SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2)
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Confidential, For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
SONIC AUTOMOTIVE, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
PAYMENT OF FILING FEE (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
(Sonic Automotive Logo appears here)
5401 EAST INDEPENDENCE BOULEVARD
CHARLOTTE, NORTH CAROLINA 28218
September , 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders to be held at 10:00 a.m. on , 1998, at the Speedway
Club, located at the Charlotte Motor Speedway, Smith Tower, U.S.
Highway 29 North, Concord, North Carolina. We look forward to
greeting personally those stockholders who are able to attend.
The accompanying formal Notice of Meeting and Proxy Statement
describe the matters on which action will be taken at the meeting.
Whether or not you plan to attend the Meeting on , it is
important that your shares be represented. To ensure that your vote
will be received and counted, please sign, date and mail the
enclosed proxy at your earliest convenience. Your vote is important
regardless of the number of shares you own.
On behalf of the Board of Directors
Sincerely,
O. BRUTON SMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
VOTING YOUR PROXY IS IMPORTANT
PLEASE SIGN AND DATE YOUR PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE
SONIC AUTOMOTIVE, INC.
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NOTICE OF MEETING
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Charlotte, NC
September , 1998
The Annual Meeting of Stockholders of Sonic Automotive, Inc. ("Sonic")
will be held at the Speedway Club, located at the Charlotte Motor Speedway,
Smith Tower, U.S. Highway 29 North, Concord, North Carolina on , 1998, at
10:00 a.m., for the following purposes as described in the accompanying Proxy
Statement:
1. To elect three (3) directors.
2. To consider and vote upon a proposal to amend the Sonic Employee Stock
Purchase Plan to increase the authorized number of shares of Class A
Common Stock, par value $.01 per share (the "Class A Common Stock"),
issuable thereunder from 150,000 to 300,000.
3. To consider and vote upon a proposal to approve the Sonic Formula Stock
Option Plan for Independent Directors.
4. To consider and vote upon a proposal to approve and ratify the issuance
of up to an aggregate of 300,000 shares of Sonic's Class A Convertible
Preferred Stock, par value $.10 per share (the "Preferred Stock").
5. To ratify the appointment of Deloitte & Touche LLP as Sonic's
independent public accountant for the fiscal year ending December 31,
1998.
6. To transact such other business as may properly come before the meeting.
Only holders of record of Sonic's Class A Common Stock, Class B Common
Stock, par value $.01 per share (the "Class B Common Stock" and, together with
Class A Common Stock, the "Common Stock") and Preferred Stock at the close of
business on September , 1998 will be entitled to vote at such meeting.
Whether or not you plan to attend the meeting, you are urged to complete,
sign, date and return the enclosed proxy promptly in the envelope provided.
Returning your proxy does not deprive you of your right to attend the meeting
and to vote your shares in person.
THEODORE M. WRIGHT
SECRETARY
IMPORTANT NOTE: To vote shares of Common Stock and Preferred Stock at the
Annual Meeting (other than in person at the meeting), a stockholder must return
a proxy. The return envelope enclosed with the proxy card requires no postage
if mailed in the United States of America.
SONIC AUTOMOTIVE, INC.
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PROXY STATEMENT
-------------------
September , 1998
GENERAL
INTRODUCTION
The Annual Meeting of Stockholders of Sonic Automotive, Inc. ("Sonic")
will be held on , 1998 at 10:00 a.m., at the Speedway Club, located at the
Charlotte Motor Speedway, Smith Tower, U.S. Highway 29 North, Concord, North
Carolina (the "Annual Meeting"), for the purposes set forth in the accompanying
notice. Only holders of record of Sonic's Class A Common Stock, par value $.01
per share (the "Class A Common Stock"), Class B Common Stock, par value $.01
per share (the "Class B Common Stock" and, together with the Class A Common
Stock, the "Common Stock") and Class A Preferred Stock, par value $.10 per
share (the "Preferred Stock", and together with the Common Stock, the "Voting
Stock") at the close of business on September , 1998 (the "Record Date") will
be entitled to notice of, and to vote at, such meeting. This Proxy Statement is
furnished in connection with the solicitation by the Board of Directors of
proxies to be used at such meeting and at any and all adjournments thereof and
is first being sent to stockholders on or about the date hereof. Proxies in the
accompanying form, properly executed and duly returned and not revoked, will be
voted at the meeting (including adjournments). Where a specification is made by
means of the ballot provided in the proxies regarding any matter presented at
the Annual Meeting, such proxies will be voted in accordance with such
specification. If no specification is made, proxies will be voted (i) in favor
of electing Sonic's three (3) nominees to the Board of Directors; (ii) in favor
of the proposed amendment of the Sonic Employee Stock Purchase Plan, as adopted
and approved on October 9, 1997 and thereafter amended (the "Employee Plan");
(iii) in favor of the proposed Sonic Formula Stock Option Plan for Independent
Directors, as adopted by the Board of Directors on March 20, 1998 (the
"Directors Plan"); (iv) in favor of the proposal to approve and ratify the
issuance of up to an aggregate of 300,000 shares of Preferred Stock; (v) in
favor of the proposal to ratify the appointment of Deloitte & Touche LLP as the
principal independent auditors of Sonic and its subsidiaries (collectively, the
"Company") for the fiscal year ending December 31, 1998, and (vi) in the
discretion of the proxy holders on such other business as may properly come
before the meeting. The Board of Directors currently knows of no other business
that will be presented for consideration at the Annual Meeting.
The Company's principal executive offices are located at 5401 East
Independence Boulevard, Charlotte, NC. However, proxies should not be sent to
that address, but to First Union National Bank of North Carolina, 1525 West
W.T. Harris Boulevard, Mail Code 3C3, Charlotte, North Carolina 28288.
This Proxy Statement is furnished by Sonic to stockholders of Sonic in
connection with the upcoming Annual Meeting.
OWNERSHIP OF CAPITAL SECURITIES
The following table sets forth certain information regarding the
beneficial ownership of the Company's Voting Stock as of September , 1998, by
(i) each stockholder who is known to the Company to own beneficially five
percent or more of each class of the outstanding Voting Stock, (ii) each
director and nominee to the Board of Directors of Sonic, (iii) each executive
officer of Sonic (including the Chief Executive Officer), and (iv) all
directors and executive officers of Sonic as a group. Holders of Class A Common
Stock are entitled to one vote per share on all matters submitted to a vote of
the stockholders of the Company. Holders of Class B Common Stock are entitled
to ten votes per share on all matters submitted to a vote of the stockholders,
except that the Class B Common Stock is entitled to only one vote per share
with respect to any transaction proposed or approved by the Board of Directors
of the Company or proposed by all the holders of the Class B Common Stock or as
to which any holder of Class B Common Stock (the "Smith Group") or any
affiliate thereof has a material financial interest other than as a then
existing stockholder of the Company constituting a (a) "going private"
transaction (as defined herein), (b) disposition of substantially all of the
Company's assets, (c) transfer resulting in a change in the nature of the
Company's business, or (d) merger or consolidation in which current holders of
Common Stock would own less than 50% of the Common Stock following such
transaction. In the event of any transfer outside of the Smith Group or the
Smith Group holds less than 15% of the total number of shares of Common Stock
outstanding, such transferred shares or all shares, respectively, of Class B
Common Stock will automatically convert into an equal number of shares of Class
A Common Stock. Holders of Preferred Stock are entitled to one vote per each
share of Class A Common Stock into which
1
such Preferred Stock is convertible into as of the Record Date of the Annual
Meeting on all matters submitted to a vote of the stockholders of the Company.
Except as otherwise indicated below, each of the persons named in the table has
sole voting and investment power with respect to the securities beneficially
owned by him or it as set forth opposite his or its name subject to community
property laws where applicable.
NUMBER OF NUMBER OF
SHARES OF PERCENTAGE OF SHARES OF
CLASS A OUTSTANDING CLASS B
COMMON CLASS A COMMON
STOCK COMMON STOCK
BENEFICIAL OWNER OWNED STOCK OWNED
- ---------------------------------------- ------------- --------------- -----------
O. Bruton Smith (2)(3) ................. -- -- 5,476,250
Sonic Financial Corporation (2) ........ -- -- 4,440,625
Bryan Scott Smith (2) .................. --(4) -- 478,125
Nelson E. Bowers, II ................... --(5) -- --
Theodore M. Wright ..................... --(6) -- --
William R. Brooks ...................... --(7) -- --
William P. Benton ...................... --(7) -- --
William I. Belk ........................ --(7) -- --
Citicorp (8)(10) ....................... 500,000 9.95% --
Citibank, N.A. (9)(10) ................. 500,000 9.95% --
Wellington Management Company,
LLP (11)(13) .......................... 497,000 9.89% --
Wellington Trust Company, N.A.
(12)(13) .............................. 308,300 6.13% --
Scott Fink (14) ........................ -- -- --
Michael S. Cohen (15) .................. -- -- --
Dan E. Hatfield (16) ................... -- -- --
Dan E. Hatfield, as trustee of The
Bud C. Hatfield, Sr. Irrevocable
Trust (16) ............................ -- -- --
Bud C. Hatfield (16) ................... -- -- --
Century Auto Sales, Inc. (17) .......... -- -- --
Aldo B. Paret (18) ..................... -- -- --
All directors and executive officers
as a group (10 persons) (1) ........... -- -- 5,954,375
PERCENTAGE OF NUMBER OF PERCENTAGE
OUTSTANDING SHARES OF PERCENTAGE OF OF ALL
CLASS B PREFERRED OUTSTANDING OUTSTANDING
COMMON STOCK PREFERRED VOTING
BENEFICIAL OWNER STOCK OWNED STOCK STOCK (1)
- ---------------------------------------- --------------- ----------- --------------- ------------
O. Bruton Smith (2)(3) ................. 87.62% -- -- 48.38%
Sonic Financial Corporation (2) ........ 71.05% -- -- 39.32%
Bryan Scott Smith (2) .................. 7.65% -- -- 4.22%
Nelson E. Bowers, II ................... -- -- -- --
Theodore M. Wright ..................... -- -- -- --
William R. Brooks ...................... -- -- -- --
William P. Benton ...................... -- -- -- --
William I. Belk ........................ -- -- -- --
Citicorp (8)(10) ....................... -- -- -- 4.42%
Citibank, N.A. (9)(10) ................. -- -- -- 4.42%
Wellington Management Company,
LLP (11)(13) .......................... -- -- -- 4.39%
Wellington Trust Company, N.A.
(12)(13) .............................. -- -- -- 2.72%
Scott Fink (14) ........................ -- 1,980 8.66% *
Michael S. Cohen (15) .................. -- 1,980 8.66% *
Dan E. Hatfield (16) ................... -- 3,750 16.40% *
Dan E. Hatfield, as trustee of The
Bud C. Hatfield, Sr. Irrevocable
Trust (16) ............................ -- 1,304 5.70% *
Bud C. Hatfield (16) ................... -- 8,971 39.24% *
Century Auto Sales, Inc. (17) .......... -- 2,166.5 9.47% *
Aldo B. Paret (18) ..................... -- 2,313 10.12% *
All directors and executive officers
as a group (10 persons) (1) ........... 95.27% -- -- 52.60%
- ---------
* Less than one percent
(1) The percentage of total voting power is as follows: O. Bruton Smith,
80.79%, Sonic Financial Corporation, 65.51%. Bryan Scott Smith, 7.05%, and
Citicorp, Citibank, N.A., Wellington Management Company, LLP, Wellington
Trust Company, N.A., Century Auto Sales, Inc., and Messrs. Bowers, Wright,
Brooks, Benton, Belk, Fink, Cohen, Dan E. Hatfield, Dan E. Hatfield, as
trustee of the Bud C. Hatfield, Sr. Special Irrevocable Trust, Bud C.
Hatfield and Paret, less than 1%.
(2) The address of such person or group is 5401 East Independence Boulevard,
Charlotte, North Carolina 28218.
(3) The Schedule 13D filed by the beneficial owner indicates that the shares of
Common Stock shown as owned by such person or group include all of the
shares shown as owned by Sonic Financial Corporation ("Sonic Financial")
elsewhere in the table. Mr. Smith owns the substantial majority of Sonic
Financial's outstanding capital stock.
(4) Does not include 99,875 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's 1997
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(5) Does not include 79,313 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's 1997
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(6) Does not include 38,188 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Company's 1997
Stock Option Plan, which become exercisable in three equal installments
beginning in October 1998.
