Mills
/s/ John Jaffe
-----------------------------
John Jaffe
Accepted and Agreed as of the
date first set forth above:
SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
-----------------------
Its: Vice President-Finance and Chief Financial Officer
--------------------------------------------------
EXHIBIT 5.1
August 3, 1999
Board of Directors
Sonic Automotive, Inc.
5401 East Independence Boulevard
Charlotte, North Carolina 28218
Dear Sirs:
We are acting as counsel to Sonic Automotive, Inc., a Delaware corporation
(the "Company"), in connection with the preparation, execution, filing and
processing with the Securities and Exchange Commission (the "Commission"),
pursuant to the Securities Act of 1933, as amended (the "Act"), of a
Registration Statement (File No. 333-82615) on Form S-3 (as amended through the
date hereof, the "Registration Statement"). This opinion is furnished to you for
filing with the Commission pursuant to Item 601(b)(5) of Regulation S-K
promulgated under the Act.
The Registration Statement covers resales by certain selling stockholders
listed in the Registration Statement (the "Selling Stockholders") of certain
shares of the Company's Class A Common Stock, par value $.01 per share (the
"Class A Common Stock") that were issued by the Company in connection with
acquisitions of the Selling Stockholders' businesses or have been or will be
issued upon conversion of shares of the Company's Class A Convertible Preferred
Stock, par value $.10 per share, which were issued in connection with
acquisitions of the Selling Stockholders' businesses.
In our representation of the Company, we have examined (i) the
Registration Statement, (ii) the Company's Certificate of Incorporation and
Bylaws, each as amended to date, (iii) all actions of the Company's Board of
Directors recorded in the Company's minute book, (iv) the
<PAGE>
Board of Directors
Sonic Automotive, Inc.
August 3, 1999
Page 2
form of certificate for the Class A Common Stock, (v) the form of certificate
for the Company's Class A Convertible Preferred Stock, Series II, par value $.10
per share (the "Series II Preferred Stock"), (vi) that certain Agreement and
Plan of Merger dated as of March 16, 1999 by and among the Company, Williams
Cadillac Company, Inc., Thomas P. Williams, Sr., Charles Clark Williams, Thomas
P. Williams, Jr. and Catherine D. Ward, (vii) that certain Agreement and Plan of
Merger dated as of December 15, 1998 by and among the Company, JN Management
Co., Newsome Autoworld, Inc., Newsome Chevrolet World, Inc. and John H. Newsome,
Jr., as amended by that certain Amendment No. 1 and Supplement to Agreement and
Plan of Merger dated as of May 17, 1999 (as amended, the "Newsome Merger
Agreement"), (viii) that certain Stock Purchase Agreement dated as of April 30,
1998 by and among the Company, Aldo B. Paret and Casa Ford of Houston, Inc.,
(ix) that certain Agreement and Plan of Merger dated as of April 6, 1999 by and
among the Company, Manhattan Auto, Inc., Joseph Herson, Mollye Mills, John Jaffe
and Richard Mills, (x) a certificate of good standing with respect to the
Company from the State of Delaware and (x) such other documents as we have
considered necessary for purposes of rendering the opinions expressed below.
Based upon the foregoing, we are of the following opinions:
1. The 176,030 shares of Class A Common Stock issued by the Company to
John H. Newsome, Jr. have been duly authorized and validly issued and are fully
paid and non-assessable.
2. The 3,750 shares (the "Newsome Preferred Shares") of Series II
Preferred Stock issued by the Company to John H. Newsome, Jr. have been duly
authorized and validly issued and are fully paid and non-assessable. The 249,376
shares of Class A Common Stock reserved for issuance upon conversion of the
Newsome Preferred Shares have been duly authorized and, when and to the extent
issued upon conversion of the Newsome Preferred Shares in accordance with the
Company's Certificate of Incorporation, as amended to date, will be validly
issued and fully paid and non-assessable.
3. The 306,630 shares of Class A Common Stock issued by the Company to
Aldo B. Paret have been duly authorized and validly issued and are fully paid
and non-assessable.
<PAGE>
Board of Directors
Sonic Automotive, Inc.
August 3, 1999
Page 3
4. The 267,619 shares of Class A Common Stock issued by the Company to
Thomas P. Williams, Sr. have been duly authorized and validly issued and are
fully paid and non-assessable.
5. The 25,018 shares of Class A Common Stock issued by the Company to
Charles Clark Williams have been duly authorized and validly issued and are
fully paid and non-assessable.
6. The 25,018 shares of Class A Common Stock issued by the Company to
Thomas P. Williams, Jr. have been duly authorized and validly issued and are
fully paid and non-assessable.
7. The 7,148 shares of Class A Common Stock issued by the Company to
Catherine D. Ward have been duly authorized and validly issued and are fully
paid and non-assessable.
8. The 478,089 shares of Class A Common Stock issued by the Company to
Joseph L. Herson have been duly authorized and validly issued and are fully paid
and non-assessable.
9. The 339,332 shares of Class A Common Stock issued by the Company to
John Jaffe have been duly authorized and validly issued and are fully paid and
non-assessable.
10. The 478,089 shares of Class A Common Stock issued by the Company to
Mollye Mills have been duly authorized and validly issued and are fully paid and
non-assessable.
11. The 103,392 shares of Class A Common Stock issued by the Company to
Richard Mills have been duly authorized and validly issued and are fully paid
and non-assessable.
The opinions expressed herein are limited to matters governed by the
General Corporation Law of the State of Delaware.
<PAGE>
Board of Directors
Sonic Automotive, Inc.
August 3, 1999
Page 4
We hereby consent to the use of this opinion letter as Exhibit 5.1 to the
Registration Statement and to the use of our name under the heading "Legal
Matters" in related prospectuses. In giving this consent, we do not admit that
we are in the category of persons whose consent is required under Section 7 of
the Act or the rules and regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Parker, Poe, Adams & Bernstein L.L.P.
PJS:GCI:skc
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders of
Sonic Automotive, Inc.:
We consent to the incorporation by reference in this Amendment No. 1 to the
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 Amendment No. 1 to the 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
August 3, 1999