(7) Does not include 10,000 shares that underlie options to purchase shares of
Class A Common Stock granted by the Company pursuant to the Directors
Plan, which become exercisable in September 1998. For additional
information concerning options granted to the Company's independent
directors, see "Proposed Adoption of the Directors Plan" below.
2
(8) The Schedule 13D filed by the beneficial owner indicates that the shares of
Common Stock shown as owned by such entity or group include all the shares
shown as owned by Citibank, N.A. elsewhere in the table. Citicorp owns all
of the outstanding capital stock of Citibank, N.A.
(9) The Schedule 13D filed by the beneficial owner indicates that Citibank,
N.A. has sole voting power as to 72,000 shares of the 500,000 shares shown
with no voting power as to the remainder and has shared dispositive power
over all 500,000 shares.
(10) The address of such entity is 399 Park Avenue, New York, New York 10043.
(11) The Schedule 13D filed by the beneficial owner indicates that Wellington
Management Company has shared voting power as to 223,700 shares of the
497,000 shares shown with no voting power as to the remainder and has
shared dispositive power over all 497,000 shares.
(12) The Schedule 13D filed by the beneficial owner indicates that Wellington
Trust Company, N.A. has shared voting power as to 84,600 shares of the
308,300 shares shown with no voting power as to the remainder and has
shared dispositive power over all 308,300 shares.
(13) The address of such entity is 75 State Street, Boston, Massachusetts
02109.
(14) The address of such person is 3030 Turtle Brooke, Clearwater, Florida
33761.
(15) The address of such person is 49 Rolling Hill Lane, Old Westbury, New York
11568.
(16) The address of such person is 1500 Automall Drive, Columbus, Ohio 43228.
(17) The address of such entity is 2323 Laurens Road, Greenville, South
Carolina 29607.
(18) The address of such person is 4615 Southwest Freeway, Suite 600, Houston,
Texas 77027.
NUMBER OF SHARES OUTSTANDING AND VOTING
Sonic currently has authorized under its Amended and Restated Certificate
of Incorporation 50,000,000 shares of Class A Common Stock, of which 5,041,462
shares are currently issued and outstanding and entitled to be voted at the
Annual Meeting, and 15,000,000 shares of Class B Common Stock, of which
6,250,000 shares are currently issued and outstanding and entitled to be voted
at the Annual Meeting. In addition, Sonic currently has authorized under its
Amended and Restated Certificate of Incorporation 3,000,000 shares of preferred
stock, par value $.10 per share, of which 27,058.8 shares of Preferred Stock
are currently issued and outstanding and entitled to be voted at the Annual
Meeting. At the meeting, holders of Class A Common Stock will have one vote per
share, holders of Class B Common Stock will have ten votes per share, and
holders of Preferred Stock will have one vote per each share of Class A Common
Stock into which such Preferred Stock is convertible as of the record date of
the Annual Meeting, or an aggregate total of votes attributable to such
outstanding Preferred Stock. A quorum being present, directors will be elected
by majority vote, and the actions proposed in the remaining items referred to
in the accompanying Notice of Meeting will become effective if a majority of
the votes cast by shares entitled to vote on the subject matter is cast in
favor thereof. Abstentions and broker non-votes will not be counted in
determining the number of shares voted for any director-nominee or for any
proposal.
A holder of Voting Stock who signs a proxy card may withhold votes as to
any director-nominee by writing the name of such nominee in the space provided
on the proxy card.
REVOCATION OF PROXY
Stockholders who execute proxies may revoke them at any time before they
are exercised by delivering a written notice to Theodore M. Wright, the
Secretary of Sonic, either at the Annual Meeting or prior to the meeting date
at the Company's offices at 5401 East Independence Boulevard, Charlotte, North
Carolina 28218, by executing and delivering a later-dated proxy, or by
attending the meeting and voting in person.
EXPENSES OF SOLICITATION
The Company will pay the cost of solicitation of proxies, including the
cost of assembling and mailing this Proxy Statement and the materials enclosed
herewith. In addition to the use of the mails, proxies may be solicited
personally, or by telephone or telegraph, by corporate officers and employees
of the Company without additional compensation. The Company intends to request
brokers and banks holding stock in their names or in the names of nominees to
solicit proxies from their customers who own such stock, where applicable, and
will reimburse them for their reasonable expenses of mailing proxy materials to
their customers.
3
1999 STOCKHOLDER PROPOSALS
In order for stockholder proposals intended to be presented at the 1999
Annual Meeting of Stockholders to be eligible for inclusion in the Company's
proxy statement and the form of proxy for such meeting, they must be received
by the Company at its principal offices in Charlotte, North Carolina no later
than January 31, 1999.
ELECTION OF DIRECTORS
NOMINEES FOR ELECTION AS DIRECTORS OF SONIC
Directors of Sonic are elected at the Annual Meetings of stockholders of
Sonic to serve staggered terms of three years and until their successors are
elected and qualified. The Board of Directors of Sonic currently consists of
seven (7) directors, three of whom must be elected at the Annual Meeting.
It is intended that the proxies in the accompanying form will be voted at
the meeting for the election to the Board of Directors of the following
nominees, each of whom has consented to serve if elected: William P. Benton,
William I. Belk and Bryan Scott Smith, each to serve a three year term until
the 2001 Annual Meeting of Stockholders and until his successor shall be
elected and shall qualify, except as otherwise provided in Sonic's Amended and
Restated Certificate of Incorporation and Bylaws. All of the nominees are
presently directors of Sonic. If for any reason any nominee named above is not
a candidate when the election occurs, it is intended that proxies in the
accompanying form will be voted for the election of the other nominees named
above and may be voted for any substitute nominee or, in lieu thereof, the
Board of Directors may reduce the number of directors in accordance with
Sonic's Amended and Restated Certificate of Incorporation and Bylaws.
The name, age, present principal occupation or employment and the material
occupations, positions, offices or employments for the past five years of each
Sonic director, director-nominee, and executive officer are set forth below.
O. BRUTON SMITH, 71, has been the Chairman, Chief Executive Officer and a
director of the Company since its organization in 1997 and presently is the
controlling stockholder of the Company through his direct and indirect
ownership of Class B Common Stock. Mr. Smith has been the president and
controlling stockholder of Sonic Financial since its formation, which presently
owns a controlling interest in the Company's Common Stock and which previously
owned a controlling interest in several of the Company's predecessor dealership
companies. Mr. Smith owned a controlling interest in Town and Country Toyota
until its acquisition by the Company in 1997. Mr. Smith currently is, and since
their acquisition by the Company has been, a director and the president of each
of the Company's dealerships. Mr. Smith has worked in the retail automobile
industry since 1966. His term as a director of the Company will expire at the
annual meeting of stockholders of the Company to be held in 2000. Mr. Smith is
also the chairman and chief executive officer, a director and controlling
shareholder, either directly or through Sonic Financial, of Speedway
Motorsports, Inc. ("SMI") (NYSE symbol: TRK) and is also the executive officer
and a director of each of SMI's operating subsidiaries. Among other things, SMI
owns and operates the following NASCAR racetracks: Atlanta Motor Speedway,
Bristol Motor Speedway, Charlotte Motor Speedway, Sears Point Raceway and Texas
Motor Speedway. Under his employment agreement with the Company, Mr Smith is
required to devote approximately 50% of his business time to the Company's
business.
BRYAN SCOTT SMITH, 30, has been the President and Chief Operating Officer
of the Company since April 1997, and a director of the Company since its
organization in 1997. Mr. Smith also serves as the executive officer and a
director or manager, as the case may be, of each of the Company's subsidiaries.
Mr. Smith, who is the son of Bruton Smith, has been the Vice President since
1993 and was a minority owner of Town & Country Ford until its acquisition by
the Company in 1997. Mr. Smith joined one of the Company's predecessor entities
in January 1991 on a full-time basis as an assistant used car manager. In
August of 1991, Mr. Smith became the used car manager at Town & Country Ford.
Mr. Smith was promoted to General Manager of Town & Country Ford in November
1992 where he remained until his appointment to President and Chief Operating
Officer of the Company in April of 1997. Mr. Smith is standing for election as
a director of the Company at the Annual Meeting.
NELSON E. BOWERS, II, 53, became the Executive Vice President and a
director of the Company in December 1997. Mr. Bowers also serves as an
executive officer and a director of certain of the Company's subsidiaries. Mr.
Bowers owned a controlling interest in the dealerships that were the subject of
an acquisition by the Company in 1997, and has worked in the retail automobile
industry since 1974. Mr. Bowers has served on national dealer councils for BMW
and Volvo and has owned and operated dealerships since 1979. Several of the
dealerships previously owned by Mr. Bowers have been awarded the highest awards
available from manufacturers for customer satisfaction. Mr. Bowers' term as a
director of the Company will expire at the annual meeting of stockholders to be
held in 1999.
4
THEODORE M. WRIGHT, 35, has been the Chief Financial Officer, Vice
President-Finance, Treasurer and Secretary of the Company since April 1997, and
a director of the Company since June 1997. Before joining the Company, Mr.
Wright was a Senior Manager and in charge of the Columbia, South Carolina
office of Deloitte & Touche LLP. Prior to joining the Columbia office, Mr.
Wright was a Senior Manager in Deloitte & Touche LLP's National Office,
Accounting Research and SEC Services Departments from 1994 to 1995. From 1992
to 1994 Mr. Wright was an audit manager with Deloitte & Touche LLP. Mr.
Wright's term as a director of the Company will expire at the annual meeting of
stockholders to be held in 1999.
WILLIAM R. BROOKS, 47, has been a director of the Company since its
formation. Mr. Brooks also served as the Company's Treasurer, Vice President
and Secretary from its organization in February 1997 to April 1997 when Mr.
Wright was appointed to those positions. Since December 1994, Mr. Brooks has
been the Vice President, Treasurer, Chief Financial Officer and a director of
SMI. Mr. Brooks also serves as an executive officer and a director for various
operating subsidiaries of SMI. Before the formation of SMI in December 1994,
Mr. Brooks was a Vice President of Charlotte Motor Speedway and a Vice
President and a director of Atlanta Motor Speedway. Mr. Brooks joined Sonic
Financial from Price Waterhouse in 1983. At Sonic Financial, he was promoted
from Manager to Controller in 1985 and again to Chief Financial Officer in
1989. Mr. Brooks' term as a director of the Company will expire at the annual
meeting of stockholders to be held in 2000.
WILLIAM P. BENTON, 74, became a director of the Company in December 1997.
Since January 1997, Mr. Benton has been the Executive Director of Ogilvy &
Mather, a world-wide advertising agency. He is also a consultant to the
Chairman and Chief Executive Officers of TI Group and Allied Holdings, Inc.
Prior to his appointment at Ogilvy & Mather, Mr. Benton served as Vice Chairman
of Wells, Rich, Greene/BDDP, Inc., an advertising agency with offices in New
York and Detroit. Mr. Benton retired from Ford Motor Company as its Vice
President of Marketing Worldwide in 1984 after a 37-year career with that
company. Mr. Benton is standing for election as a director of the Company at
the Annual Meeting.
WILLIAM I. BELK, 49, became a director of the Company in March 1998. Mr.
Belk is currently the Vice President and Director for Monroe Hardware Company,
Director for Piedmont Ventures, Inc., and Treasurer and Director for Old Well
Water, Inc. Mr. Belk previously held the position of Chairman and Director for
certain Belk stores (a privately held retail department store chain). Mr. Belk
is standing for election as a director of the Company at the Annual Meeting.
The Board of Directors of the Company is divided into three classes, each
of which, after a transitional period, will serve for three years, with one
class being elected each year. The executive officers are elected annually by,
and serve at the discretion of, the Company's Board of Directors.
COMMITTEES OF THE BOARD OF DIRECTORS
There are two standing committees of the Board of Directors of the
Company, the Audit Committee and the Compensation Committee. The Audit
Committee was appointed on March 20, 1998 and consists of Messrs. Benton, Belk
and Brooks. The Compensation Committee currently has no members and its
functions are being performed by the full Board of Directors. The Board of
Directors intends to select members for its Compensation Committee at the
annual Board of Directors meeting to occur after the Annual Meeting. Set forth
below is a summary of the principal functions of each committee. There were no
meetings held for either of the committees during 1997.
AUDIT COMMITTEE. The Audit Committee recommends the appointment of the
Company's independent auditors, determines the scope of the annual audit to be
made, reviews the conclusions of the auditors and reports the findings and
recommendations thereof to the Board, reviews the Company's auditors, the
adequacy of the Company's system of internal control and procedures and the
role of management in connection therewith, reviews transactions between the
Company and its officers, directors and principal stockholders, and performs
such other functions and exercises such other powers as the Board from time to
time may determine.
COMPENSATION COMMITTEE. The Compensation Committee administers certain
compensation and employee benefit plans of the Company, annually reviews and
determines executive officer compensation, including annual salaries, bonus
performance goals, bonus plan allocations, stock option grants and other
benefits, direct and indirect, of all executive officers and other senior
officers of the Company. The Compensation Committee administers the Sonic 1997
Stock Option Plan and the Employee Plan, and periodically reviews the Company's
executive compensation programs and takes action to modify programs that yield
payments or benefits not closely related to the Company or executive
performance. The policy of the Compensation Committee's program for executive
officers is to link pay to business strategy and performance in a manner which
is effective in attracting, retaining and rewarding key executives while also
providing performance incentives and awarding equity-based compensation to
align the long-term interests of executive officers with those of Company
stockholders. It is the Compensation Committee's objective to offer salaries
and incentive performance pay opportunities that are competitive in the
marketplace.
5
The Company currently has no standing nominating committee.
During 1997, there was one meeting of the Board of Directors of the
Company, with each director attending the meeting.
PROPOSED AMENDMENT TO EMPLOYEE PLAN
The Board of Directors of Sonic has approved an amendment to the Employee
Plan to increase the number of shares of Common Stock that may be issued under
the Employee Plan by 150,000, from 150,000 to 300,000, subject to stockholder
approval (the "Employee Plan Amendment"). The Employee Plan Amendment is being
proposed to allow future grants to employees. No other amendments to the
Employee Plan are proposed.
Options granted that are unexercised will expire at the end of each
calendar year. In January 1998, the Board of Directors granted each participant
an option to purchase up to 310 shares at an exercise price equal to the lesser
of 85% of the market value for shares of Class A Common Stock on the date of
grant or 85% of such market value on the date of exercise. At present, 41,462
options have been exercised to date in 1998.
The Employee Plan was adopted by the Board of Directors and approved by
the Company's stockholders on October 9, 1997. The Employee Plan is intended to
promote the interests of the Company by providing employees of the Company the
opportunity to acquire a proprietary interest in the Company through the
purchase of Class A Common Stock.
The Employee Plan is intended to qualify as an "employee stock purchase
plan" under Code Section 423. The Employee Plan is administered by the
Compensation Committee which, subject to the terms of the Employee Plan, has
plenary authority in its discretion to interpret and construe the Employee
Plan. A total of 300,000 shares of Class A Common Stock have been reserved for
purchase under the Employee Plan as currently presented to the stockholders
under the Employee Plan Amendment.
As of January 1 of each year during the term of the Employee Plan (the
"Grant Date"), all eligible employees electing to participate in the Employee
Plan ("Participating Employees") will be granted an option to purchase shares
of Class A Common Stock. As of each Grant Date, the Compensation Committee will
determine the number of shares of Class A Common Stock available for purchase
under each option, with the same number of shares to be available under each
option granted on the same Grant Date. No Participating Employee may be granted
an option which would permit such employee to purchase stock under the Employee
Plan and all other employee stock purchase plans of the Company at a rate which
exceeds $25,000 of the fair market value of such stock (determined at the time
such option is granted) for each calendar year in which such option is
outstanding at any time.
A Participating Employee may elect to designate a limited percentage of
such employee's compensation (as defined in the Employee Plan) to be deferred
by payroll deduction as a contribution to the Employee Plan. A Participating
Employee instead may elect to make contributions by direct cash payment to the
Employee Plan rather than by payroll deduction. To the extent a Participating
Employee has accumulated enough funds, his or her contributions to the Employee
Plan will be used to exercise the option granted under the Employee Plan
through purchases of Class A Common Stock on the last business day of March,
June, September and December on which the principal trading market for the
Class A Common Stock is open for trading and on any other interim dates during
the year which the Compensation Committee designates for such purpose (the
"Exercise Date").
The purchase price at which Class A Common Stock will be purchased through
the Employee Plan is eighty-five percent of the lesser of (i) the fair market
value of the Class A Common Stock on the applicable Grant Date, and (ii) the
fair market value of the Class A Common Stock on the applicable Exercise Date.
Any option granted to a Participating Employee will be exercised automatically
on each Exercise Date during the calendar year of the option's Grant Date in
whole or in part such that the Participating Employee's accumulated
contributions as of such Exercise Date, either through direct cash payment or
payroll withholding, will be applied to the purchase of the maximum number of
whole shares of Class A Common Stock that such contribution will permit at the
applicable option price, limited to the number of shares available for purchase
under the option. Contributions which are not enough to purchase a whole share
of Class A Common Stock will be carried forward and applied on the next
Exercise Date in that calendar year.
Any option granted to a Participating Employee will expire on the last
Exercise Date of the calendar year in which granted. However, if a
Participating Employee withdraws from the Employee Plan or terminates
employment prior to such Exercise Date, the option may expire earlier.
6
Upon termination of a Participating Employee's employment for any reason
other than cause or death, such employee may, at his election, request the
return of contributions not yet used to purchase Class A Common Stock or
continue participation in the Employee Plan until the next Exercise Date
following the date of termination of employment so that any unexpired option
held will be exercised automatically on such Exercise Date. If a Participating
Employee dies while employed by the Company or prior to the next Exercise Date
following termination of employment unrelated to cause, such employee's estate
will have the right to elect to withdraw all contributions not yet used to
purchase Class A Common Stock or to exercise the Participating Employee's
option for the purchase of Class A Common Stock on the Exercise Date next
following the date of such employee's death.
The Board of Directors of Sonic may at any time amend, suspend or
terminate the Employee Plan; provided, however, that the Employee Plan may not
be amended to increase the maximum number of shares of Class A Common Stock for
which options may be granted under the Employee Plan without obtaining approval
of the Company's stockholders.
Set forth below is information with respect to options granted in 1998
under the Employee Plan.
NEW PLAN BENEFITS
EMPLOYEE STOCK PURCHASE PLAN
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS (#)
- ----------------------------------------------------------------------- ------------------ --------------------
O. Bruton Smith
Chairman and Chief Executive Officer ................................. (1) (1)
Bryan Scott Smith
President, Chief Operating Officer and Director ...................... (1) (1)
Nelson E. Bowers, II
Executive Vice President and Director ................................ (2) 310
Theodore M. Wright
Vice President, Treasurer and Chief Financial Officer and Director ... (2) 310
All current executive officers as a group ............................. (2) 620
All current non-executive officer directors as a group (3) ............ -- --
All current non-executive officer employees as a group ................ (2) 149,730
- ---------
(1) As a holder of more than 5% of the Common Stock or as a holder of the Class
B Common Stock, Messrs. Bruton Smith and Scott Smith are not eligible to
participate in the Employee Plan.
(2) Dollar amounts of units received in 1998 by the persons or groups indicated
in the above-referenced table are not readily determinable since the value
of options granted will depend on fluctuating market prices.
(3) Non-executive officer directors of the Company are ineligible to
participate in the Employee Plan.
FEDERAL INCOME TAX CONSEQUENCES. The Employee Plan is intended to meet the
requirements of an "employee stock purchase plan" under Code Section 423.
Accordingly, no federal taxable income will be recognized by Participating
Employees upon the grant of an option to purchase Class A Common Stock under
the Employee Plan. In addition, a Participating Employee generally will not
recognize federal taxable income on the exercise of an option granted under the
Employee Plan, but instead will take a tax basis in the Class A Common Stock
received equal to the option exercise price.
If the Participating Employee holds the shares of Class A Common Stock
acquired upon the exercise of an option under the Employee Plan for a period
that is at least two years following the grant date of the relevant option and
at least one year following the option exercise date, or if the Participating
Employee dies while holding such shares of Class A Common Stock, the
Participating Employee will recognize ordinary income for federal income tax
purposes at the time of disposition of such shares of Class A Common Stock (or
at death) in an amount equal to the lesser of (i) the excess of the Class A
Common Stock's fair market value when the option was granted over the option
exercise price or (ii) the excess of the Class A Common Stock's fair market
value at the date of such disposition (or death) over the option exercise
price. For this purpose, the option exercise price is deemed to be 85% of the
fair market value of the shares of Class A Common Stock on the grant date of
the relevant option (assuming the shares are purchased at a 15% discount). The
amount of ordinary income recognized will increase the Participating Employee's
basis in the stock for federal income tax purposes, and any additional gain or
loss realized on the disposition of the Class A Common Stock will be taxed as
capital gain or loss. In this case where the holding requirements are met, the
Company will not be entitled to a deduction with respect to any income
recognized by the Participating Employee.
7
If the Participating Employee disposes of the shares of Class A Common
Stock acquired upon the exercise of an option under the Employee Plan before
two years following the grant date of the relevant option or before one year
following the option exercise date, the Participating Employee will recognize
ordinary income for federal income tax purposes at the time of disposition in
the amount by which the fair market value of the shares of Class A Common Stock
on the option exercise date exceeds the option exercise price. The Company will
be entitled to a compensation expense deduction for the Company's taxable year
in which the disposition occurs equal to the amount of ordinary income
recognized by the Participating Employee. Any gain or loss realized on the
disposition of the Class A Common Stock will be taxed as capital gain or loss.
Notwithstanding the foregoing, to the extent a Participating Employee is
employed by a subsidiary of Sonic that is either a partnership or a limited
liability company not considered to be a "subsidiary corporation" within the
meaning of Code Section 424(f), the Participating Employee will recognize
income for federal income tax purposes upon the exercise of an option granted
under the Employee Plan equal to the amount by which the fair market value of
the shares of Class A Common Stock on the date of exercise exceeds the option
exercise price. The Company generally will be allowed a compensation expense
deduction equal to the same amount that the Participating Employee recognizes
as ordinary income. In the event of the disposition of the shares of Class A
Common Stock acquired upon exercise of the option, any additional gain or loss
generally will be taxed to the Participating Employee as capital gain or loss.
PROPOSED ADOPTION OF THE DIRECTORS PLAN
As of March 20, 1998, the Board of Directors of Sonic adopted the
Directors Plan, subject to stockholder approval. The Directors Plan is intended
to be a "formula plan" under Note (3) to Rule 16b-3 of the Securities and
Exchange Commission. The Directors Plan is intended to promote the interest of
the Company and its stockholders by providing the directors of the Company, who
are not affiliated with the Company's management ("Independent Directors") and
who are responsible in part for the Company's growth and financial success,
with the incentives inherent in Class A Common Stock ownership and encouraging
them to continue as directors. A committee of the Board of Directors consisting
of all directors other than the Independent Directors (the "Committee") serves
as the committee to administer and interpret the terms of the Directors Plan on
behalf of the Company.
Under the Directors Plan, on or before March 31 of each year during the
term of the Directors Plan, each person who is then an Independent Director
shall be awarded an option to purchase 10,000 shares of Class A Common Stock up
to a total of 300,000 shares reserved under the Directors Plan as currently
presented to the stockholders (subject to further adjustment in certain
events). Options to purchase 30,000 shares have been issued to three
Independent Directors as of March 20, 1998, subject to stockholder approval, as
described below.
An option granted under the Directors Plan (evidenced by an agreement in a
form established, from time to time, by the Committee) entitles the
participants to purchase shares of Class A Common Stock at an option exercise
price equal to the closing sales price of a share of Class A Common Stock on
the last business day immediately preceding the date of such award for which a
closing price is available from the principal trading market for the Class A
Common Stock (the "Fair Market Value"). Options granted under Directors Plan
become exercisable six months after they are granted and expire, unless earlier
terminated as discussed below, on their tenth anniversary of being awarded.
In the event the optionee's status as an Independent Director terminates
incidental to conduct that, in the judgment of the Committee, involves a breach
of fiduciary duty by such Independent Director or other conduct detrimental to
the Company, then his or her options shall terminate immediately and thereafter
be of no force or effect. Options granted under the Directors Plan are
non-transferable and non-assignable by the optionee other than by will or by
the laws of descent and distribution or pursuant to a qualified domestic
relations order as defined by the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder (the "Code") or Title I of
the Employment Retirement Income Security Act and the rules thereunder. No
option may be exercised after the expiration of its term. The option exercise
price is payable in full upon exercise of an option in cash or in shares of
Class A Common Stock owned by the optionee or a combination of cash and Class A
Common Stock. No exercise of options shall be for less than 100 shares of Class
A Common Stock unless the number purchased is the total number of shares in
respect of which the option is then exercisable.
Upon the occurrence of certain events involving the recapitalization or
reorganization of the Company, the Committee will make proportionate
adjustments to the number of shares covered by each outstanding option and the
per share exercise price thereof for any increase or decrease in the number of
shares of Class A Common Stock resulting from a subdivision or consolidation of
shares or the payment of a stock dividend on the Class A Common Stock.
8
Also, as of March 20, 1998, the Committee granted options under the
Directors Plan to the persons indicated in the table below (subject to
stockholder approval) at the Fair Market Value of the Class A Common Stock. On
March 20, 1998, the Fair Market Value was $14.50 per share.
NEW PLAN BENEFITS
FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
NAME AND POSITION DOLLAR VALUE ($) NUMBER OF UNITS (#)
- ----------------------------------------------------------------------- ------------------ --------------------
O. Bruton Smith
Chairman and Chief Executive Officer ................................. -- --
Bryan Scott Smith
President, Chief Operating Officer and Director ...................... -- --
Nelson E. Bowers, II
Executive Vice President and Director ................................ -- --
Theodore M. Wright
Vice President, Treasurer and Chief Financial Officer and Director ... -- --
All current executive officers as a group ............................. -- --
All current non-executive officer directors as a group ................ (1) 30,000
All current non-executive officer employees as a group ................ -- --
- ---------
(1) All options granted in 1998 have an exercise price of $14.50 per share and
have a ten-year term subject to earlier termination as described above.
The dollar value of each of the options granted is not determinable due to
fluctuating market prices. As of September , 1998, the Class A Common
Stock had a closing sales price of $ per share.
The Committee may from time to time amend, suspend or discontinue the
Directors Plan or revise it in any respect whatsoever for the purpose of
maintaining or improving its effectiveness as an incentive device, for the
purpose of conforming it to applicable governmental regulations or to any
change in applicable law or regulations, or for any other purpose permitted by
law. The Committee may not, without approval of the stockholders, materially
increase the benefits accruing to participants under the Directors Plan,
materially increase the number of shares of Class A Common Stock that may be
issued upon exercise of options granted under the Directors Plan or materially
modify the Directors Plan's requirements as to eligibility for participation.
FEDERAL INCOME TAX CONSEQUENCES. No federal taxable income is recognized
by plan participants upon the grant of a nonqualified stock option. The
Independent Directors of Sonic are subject to liability under Section 16(b) of
the Securities Exchange Act of 1934, as amended ("16(b) Optionees"), and are
not deemed to recognize the ordinary income attributable to exercise until the
occurrence of both (i) an exercise and (ii) the earlier of (a) the expiration
of six months after the date of grant of the option and (b) the first day on
which the sale of stock at a profit will not subject the director to Section 16
liability (the "Recognition Date"). The amount of ordinary income to be
recognized by 16(b) Optionees will equal the excess of the Fair Market Value on
the Recognition Date of Sonic's shares so purchased over the option exercise
price, unless the 16(b) Optionee files a written election with both the
Internal Revenue Service and the Company pursuant to Section 83(b) of the Code
within thirty days after exercise to have the ordinary income attributable to
exercise realized as of the exercise date, in which case the Independent
Director will recognize ordinary income equal to the amount by which the Fair
Market Value of the purchased shares on the date of exercise exceeds the option
exercise price.
The Fair Market Value of the shares on the date of exercise (or in the
case of 16(b) Optionees who do not make an 83(b) election, on the Recognition
Date) will constitute the tax basis thereof for computing capital gain or loss
on any subsequent sale, and the holding period for an Independent Director will
generally be measured from the date the option is exercised (or in the case of
16(b) Optionees who do not make an 83(b) election, from the Recognition Date).
The Company will be entitled to a business expense deduction in the Company's
taxable year that includes the end of the taxable year of the 16(b) Optionee
during which the 16(b) Optionee recognizes income as the result of the exercise
of the option equal to the amount of ordinary income recognized by the 16(b)
Optionee, provided that the Company timely complies with applicable Form W-2 or
1099 reporting requirements with respect to such income. Additional gain or
loss shall be recognized by the optionee upon the subsequent disposition of the
shares.
If the option exercise price under any nonqualified stock option is paid
for by surrendering shares of Class A Common Stock previously acquired, then
the optionee will recognize ordinary income on the exercise as described above
with respect to any shares acquired under the option in excess of the number of
shares surrendered (such shares being treated as having
9
been acquired without consideration), but will not recognize any taxable gain
or loss on the difference between the optionee's basis in the surrendered
shares and their current Fair Market Value. For federal income tax purposes,
that number of newly acquired shares equal to the number of shares surrendered
will have the same basis and holding period as the surrendered shares. Any
newly acquired shares in excess of the number of shares surrendered will have a
basis equal to their Fair Market Value at exercise and their holding period
will begin at the date of exercise, as described above.
PROPOSED APPROVAL OF ISSUANCE OF CLASS A PREFERRED STOCK
GENERAL
The Company's Amended and Restated Certificate of Incorporation authorizes
the Board of Directors to issue up to 3,000,000 shares of preferred stock, par
value $.10 per share, in one or more series and to establish such designations
and such voting, dividend, liquidation, conversion and other rights,
preferences and limitations as the Board of Directors may determine without
further approval of the stockholders of the Company. Under this general
authorization, the Board of Directors approved the designation and
classification of the Preferred Stock on March 20, 1998. The Preferred Stock
consists of a total of 300,000 authorized shares, divided into 100,000 shares
of Series I Convertible Preferred Stock (the "Series I Preferred Stock"),
100,000 shares of Series II Convertible Preferred Stock (the "Series II
Preferred Stock"), and 100,000 shares of Series III Convertible Preferred Stock
(the "Series III Preferred Stock"). A total of 2,700,000 shares of authorized
preferred stock remain undesignated and unissued under the Company's Amended
and Restated Certificate of Incorporation.
In connection with the Company's acquisition of the assets of M&S Auto
Resources, Inc. (d/b/a Clearwater Toyota), Clearwater Auto Resources, Inc.
(d/b/a Clearwater Mitsubishi) and Clearwater Collision Center, Inc. in March
1998 (the "Clearwater Acquisition"), the Company issued 3,960 shares of Series
III Preferred Stock to the two stockholders of M&S Auto Resources, Inc. In
connection with the Company's acquisition of the assets of Hatfield Jeep Eagle,
Inc., Hatfield Lincoln Mercury, Inc., Trader Bud's Westside Dodge, Inc., Toyota
West, Inc., and Hatfield Hyundai, Inc. in July 1998 (the "Hatfield
Acquisition"), the Company issued 14,025 shares of Series I Preferred Stock to
the three stockholders of the acquired companies. In connection with the
Company's acquisition of the assets of Fairway Management Company d/b/a
Heritage Lincoln-Mercury-Jaguar (the "Heritage Acquisition"), the Company
issued 400 shares of Series II Preferred Stock to the stockholder of the
acquired company at the closing of the acquisition of the Lincoln-Mercury
assets of the acquired company in July 1998, and the Company will issue an
additional 200 shares of Series II Preferred Stock to the stockholder if it is
able to consummate its acquisition of the Jaguar dealership assets of the
acquired company. In connection with the Company's acquisition of all of the
capital stock of Capitol Chevrolet and Imports, Inc. in July 1998, which was
effected by merging such entities into a newly-formed subsidiary of the Company
(the "Montgomery Acquisition"), the Company issued 381.3 shares of Series I
Preferred Stock and 3,813 shares of Series II Preferred Stock to the
stockholders of the acquired companies. In connection with the Company's
acquisition of the assets of Century Auto Sales, Inc. d/b/a/ Century BMW (the
"Century Acquisition"), the Company issued 2,166.5 shares of Series II
Preferred Stock to the stockholder of the acquired company. In connection with
the Company's acquisition of all of the capital stock of Casa Ford of Houston,
Inc. ("Casa Ford") in July 1998 (the "Casa Ford Acquisition"), the Company
issued 2,313 shares of Series III Preferred Stock to the stockholder of the
acquired company. No other shares of Preferred Stock have been issued by the
Company. The Company, however, has agreed to issue approximately 5,100 shares
of Series I Preferred Stock and 8,250 shares of Series III Preferred Stock in
connection with possible asset or stock acquisitions of two other dealership
groups. See "The 1998 Acquisitions." Issuances of Preferred Stock have been and
will be made in exchange for assets or interests in acquired businesses having
a fair market value equal to $1,000 per share of Preferred Stock issued, which
represents the liquidation preference of such Preferred Stock.
The Board of Directors believes that the proposed authorization to issue
the Preferred Stock would also enhance the Company's flexibility in connection
with possible future actions, such as acquisitions of businesses and assets,
mergers, financings and other corporate purposes deemed appropriate by the
Board of Directors. The Preferred Stock may have significant advantages in
certain acquisition situations over the payment of cash, the issuance of debt
instruments or securities or the issuance of Common Stock.
The issuance of Preferred Stock (including issuance of Class A Common
Stock upon conversion of Preferred Stock) could have one or more of the
following effects: (1) a dilution of the book value and earnings per share of
the Common Stock; (2) a dilution of the voting power of the then current
holders of Common Stock; (3) reduction in any amount potentially available for
payment of dividends on the Common Stock; and (4) a reduction in the share of
assets available for distribution to holders of Common Stock upon liquidation,
dissolution or winding up of the Company. In addition, the issuance of shares
of Preferred Stock could have the effect of discouraging attempts to acquire
control of the Company. Neither the
10
Board of Directors nor management of the Company is aware of any current effort
by any person or group to acquire control of the Company. Furthermore, the
Company has no current intention to issue any shares of Preferred Stock to
discourage any effort to acquire control of the Company.
While the Delaware General Corporation Law and the Company's Amended and
Restated Certificate of Incorporation do not require stockholder approval of
the issuance of the Preferred Stock, under applicable New York Stock Exchange
listing rules, the approval of the Company's existing common stockholders is
required for the issuance of any class of preferred stock that is convertible
into 20% or more of the Company's outstanding Common Stock. Under the terms of
the Preferred Stock as presently approved by the Board of Directors, the
conversion rights of all shares of Preferred Stock is limited to an aggregate
of 2,249,999 shares of Class A Common Stock pending stockholder approval. Until
such stockholder approval is received, shares of Class A Common Stock will not
be issued upon conversion of any Preferred Stock in excess of this aggregate
amount, and, instead, the holders of Preferred Stock will be entitled to cash
equal to the Market Price (as defined below) of such excess shares of Class A
Common Stock. After stockholder approval of the issuance of the Preferred
Stock, any such conversion limitation will no longer be applicable.
The Preferred Stock, as well as the Class A Common Stock into which it is
convertible, is "restricted stock" and therefore can only be sold pursuant to
an effective registration statement under the Securities Act of 1933, as
amended (the "Act"), or pursuant to an exemption from registration under the
Act. All of the shares of Preferred Stock issued by the Company to date were
issued pursuant to private placement exemptions under the Act. The Company does
not expect a public trading market for the Preferred Stock to develop and does
not intend to register the Preferred Stock under federal or state securities
laws. The Company may register some or all of the Class A Common Stock into
which Preferred Stock is subsequently converted. The presently contemplated
issuance of Preferred Stock will not increase the amounts of Common Stock
presently owned by any beneficial owner of more than 5% of the Common Stock, or
by any director or executive officer of the Company.
SUMMARY OF THE TERMS OF THE PREFERRED STOCK
The following is a summary of the terms of the Preferred Stock. This
summary is not intended to be complete and is subject to, and qualified in its
entirety by reference to, the Resolutions Creating Class A Convertible
Preferred Stock comprising a Certificate of Designation (the "Designation")
that was filed on March 23, 1998 with the Secretary of State of Delaware
amending the Company's Amended and Restated Certificate of Incorporation and
setting forth the rights, preferences and limitations of the Preferred Stock, a
copy of which is attached as Exhibit A hereto.
DIVIDENDS. The Preferred Stock has no preferential dividends. Rather,
holders of Preferred Stock are entitled to participate in dividends payable on
the Class A Common Stock on an "as-if-converted" basis.
VOTING RIGHTS. Each share of Preferred Stock entitles its holder to a
number of votes equal to that number of shares of Class A Common Stock into
which it could be converted as of the record date for the vote. As of the
Record Date for the Annual Meeting, the 27,058.8 shares of outstanding
Preferred Stock are convertible into shares of Class A Common Stock and,
therefore, are entitled to votes at the Annual Meeting.
LIQUIDATION RIGHTS. The Preferred Stock has a liquidation preference of
$1,000 per share.
CONVERSION RIGHTS. Each share of Preferred Stock is convertible into
shares of Class A Common Stock at the holder's option at specified conversion
rates. After the second anniversary of the date of issuance, any shares of
Preferred Stock which have not been converted are subject to mandatory
conversion to Class A Common Stock at the option of the Company. No fractional
shares of Class A Common Stock will be issued upon conversion of any shares of
Preferred Stock. Instead, the Company will pay cash equal to the value of such
fractional share.
Generally, each share of Preferred Stock is convertible into that number
of shares of Class A Common Stock that has an aggregate Market Price at the
time of conversion equal to $1,000 (with certain adjustments for the Series II
and Series III Preferred Stock). "Market Price" is defined as the average
closing price per share of Class A Common Stock on the New York Stock Exchange
for the twenty trading days immediately preceding the date of conversion. If
the Class A Common Stock is no longer listed on the New York Stock Exchange,
then the Market Price will be determined on the basis of prices reported on the
principal exchange on which the Class A Common Stock is listed, or if not so
listed, prices furnished by NASDAQ. If the Class A Common Stock is not listed
on an exchange or reported on by NASDAQ, then the Market Price will be
determined by the Company's Board of Directors.
11
Before the first anniversary of the date of issuance of Preferred Stock,
each holder of Preferred Stock is unable to convert without first giving Sonic
ten business days' notice and an opportunity to redeem such Preferred Stock at
the then applicable redemption price.
REDEMPTION. The Preferred Stock is redeemable at the Company's option at
any time after the date of issuance. The redemption price for the Series I
Preferred Stock is $1,000 per share. The redemption price for the Series II
Preferred Stock and the Series III Preferred Stock is as follows: (i) prior to
the second anniversary of the date of issuance, the redemption price is the
greater of $1,000 per share or the aggregate Market Price of the Class A Common
Stock into which it could be converted at the time of redemption, and (ii)
after the second anniversary of the date of issuance, the redemption price is
the aggregate Market Price of the Class A Common Stock into which it could be
converted at the time of redemption. There is no restriction on Sonic's ability
to redeem the Preferred Stock while there is an arrearage in payment of
dividends on such Preferred Stock. Presently, the Company does not intend to
pay dividends on any shares of Voting Stock.
THE 1998 ACQUISITIONS
All of the 1998 Acquisitions (as defined below) involve the acquisition of
businesses or assets, as further discussed below, comprising automobile
dealerships and related facilities whose operations consist of selling new and
used cars and light trucks, selling replacement parts, providing vehicle
maintenance, warranty, paint and repair services and arranging related
financing and insurance. The Company has undertaken the 1998 Acquisitions to
further the Company's strategy of acquiring (1) well-managed dealerships in
growing metropolitan and suburban geographic markets where the Company has not
previously operated, (2) additional dealerships in its existing markets that
will allow the Company to capitalize on regional economies of scale, offer
greater breadth of products and services and/or increase brand diversity, and
(3) dealerships that have underperformed the industry average but which carry
attractive product lines or have attractive locations, thereby leveraging the
Company's management infrastructure and improving return on investment.
The 1998 Acquisitions will be accounted for using the purchase method of
accounting, and no federal income tax consequences to the Company, other than
potential increases in taxable income, are expected to be generated by the 1998
Acquisitions. All consummated 1998 Acquisitions have received the requisite
federal approvals under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended ("HSR Act"), and the Company's subsidiaries operating these
1998 Acquisitions have received the requisite dealer licenses from the
applicable state authorities. Federal HSR Act approval and state dealer
licensing applications are currently pending with the appropriate authorities
for all pending 1998 Acquisitions, and the receipt of such approvals and
licenses are conditions to the Company's consummation of such acquisitions. No
other federal or state regulatory requirements must be complied with or
approval must be obtained in connection with the 1998 Acquisitions.
THE CLEARWATER ACQUISITION. In March 1998, the Company completed the
Clearwater Acquisition effective January 1, 1998, which is comprised of a
Toyota dealership, a Mitsubishi dealership and a collision repair center, each
located in Clearwater, Florida, for a total purchase price of approximately
$14.9 million, subject to adjustment based on the net book value of the
purchased assets and assumed liabilities as of the closing date. The Clearwater
Acquisition was financed with $11.5 million in cash borrowed from Ford Motor
Credit Company ("Ford Motor Credit") under the Company's revolving credit
facility with Ford Motor Credit (the "Revolving Facility"), and 3,960 shares of
its Series III Preferred Stock with a liquidation preference of approximately
$4.0 million as of the date of the acquisition. By April 30, 1999, the Company
will be required to pay a contingent amount equal to 50% of the combined 1998
pre-tax earnings of the entities acquired, such amount not to exceed
approximately $1.8 million.
The principal place of business for the acquired companies under the
Clearwater Acquisition is 21799 U.S. High-way 19 North, Clearwater, Florida
33765 (Telephone No. (813) 799-1234).
THE HATFIELD ACQUISITION. In July 1998, the Company completed the Hatfield
Acquisition, which is comprised of six individual dealerships located in
Columbus, Ohio selling Chrysler/Plymouth, Dodge, Hyundai, Isuzu, Jeep, KIA,
Lincoln/ Mercury, Subaru, Toyota and Volkswagen brands of vehicles, for a
total purchase price of approximately $48.6 million plus the assumption of
certain liabilities, subject to adjustment based on the value of the net
current assets of the sellers as of the closing date. Of the total purchase
price, the Company paid approximately $34.6 million in cash ($26.2 million of
which was financed by borrowings under the Revolving Facility and the balance
of which was financed by cash from the Company's existing operations), and the
balance of the total purchase price was paid by the Company's issuance to the
sellers of 14,025 shares of its Series I Preferred Stock with a liquidation
preference of approximately $14.0 million. The acquisition of the assets of the
Toyota West dealership portion of the Hatfield Acquisition was closed in escrow
pending the approval
12
of Toyota for the acquisition of this dealership; accordingly, approximately
$7.3 million of the cash portion of the total purchase price was paid by the
Company into an escrow account pending receipt of Toyota's approval. There can
be no assurance that such approval will be obtained.
The principal place of business for the acquired companies under the
Hatfield Acquisition is 4000 West Broad Street, Columbus, Ohio 43228 (Telephone
No. (614) 272-0000).
THE HERITAGE ACQUISITION. In July 1998, the Company completed the Heritage
Acquisition, which is comprised of a Lincoln-Mercury-Jaguar dealership located
in Greenville, South Carolina, for a total purchase price of approximately $0.8
million plus the assumption of certain operating liabilities of the sellers. Of
the total purchase price, the Company paid approximately $0.4 million in cash
(all of which was financed by cash from the Company's existing operations), and
the balance was paid by the Company's issuance to the sellers of 400 shares of
its Series II Preferred Stock with a liquidation preference of $0.4 million. In
connection with the Heritage Acquisition, Chartown, a general partnership and
an affiliate of the Company ("Chartown"), acquired the real property on which
the dealerships comprising the Heritage Acquisition are operated for
approximately $3.0 million, and the Company currently is leasing this real
property from Chartown. Chartown is expected to sell this real property to Mar
Mar Realty Trust, also an affiliate of the Company ("MMRT"), in the future. The
Company did not consummate the acquisition of the assets of the Jaguar
franchise that comprises a portion of the Heritage Acquisition pending a final
determination by Jaguar of whether to approve this acquisition. If Jaguar does
approve this acquisition, the Company will acquire the assets of the Jaguar
franchise and will pay to the sellers an additional $0.2 million plus the net
book value of the assets of the Jaguar franchise. There can be no assurance
that such approval will be obtained.
THE MONTGOMERY ACQUISITION. Also in July 1998, the Company completed the
Montgomery Acquisition, which is comprised of a Chevrolet and a KIA dealership
and a Mitsubishi and Hyundai dealership located in Montgomery, Alabama, for a
total purchase price of approximately $7.9 million paid to the sellers at the
closing plus an additional payment (the "Earn-Out") of up to approximately $3.3
million payable to the sellers in the future contingent on the future
performance of the acquired dealerships. Of the total purchase price paid at
the closing, the Company paid approximately $3.7 million in cash (which was
financed with a portion of the proceeds of the Company's private offering of
$125,000,000 in aggregate principal amount of its 11% Senior Subordinated Notes
due 2008 (the "Notes Offering")), and the balance was paid by the Company's
issuance to the sellers of 381.3 shares of Series I Preferred Stock and 3,813
shares of Series II Preferred Stock with an aggregate liquidation preference of
approximately $4.2 million. The Company has agreed to pay 51% of the Earn-Out
payment, if any, to the sellers in the form of Series II Preferred Stock, and
49% of such payment in cash.
THE CENTURY ACQUISITION. Also in July 1998, the Company completed the
Century Acquisition, which is comprised of a BMW dealership located in
Greenville, South Carolina and a satellite sales location in Spartanburg, South
Carolina. The total consideration paid by the Company for the Century
Acquisition consisted of (i) $2,871,000 in cash (which was financed with a
portion of the proceeds of the Notes Offering), (ii) the assumption by the
Company of approximately $3.2 million in floor plan indebtedness of the seller,
(iii) the issuance to the seller of warrants to purchase 75,000 shares of the
Company's Class A Common Stock at a purchase price equal to the market value of
the Common Stock on the closing date, (iv) the issuance to the seller of
2,166.5 shares of Series II Preferred Stock with a liquidation preference of
approximately $2.2 million, and (v) the assumption by the Company of certain
other liabilities of the seller. The seller under the Century Acquisition is
affiliated with the seller under the Heritage Acquisition. In connection with
the Century Acquisition, Chartown acquired the real property on which the
dealerships comprising the Century Acquisition are operated for approximately
$5.0 million, and the Company is currently leasing this real property from
Chartown. Chartown is expected to sell the real property to MMRT in the future.
THE CASA FORD ACQUISITION. Also in July 1998, the Company completed the
Casa Ford Acquisition, which is comprised of a Ford dealership located in the
Houston, Texas area, for a total purchase price paid at closing of
approximately $11.3 million, less certain affiliated and excluded indebtedness
effectively paid or assumed by the Company. The price paid at closing is
subject to adjustment at a later date based upon a final determination of the
net working capital of Casa Ford. Of the price paid at closing, the Company
paid approximately $9.0 million in cash (which was financed with a portion of
the proceed of the Notes Offering), and the balance was paid to the seller by
the Company's issuance of 2,313 shares of Series III Preferred Stock with a
liquidation preference of approximately $2.3 million. In addition, the Company
agreed to pay to the seller in the future an additional contingent payment
equal to five times the amount by which the dealership's pre-tax earnings for
1998, if any, exceed $2.5 million, and five times the amount by which the
dealership's 1999 pre-tax earnings, if any, exceed the greater of $2.5 million
or the dealership's 1998 pre-tax earnings.
13
THE ECONOMY HONDA ACQUISITION. In March 1998, the Company entered into a
Stock Purchase Agreement with Freeman Smith, Melvin Q. Smith and Economy Cars,
Inc. d/b/a Economy Honda ("Economy Honda"), pursuant to which the Company
agreed to purchase all of the capital stock of Economy Honda (the "Economy
Honda Acquisition"). Economy Honda is the owner of a Honda dealership located
in Chattanooga, Tennessee. The Company has agreed to pay a total price of $7.5
million plus an amount equal to the net book value of the assets of the Economy
Honda dealership. Series I Preferred Stock will be issued for 51% of the total
purchase price, not to exceed $5.1 million in liquidation preference as of the
closing of the acquisition.
THE HIGGINBOTHAM ACQUISITION. In July 1998, the Company entered into a
definitive agreement for the acquisition of the assets of a dealership group
comprised of three dealerships located in Daytona Beach, Florida for a total
purchase price of approximately $18.7 million plus the net book value of the
purchased assets as of the closing date (the "Higginbotham Acquisition"). The
Company will pay the aggregate purchase price for the acquisition by issuing to
the sellers 8,250 shares of Series III Preferred Stock with a liquidation
preference of approximately $8.3 million and paying the remainder of the
aggregate purchase price in cash. In addition, the Company will also assume
certain liabilities of the sellers as well as repay certain indebtedness owed
by one of the sellers to its sole shareholder in the approximate amount of $2.9
million. The Company also anticipates that the Company, an affiliate of the
Company or MMRT will purchase the real property on which these dealerships
operate.
The Clearwater Acquisition, the Hatfield Acquisition, the Heritage
Acquisition, the Montgomery Acquisition, the Century Acquisition, the Casa Ford
Acquisition, the Economy Honda Acquisition and the Higginbotham Acquisition are
herein referred to collectively as the "1998 Acquisitions."
SIGNIFICANT MATERIALITY OF GOODWILL
On a pro forma basis (giving effect to each of the 1998 Acquisitions,
other than the Higginbotham Acquisition, and the Notes Offering and the
application of the net proceeds therefrom), goodwill would have represented
approximately 30.3% and 127.8% of the Company's total assets and stockholders'
equity, respectively, as of March 31, 1998. The Company estimates that an
additional $18.7 million in goodwill will be booked in connection with the
pending Higginbotham Acquisition. Goodwill arises when an acquiror pays more
for a business than the fair value of the tangible and separately measurable
intangible net assets. Generally accepted accounting principles require that
this and all other intangible assets be amortized over the period benefited.
The Company determined that the period benefited by the goodwill will be no
less than 40 years. If the Company were not to separately recognize a material
intangible asset having a benefit period less than 40 years, or were not to
give effect to shorter benefit periods of factors giving rise to a material
portion of the goodwill, earnings reported in periods immediately following the
acquisition would be overstated. In later years, the Company would be burdened
by a continuing charge against earnings without the associated benefit to
income valued by the Company in arriving at the consideration paid for the
businesses. Earnings in later years also could be significantly affected if the
Company determined then that the remaining balance of goodwill was impaired.
The Company reviewed with its independent accountants all of the factors and
related future cash flows which it considered in arriving at the amount
incurred in the 1998 Acquisitions. The Company concluded that the anticipated
future cash flows associated with intangible assets recognized in the
acquisitions will continue indefinitely, and there is no persuasive evidence
that any material portion will dissipate over a period shorter than 40 years.
FACILITIES
The Company's principal executive offices are located at 5401 East
Independence Boulevard, Charlotte, North Carolina 28218, and its telephone
number is (704) 532-3301. These executive offices are located on the premises
owned by Town & Country Ford. The following table identifies each of the
properties to be utilized by the Company's dealership operations and their
respective locations, after giving effect to the 1998 Acquisitions:
DEALERSHIP LOCATION
- ----------------------- -----------------------------
Town & Country Ford 5401 East Independence Blvd.
Charlotte, NC
Lone Star Ford 8477 North Freeway
Houston, TX
Fort Mill Ford 788 Gold Hill Rd.
Fort Mill, SC
14
DEALERSHIP LOCATION
- ------------------------------------------- ----------------------------------
Fort Mill Chrysler-Plymouth-Dodge 3310 Hwy. 51
Fort Mill, SC
Town & Country Toyota 9101 South Blvd.
Charlotte, NC
Frontier Oldsmobile-Cadillac 2501 Roosevelt Blvd.
Monroe, NC
Ken Marks Ford 24825 US Hwy. 19 North,
Clearwater & 3925 Tampa Rd.,
Oldsmar, FL
Dyer Volvo 5260 Peachtree Industrial Blvd.
Atlanta, GA
Lake Norman Chrysler-Plymouth-Jeep Chartwell Center Dr.
Cornelius, NC
Lake Norman Dodge I-77 & Torrence Chapel Rd.
Cornelius, NC
KIA/VW of Chattanooga 6015 International Dr.
Chattanooga, TN
BMW/VW of Nashville 630 Murfreeboro Pike
Nashville, TN
BMW/Volvo of Chattanooga 5949 Brainard Rd
Chattanooga, TN
Jaguar of Chattanooga & 5915 Brainard Rd.
Infiniti of Chattanooga Chattanooga, TN
Town & Country Ford of Cleveland 2496 South Lee Hwy.
Cleveland, TN
Dodge of Chattanooga 402 West Martin Luther King Blvd.
Chattanooga, TN
Cleveland Village Imports 2490 & 2492 South Lee Hwy.
Cleveland, TN
Cleveland Chrysler-Plymouth-Jeep 717 South Lee Hwy.
Cleveland, TN
Town & Country Chrysler-Plymouth-Jeep 803 North Anderson Rd.
of Rock Hill Rock Hill, NC
Volkswagen West & 1455 Automall Dr.
Jeep Eagle West Columbus, OH
Hatfield KIA & 3700 West Broad St.
Trader Bud's Westside Chrysler-Plymouth Columbus, OH
Hatfield Lincoln Mercury 1495 Automall Dr.
Columbus, OH
Trader Bud's Westside Dodge 4000 West Broad
Columbus, OH
Toyota West 1500 Automall Dr.
Columbus, OH
Hatfield Hyundai & 1400 Automall Dr.
Hatfield Isuzu & Columbus, OH
Hatfield Subaru
Century BMW 2752 Laurens Rd.
Greenville, SC
Heritage Lincoln Mercury 2424 Laurens Rd.
Greenville, SC
Economy Honda Hwy 153 Shallowford Rd
Chattanooga, TN
Capital Chevrolet 711 Eastern Blvd.
Montgomery, AL
15
DEALERSHIP LOCATION
- ------------------------------- ---------------------
Capital KIA 845 Eastern Blvd.
Montgomery, AL
Capital Hyundai & 190 Eastern Blvd.
Capital Mitsubishi Montgomery, AL
Casa Ford 4701 I-10 East
Baytown, Texas
Clearwater Mitsubishi 21699 US Hwy 19N
Clearwater, FL
Clearwater Toyota 21799 US Hwy 19N
Clearwater, FL
Halifax Ford-Mercury 1307 N. Dixie Hwy.
New Smyrna Beach, FL
Higginbotham Chevrolet-Olds 1919 N. Dixie Hwy.
New Smyrna Beach, FL
Higginbotham Automobiles 1720 Mason Ave.
Daytona Beach, FL
Sunrise Auto World 241 Ridgewood Ave.
Holly Hill, FL
HMC Finance 3741 S. Nova Rd.
Port Orange, FL
The Company's dealerships are generally located along major U.S. or
interstate highways. One of the principal factors considered by the Company in
evaluating an acquisition candidate is its location. The Company prefers to
acquire dealerships located along major thoroughfares, primarily interstate
highways with ease of access, which can be easily visited by prospective
customers.
The Company currently owns certain of the real estate associated with Town
& Country Toyota and Fort Mill Ford. In addition, in connection with the
Heritage Acquisition and the Century Acquisition, affiliates of the Company
acquired the real property on which the automobile dealerships acquired are
operated and leased them back to the Company. The remainder of the properties
utilized by the Company's dealership operations are leased. The Company
believes that its facilities are adequate for its current needs. In connection
with its acquisition strategy, the Company generally intends to lease the real
estate associated with a particular dealership whenever practicable.
On July 9, 1998, the Company entered into, subject to the approval of the
Company's Board of Directors and the Company's independent directors, a
strategic alliance agreement (the "Alliance Agreement") with MMRT. MMRT owns
certain real estate associated with various automobile dealerships, automotive
aftermarket retailers and other automotive related businesses and leases such
properties to the business operators located thereon. Mr. Smith, the Company's
Chairman and Chief Executive Officer, serves as the chairman of MMRT's board of
trustees and is presently its controlling shareholder.
Under the Alliance Agreement, the Company has agreed to refer real estate
acquisition opportunities that arise in connection with its dealership
acquisitions to MMRT. In exchange, MMRT has agreed to refer dealership
acquisition opportunities to the Company and to provide to the Company, at the
Company's cost, certain real estate development, maintenance, survey and
inspection services. Pursuant to the Alliance Agreement, the Company has
entered into contracts to sell the real estate associated with Town and Country
Toyota and Fort Mill Ford, two of the Company's dealerships, for an aggregate
purchase price of approximately $10.3 million. In addition, the Alliance
Agreement provides for an agreed form of lease (the "Sonic Form Lease")
pursuant to which MMRT would lease real estate to the Company should MMRT
acquire real estate associated with any of the Company's operations. Presently,
the Company leases or intends to lease from MMRT 18 parcels of land associated
with 16 of its dealerships, including the real estate associated with Town and
Country Toyota and Fort Mill Ford that the Company will lease back from MMRT
pursuant to leases substantially similar to the Sonic Form Lease. The aggregate
initial annual base rent to be paid by the Company for all 18 properties under
the leases with MMRT is approximately $6.4 million. MMRT has entered into new
leases with each of Town and Country Ford and Lone Star Ford which provide that
the annual lease payments for their properties will each be increased to
approximately $1.1 million effective January 1, 2000, as compared to current
annual lease payments of approximately $0.4 million and $0.3 million,
respectively.
Under the terms of its franchise agreements, the Company must maintain an
appropriate appearance and design of its facilities and is restricted in its
ability to relocate its dealerships.
16
MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is currently traded on the New York Stock
Exchange ("NYSE") under the symbol "SAH."
As of September , 1998, there were 1,057 record holders of the Class A
Common Stock and four record holders of the Class B Common Stock. As of
September , 1998, the high and low prices for the Class A Common Stock were $
and $ , respectively.
The Company intends to retain future earnings to provide funds for
operations and future acquisitions. As a holding company, the Company will
depend on dividends and other payments from its subsidiary dealership
operations to pay cash dividends to stockholders, as well as to meet debt
service and operating expense requirements.
The Company does not anticipate paying any dividends in the foreseeable
future. Under the Revolving Facility no dividends may be paid by the Company.
Any decision concerning the payment of dividends on the Common Stock will
depend upon the results of operations, financial condition and capital
expenditure plans of the Company, as well as other factors as the Board of
Directors, in its sole discretion, may consider relevant.
The following table sets forth the high and low closing sales prices for
the Company's Class A Common Stock, during the fourth quarter of 1997 and the
first and second quarters of 1998 as reported by the NYSE Composite Tape. Prior
to November 10, 1997, the Company was privately held and there was no public
market for the Class A Common Stock.
1997 HIGH LOW
- ---------------------------------------------------- ----------- ---------
Fourth Quarter (from November 10, 1997 through 12.375 9.50
December 31, 1997)
1998
- --------
First Quarter 17.4375 9.6875
Second Quarter 19.25 15.25
The high and low sales prices for the Class A Common Stock on the trading
days immediately preceding the Company's announcement of the Clearwater
Acquisition and the Heritage Acquisition were $11.9375 and $11.6875 (February
27, 1998) and $15.50 and $14.875 (March 23, 1998), respectively.
SELECTION OF INDEPENDENT AUDITORS
The Board of Directors has selected the firm of Deloitte & Touche LLP to
serve as the principal independent auditors of the Company for the fiscal year
ending December 31, 1998. Deloitte & Touche LLP has acted in such capacity for
the Company since its organization in 1997.
Representatives of Deloitte & Touche LLP will attend the Annual Meeting.
They will have an opportunity to make a statement if they so desire, and to
respond to appropriate questions.
MANAGEMENT
DIRECTORS OF SONIC
For information with respect to the Board of Directors of Sonic, see
"Election of Directors."
EXECUTIVE OFFICERS OF SONIC
Messrs. Bruton Smith, Scott Smith, Bowers and Wright are the executive
officers of Sonic. Each executive officer serves as such until his successor is
elected and qualified. No executive officer of Sonic was selected pursuant to
any arrangement or understanding with any person other than Sonic. For further
information with respect to Messrs. Bruton Smith, Scott Smith, Bowers and
Wright as officers of Sonic, see "Election of Directors."
17
EXECUTIVE COMPENSATION
BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
1997 OFFICER COMPENSATION PROGRAM
The executive officer compensation for the Company for 1997 was based on
compensation established in each individual's respective employment agreement
with the Company as discussed herein. Additionally, the executive employees
were granted stock options issued under the Company's 1997 Stock Option Plan.
Executive officers (including the Chief Executive Officer) were also eligible
in 1997 to participate in various benefit plans similar to those provided to
other employees of the Company. Such benefit plans are intended to provide a
safety net of coverage against various events, such as death, disability and
retirement.
The employment agreements for the executive officers (including that of
the Chief Executive Officer) were established on the basis of non-qualitative
factors such as positions of responsibility and authority, years of service and
annual performance evaluations. They were targeted to be competitive
principally in relation to other automotive retailing companies (such as those
included in the Peer Group Index in the performance graph elsewhere herein),
although the Board of Directors also considered the base salaries of certain
companies not included in the Peer Group Index because the Board of Directors
considered those to be relatively comparable industries.
Awards of stock options under the Company's 1997 Stock Option Plan are
based on a number of factors in the discretion of the Board of Directors,
including various subjective factors primarily relating to the responsibilities
of the individual officers for and contribution to the Company's operating
results (in relation to the Company's other optionees), their expected future
contributions and the levels of stock options currently held by the executive
officers individually and in the aggregate. Stock option awards to executive
officers have been at then-current market prices in order to align a portion of
an executive's net worth with the returns to the Company's stockholders. For
detail concerning the grant options to the executive officers named in the
Summary Compensation Table below, see "Executive Compensation -- Fiscal
Year-End Option Values."
As noted above, the Company's compensation policy is primarily based upon
the practice of pay-for-performance. Section 162(m) of the Internal Revenue
Code imposes a limitation on the deductibility of nonperformance-based
compensation in excess of $1 million paid to named executive officers. The 1997
Stock Option Plan was created with the intention that all compensation
attributable to stock option exercises should qualify as deductible
performance-based compensation. The Board of Directors currently believes that,
generally, the Company should be able to continue to manage its executive
compensation program to preserve federal income tax deductions.
CHIEF EXECUTIVE OFFICER COMPENSATION
The Board of Director's, and after their appointment following the Annual
Meeting, the Compensation Committee's, members annually review and approve the
compensation of Mr. Smith, the Company's Chief Executive Officer. Mr. Smith's
salary has been established through an employment agreement, as discussed
herein. The Board of Directors believes that Mr. Smith is paid a reasonable
salary. Mr. Smith is the only employee of the Company not eligible for stock
options. Since he is a significant stockholder in the Company, his rewards as
Chief Executive Officer reflect increases in value enjoyed by all other
stockholders.
O. Bruton Smith, Chairman
Bryan Scott Smith
Nelson E. Bowers, II
Theodore M. Wright
William R. Brooks
William P. Benton
William I. Belk
COMPENSATION OF OFFICERS
The following table sets forth compensation paid by or on behalf of the
Company to the Chief Executive Officer of the Company and to its other
executive officers for services rendered during the Company's fiscal years
ended December 31, 1995, 1996 and 1997:
18
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
NUMBER OF
ANNUAL COMPENSATION OTHER SHARES
------------------------------- ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) YEAR SALARY (1) BONUS (2) COMPENSATION (3) OPTIONS (4) COMPENSATION (5)
- -------------------------------- ------ ------------ ----------- ------------------ -------------------- -----------------
O. Bruton Smith 1997 $326,704 $15,000 -- --
Chairman, Chief Executive 1996 164,750 -- 33,350 -- --
Officer and Director 1995 142,200 -- 41,350 -- --
Bryan Scott Smith 1997 $273,767 $ 18,331 (5) 99,875 --
President, Chief Operating 1996 48,000 230,714 (5) -- --
Officer and Director 1995 48,000 168,670 (5) -- --
- ---------
(1) Does not include the dollar value of perquisites and other personal
benefits.
(2) The amounts shown are cash bonuses earned in the specified year and paid
in the first quarter of the following year.
(3) The Company provides Mr. Smith with the use of automobiles for personal
use, the annual cost of which is reflected as Other Annual Compensation.
(4) The Company's 1997 Stock Option Plan was adopted in October 1997.
Therefore, no options were granted to any of the Company's executive
officers in 1996 or 1995.
(5) The aggregate amount of perquisites and other personal benefits received
did not exceed the lesser of $50,000 or 10% of the total annual salary and
bonus reported for such executive officer.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements with Messrs. Bruton
Smith, Scott Smith, Bowers and Wright, (the "Employment Agreements") which
provide for an annual base salary and certain other benefits. Pursuant to the
Employment Agreements, the 1997 base salaries of Messrs. Bruton Smith, Scott
Smith, Bowers and Wright were $350,000, $300,000, $400,000 and $180,000,
respectively. The executives will also receive such additional increases as may
be determined by the Compensation Committee. The Employment Agreements provide
for the payment of annual performance-based bonuses equal to a percentage of
the executive's base salary, upon achievement by the Company (or relevant
region) of certain performance objectives, based on the Company's pre-tax
income, to be established by the Compensation Committee. Under the terms of
their respective Employment Agreements, the Company will employ Messrs. Bruton
Smith, Scott Smith and Wright through November 2000. Under the terms of his
Employment Agreement, the Company will employ Mr. Bowers through November 2003
or until his Employment Agreement is terminated by the Company or the
executive. Messrs. Scott Smith, Bowers and Wright also received under their
Employment Agreements, options pursuant to the Company's 1997 Stock Option
Plan, for 99,875 shares, 79,313 shares and 38,188 shares, of the Class A Common
Stock, respectively, exercisable at $12.00 per share, vesting in three equal
annual installments beginning October 1998 and expiring in October 2007.
Each of the Employment Agreements contain similar noncompetition
provisions. These provisions, during the term of the Employment Agreement, (i)
prohibit the disclosure or use of confidential Company information, and (ii)
prohibit competition with the Company for the Company's employees and its
customers, interference with the Company's relationships with its vendors, and
employment with any competitor of the Company in specified territories. The
provisions referred to in (ii) above shall also apply for a period of two years
following the expiration or termination of an Employment Agreement. With
respect to Messrs. Bruton Smith, Scott Smith and Wright, the geographic
restrictions apply in any Standard Metropolitan Statistical Area ("SMSA") or
county in which the Company has a place of business at the time their
employment ends. With respect to Mr. Bowers, the restrictions apply only in the
SMSAs for Houston, Charlotte, Chattanooga, and Nashville.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning outstanding options
to purchase Common Stock held by executive officers of the Company at December
31, 1997:
19
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED % OF TOTAL OPTIONS GRANT DATE
OPTIONS AT FISCAL YEAR END (#) GRANTED TO EMPLOYEES EXERCISE PRICE EXPIRATION PRESENT
NAME EXERCISABLE/UNEXERCISABLE IN FISCAL YEAR ($/SHARES) DATE VALUE (1)
- ---------------------- -------------------------------- ---------------------- ---------------- ----------------- -------------
Bryan Scott Smith 0/99,875 17.0% $ 12.00 October 9, 2007 $1,198,500
Nelson E. Bowers, II 0/79,313 13.4% 12.00 October 9, 2007 951,756
Theodore M. Wright 0/38,188 6.5% 12.00 October 9, 2007 458,256
- ---------
(1) Grant date value based on market price at date of grant.
STOCK OPTION PLANS
The Company currently has in place the 1997 Stock Option Plan with respect
to Class A Common Stock in order to attract and retain key personnel. The 1997
Stock Option Plan, adopted in October 1997, provides for options to be
purchased up to an aggregate of 1,125,000 shares of Class A Common Stock may be
granted to key employees of the Company and its subsidiaries and to officers,
directors, consultants and other individuals providing services to the Company.
In November 1997, the Company granted options to purchase 587,509 shares of
Class A Common Stock. Messrs. Scott Smith, Bowers and Wright were granted
aggregate non-statutory stock options (NSO's) and Incentive Stock Options
(ISO's) for 99,875, 79,313 and 38,188 shares, respectively at an exercise price
equal to the initial public offering price of $12.00 per share.
In October 1997, the Board of Directors and stockholders of the Company
adopted the Employee Plan. The Employee Plan provides employees of the Company
the opportunity to purchase Class A Common Stock. Under the terms of the
Employee Plan, on January 1 of each year all eligible employees electing to
participate will be granted an option to purchase shares of Class A Common
Stock. The Company's Compensation Committee will annually determine the number
of shares of Class A Common Stock available for purchase under each option. The
purchase price at which Class A Common Stock will be purchased through the
Employee Plan will be 85% of the lesser of (i) the fair market value of the
Class A Common Stock on the applicable Grant Date and (ii) the fair market
value of the Class A Common Stock on the applicable Exercise Date. Options will
expire on the last exercise date of the calendar year in which granted. No
options under the Employee Plan were issued in 1997.
On March 20, 1998, the Board of Directors, pursuant to the Company's
Employee Plan, increased the authorized shares from 150,000 to 300,000 and
issued options exercisable for 149,730 shares of Class A Common Stock or 310
shares per employee participating in the Employee Plan.
In March 1998, the Board of Directors adopted the Directors Plan for the
benefit of the Company's outside directors, subject to shareholder approval.
The plan authorized options to purchase up to an aggregate of 300,000 shares of
Class A Common Stock. Under the plan, each outside director shall be awarded on
or before March 31st of each year an option to purchase 10,000 shares at an
exercise price equal to the fair market value of the Class A Common Stock at
the date of the award. Options granted under the Directors Plan become
exercisable six months, and expire ten years, after their date of grant.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION IN COMPENSATION
DECISIONS
Since the Company's organization in February 1997 and through March 20,
1998, all matters concerning executive officer compensation have been addressed
by the entire Board of Directors. Mr. Bruton Smith serves as the Chief
Executive Officer of the Company and serves as an officer for each of the
Company's subsidiaries. Mr. Scott Smith serves as the Company's President and
Chief Operating Officer and serves as an officer for each of the Company's
subsidiaries. Mr. Bowers serves as the Executive Vice President of the Company
and serves as an officer for certain of the Company's subsidiaries. Mr. Wright
serves as the Company's Chief Financial Officer, Vice President-Finance,
Treasurer and Secretary and serves as an officer for each of the Company's
subsidiaries. Mr. Brooks served from February to April 1997 as the Company's
Treasurer, Vice President and Secretary.
Mr. Bruton Smith is the only executive officer to have served on the
Compensation Committee of another entity during 1997. He served as Chairman,
Chief Executive Officer, a Director and a member of the Compensation Committee
of SMI. Mr. Brooks is also an executive officer of SMI.
Mr. Bruton Smith received aggregate salary, bonus and other compensation
of $1,497,313 during 1997 from SMI.
20
DIRECTOR COMPENSATION
Members of the Board of Directors who are not employees of the Company
will be compensated for their services under the Directors Plan. The Company
will also reimburse all directors for their expenses incurred in connection
with their activities as directors of the Company. Directors who are also
employees of the Company receive no compensation for serving on the Board of
Directors.
STOCKHOLDER PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative stockholder
return on the Company's Common Stock against the cumulative total return of
each of the Standard and Poor's 500 Stock Index and a Peer Group Index for the
time period commencing November 10, 1997 and ending December 31, 1997. The
companies used in the Peer Group Index include Republic Industries, Group 1
Automotive, United Auto Group, Car Max, Cross-Continent, Lithia Motors, Rush
Enterprises and Smart Choice, which are all publicly traded companies known by
the Company to be involved in the automobile industry. The graph assumes that
$100 was invested on November 10, 1997 in each of the Company's Common Stock,
the Standard & Poor's 500 Stock Index and the Peer Group Index companies and
that all dividends were reinvested.
(Plot points appear below)
Years Sonic Automotive S&P 500 Peer Group
- ----- ---------------- ------- ----------
11/97 $100.00 $100.00 $100.00
12/97 $ 80.21 $106.43 $ 79.30
CERTAIN TRANSACTIONS
REGISTRATION RIGHTS AGREEMENT
As part of the reorganization of the Company in connection with its
initial public offering (the "Reorganization"), the Company entered into a
Registration Rights Agreement dated as of June 30, 1997 (the "Registration
Rights Agreement") with Sonic Financial, Bruton Smith, Scott Smith and William
S. Egan. Sonic Financial, Bruton Smith, Scott Smith and Egan Group, LLC, an
assignee of Mr. Egan (the "Egan Group"), currently are the owners of record of
4,440,625, 1,035,625, 478,125 and 295,625 shares of Class B Common Stock,
respectively. Upon the registration of any of their shares or as otherwise
provided in the Company's Amended and Restated Certificate of Incorporation,
such shares will automatically be converted into a like number of shares of
Class A Common Stock. Subject to certain limitations, the Registration Rights
Agreements provide Sonic Financial, Bruton Smith, Scott Smith and the Egan
Group with certain piggyback registration rights that permit them to have their
shares of Common Stock, as selling security holders, included in any
registration statement pertaining to the registration of Class A Common Stock
for issuance by the Company or for resale by other selling security holders,
with the exception of registration statements on Forms S-4 and S-8 relating to
exchange offers (and certain other transactions) and employee stock
compensation plans, respectively. These registration rights will be limited or
restricted to the extent an underwriter of an offering, if an underwritten
offering, or the Company's Board of Directors, if not an underwritten offering,
determines that the amount to be registered by Sonic Financial, Bruton Smith,
Scott Smith or the Egan Group would not permit the sale of Class A Common Stock
in the quantity and at the price originally sought by the Company or the
original selling security holders, as the case may be. The Registration Rights
Agreement expires on November 17, 2007. Sonic Financial is controlled by the
Company's Chairman and Chief Executive Officer, Bruton Smith.
21
THE SMITH ADVANCE
In connection with the acquisition by the Company of Fort Mill
Chrysler-Plymouth-Dodge in 1997, Mr. Bruton Smith advanced approximately $3.5
million to the Company (the "Smith Advance"). The Smith Advance was used by the
Company to pay a portion of the cash consideration for this acquisition at
closing. The Smith Advance was evidenced by a demand note bearing interest at
the minimum statutory rate of 3.83% per annum. The Company repaid in full the
principal of and interest on the Smith Advance from the proceeds of the
Company's initial public offering of its Class A Common Stock in November 1997.
Shortly following the Company's repayment of the Smith Advance, Mr. Smith made
a new loan to the Company in the amount of $5.5 million. The financial effect
to the Company from the repayment of the Smith Advance and the subsequent $5.5
million loan by Mr. Smith to the Company was substantially the same as if the
Smith Advance had not been repaid but instead had been increased from $3.5
million to $5.5 million. See "The Smith Guaranties, Pledges and Subordinated
Loan."
THE SMITH GUARANTIES, PLEDGES AND SUBORDINATED LOAN
In connection with the Company obtaining an unsecured $20.0 million line
of credit from NationsBank, N.A. ("NationsBank") that matured in February 1997
(the "NationsBank Facility"), Mr. Bruton Smith guaranteed the obligations of
the Company and secured his guarantee with a pledge of shares of common stock
of SMI owned directly by him. In February 1998, the Company repaid in full the
amounts owed under the NationsBank Facility and Mr. Smith's guarantee was
released.
In October 1997, the Company obtained from Ford Motor Credit Company
("Ford Motor Credit") a secured $26.0 million line of credit (the "Revolving
Facility") and a global floor plan line of credit for all its dealership
subsidiaries (the "Floor Plan Facility" and, together with the Revolving
Facility, the "Ford Credit Facilities"). Initially, Mr. Smith personally
guaranteed the obligations of the Company under the Ford Credit Facilities, and
such obligations were further secured with a pledge of shares of common stock
of SMI owned directly by him or through Sonic Financial and having an estimated
value of approximately $50.0 million (the "Revolving Pledge").
In December 1997, upon the increase of the borrowing limit under the
Revolving Facility to the maximum loan commitment of $75.0 million, the
Revolving Pledge remained in place, Mr. Smith's guarantee of the Revolving
Facility was released and Mr. Smith was required to lend $5.5 million (the
"Subordinated Smith Loan") to the Company to increase its capitalization. The
Subordinated Smith Loan was required by Ford Motor Credit as a condition to its
agreement to increase the borrowing limit under the Revolving Facility. The
Subordinated Smith Loan is evidenced by the Company's Subordinated Promissory
Note dated December 1, 1997 in favor of Mr. Smith, bears interest at
NationsBank's announced prime rate plus 0.5% and matures on November 30, 2000.
All amounts owed by the Company to Mr. Smith under the Subordinated Smith Loan
are subordinate in right of payment to all amounts owed by the Company under
the Ford Credit Facilities pursuant to the terms of a Subordination Agreement
dated as of December 15, 1997 between Mr. Smith and Ford Motor Credit.
CERTAIN DEALERSHIP LEASES
Certain of the properties leased by the Company's dealership subsidiaries
are owned by officers, directors or holders of 5% or more of the Common Stock
of the Company or their affiliates. These leases contain terms comparable to,
or more favorable to the Company than, terms that would be obtained from
unaffiliated third parties. Town & Country Ford operates at facilities leased
from STC Properties, a North Carolina joint venture ("STC"). Town & Country
Ford maintains a 5% undivided interest in STC and Sonic Financial owns the
remaining 95% of STC. The STC lease on the Town & Country Ford facilities will
expire in October 2000. Annual payments under the STC lease were $510,085 for
each of 1994, 1995 and 1996. Current minimum rent payments are $409,000
annually ($34,083 monthly) through 1999. In connection with the Alliance
Agreement between MMRT and the Company, MMRT has agreed to purchase the real
property on which Town & Country Ford is operated from STC and has entered into
a lease with Town & Country Ford whereby the annual lease payment by Town &
Country Ford will be increased to approximately $1.1 million effective January
1, 2000.
Lone Star Ford operates, in part, at facilities leased from Viking
Investments Associates, a Texas association ("Viking"), which is controlled by
Mr. Bruton Smith. Annual payments under the Viking lease were $351,420,
$331,302 and $360,000 for 1994, 1995 and 1996, respectively. Minimum annual
rents under this lease are $360,000 ($30,000 monthly), such amount being below
market. In connection with the Alliance Agreement, MMRT has agreed to purchase
the real property on which Lone Star Ford is operated from Viking and has
entered into a lease with Lone Star Ford whereby the annual lease payment by
Lone Star Ford will be increased to approximately $1.1 million effective
January 1, 2000.
KIA of Chattanooga operates at facilities leased from KIA Land
Development, a company in which Nelson Bowers, the Company's Executive Vice
President and a director, maintains an ownership interest. The Company
negotiated this lease
22
in connection with the acquisition of certain dealerships from Mr. Bowers in
November 1997 (the "Bowers Acquisition"). This triple net lease expires in 2007
and the monthly rent is $11,070 per month. The Company may renew this lease at
its option for two additional five-year terms. At each renewal, the lessor may
adjust lease rents to reflect fair market rents for the property.
European Motors operates at its Chattanooga facilities under a triple net
lease from Mr. Bowers. The Company negotiated this lease in connection with the
Bowers Acquisition. The European Motors lease expires in 2007 and provides for
monthly rent of $23,320. This lease also provides for renewals on terms
identical to the KIA of Chattanooga lease.
Jaguar of Chattanooga operates at facilities leased from JAG Properties, a
company in which Mr. Bowers maintains an ownership interest. The Company
negotiated this lease in connection with the Bowers Acquisition. This triple
net lease expires in 2017 and provides for monthly rent of $27,852. The Company
may renew this lease on terms identical to the KIA of Chattanooga renewal
options.
Cleveland Chrysler-Plymouth-Jeep-Eagle leases its facilities from
Cleveland Properties LLC, a limited liability company in which Mr. Bowers
maintains an ownership interest. The Company negotiated this lease in
connection with the Bowers Acquisition. This triple net lease expires in 2011,
provides for monthly rent of $23,452 and may be renewed on terms identical to
the KIA of Chattanooga lease.
Cleveland Village Imports operates at facilities leased from Nelson Bowers
and another individual. Mr. Bowers owns a 75% undivided interest in the land
and buildings leased by Cleveland Village Imports, with the remaining interests
owned by an unrelated party. Such land and buildings are leased under two
leases: one is a triple net fixed lease expiring in October 2000 with rent of
$15,858 per month and the other, pertaining to a used car lot, is a
month-to-month lease with rent of $3,000 per month.
In July 1998, simultaneously with the closing of the Heritage Acquisition,
Chartown, a general partnership controlled by Mr. Bruton Smith and an affiliate
of the Company ("Chartown"), acquired the real property upon which the Heritage
Lincoln-Mercury dealership is operated for approximately $3.0 million. Chartown
and the Company's subsidiary that acquired the assets of the Heritage
Lincoln-Mercury dealership then entered into a lease agreement pursuant to
which the subsidiary leases the real property from Chartown. The lease is for a
ten year term with an option on the part of the lessee to extend for two
additional five-year terms. The annual base rental under this lease is
$349,860, adjusted every five years based on the consumer price index. The
Company anticipates that Chartown will sell this real estate property to MMRT
in the future.
Also in July 1998, simultaneously with the closing of the Century
Acquisition, Chartown acquired two separate parcels of real property upon which
the BMW dealership and the satellite sales location are operated, respectively,
for approximately $5.0 million. Chartown and the Company's subsidiary that
acquired the assets of Century BMW then entered into two separate lease
agreements for the BMW dealership property and the satellite sales location
property, respectively, pursuant to which the subsidiary leases each of these
properties from Chartown. Each of the leases is for a ten year term with an
option on the part of the lessee to extend for two additional five-year terms.
The annual base rentals under the BMW dealership lease and the satellite sales
location lease are $420,000 and $112,805, respectively, adjusted every five
yeras based on the consumer price index. The Company anticipates that Chartown
will sell each of these real estate properties to MMRT in the future.
CHARTOWN TRANSACTIONS
Chartown is a general partnership engaged in real estate development and
management. Before the Reorganization, Town & Country Ford maintained a 49%
partnership interest in Chartown with the remaining 51% held by SMDA
Properties, LLC, a North Carolina limited liability company ("SMDA"). Mr. Smith
owns an 80% direct membership interest in SMDA with the remaining 20% owned
indirectly through Sonic Financial. In addition, Sonic Financial also held a
demand promissory note for approximately $1.6 million issued by Chartown (the
"Chartown Note"), which was uncollectible due to insufficient funds. As part of
the Reorganization, the Chartown Note was canceled and Town & Country Ford
transferred its partnership interest in Chartown to Sonic Financial for nominal
consideration. In connection with that transfer, Sonic Financial agreed to
indemnify Town & Country Ford for any and all obligations and liabilities,
whether known or unknown, relating to Chartown and Town & Country Ford's
ownership thereof.
THE BOWERS VOLVO NOTE
In connection with Volvo's approval of the Company's acquisition of a
Volvo franchise in the Bowers Acquisition, Volvo, among other things,
conditioned its approval upon Nelson Bowers acquiring and maintaining a 20%
interest in the
23
Company's Sonic Automotive of Chattanooga, LLC ("Chattanooga Volvo") subsidiary
that will operate the Volvo franchise. Mr. Bowers financed all of the purchase
price for this 20% interest by issuing a promissory note (the "Bowers Volvo
Note") in favor of Sonic Automotive of Nevada, Inc. ("Sonic Nevada"), the
wholly-owned subsidiary of the Company that controls a majority interest in
Chattanooga Volvo. The Bowers Volvo Note is secured by Mr. Bowers' interest in
Chattanooga Volvo.
The Bowers Volvo Note is for a principal amount of $900,000 and bears
interest at the lowest applicable federal rate as published by the U.S.
Treasury Department in effect on November 17, 1997. Accrued interest is payable
annually. The operating agreement of Chattanooga Volvo provides that profits
and distributions are to be allocated first to Mr. Bowers to the extent of
interest to be paid on the Bowers Volvo Note and next to the other members of
Chattanooga Volvo according to their percentages of ownership. No other profits
or any losses of Chattanooga Volvo will be allocated to Mr. Bowers under this
arrangement. Mr. Bowers' interest in Chattanooga Volvo will be redeemed and the
Bowers Volvo Note will be due and payable in full when Volvo no longer requires
Mr. Bowers to maintain his interest in Chattanooga Volvo.
OTHER TRANSACTIONS
Beginning in early 1997, certain of the Company's predecessor dealership
entities (the "Sonic Dealerships") entered into arrangements to sell to their
customers credit life insurance policies underwritten by American Heritage Life
Insurance Company, an insurer unaffiliated with the Company ("American
Heritage"). American Heritage in turn reinsures all of these policies with
Provident American Insurance Company, a Texas insurance company ("Provident
American"). Under these arrangements, the Sonic Dealerships paid an aggregate
of $576,000 to American Heritage in premiums for these policies for the year
ended December 31, 1997. The Company terminated this arrangement with American
Heritage in 1997. Provident American is a wholly owned subsidiary of Sonic
Financial.
Town & Country Ford and Lone Star Ford had each made several non-interest
bearing advances to Sonic Financial, a company controlled by Mr. O. Bruton
Smith. In preparation for the Reorganization, a demand promissory note issued
by Sonic Financial in favor of Town & Country Ford evidencing $2.1 million of
these advances was canceled in June 1997 in exchange for the redemption of
certain shares of the capital stock of Town & Country Ford held by Sonic
Financial. In addition, a demand promissory note issued by Sonic Financial in
favor of Lone Star Ford evidencing $500,000 of these advances was canceled in
June 1997 pursuant to a dividend.
As part of the purchase price in connection with the Company's acquisition
of the Bowers Automotive Group in November 1997, the Company issued its
promissory note in the original principal amount of $4.0 million in favor of
Nelson Bowers (the "Bowers Acquisition Note"). The Bowers Acquisition Note is
payable in 28 equal quarterly installments and bears interest at the prime rate
less 0.5%.
The Company made certain advances to its shareholder, Sonic Financial, in
1997, which amounts are currently outstanding. As of December 31, 1997, the
amounts receivable from Sonic Financial with respect to such advances totalled
$622,000.
Town and Country Toyota has an amount payable to Bruton Smith, which
payable totals approximately $0.8 million as of December 31, 1997. This loan
bears interest at 8.75% per annum.
Certain subsidiaries of the Company (such subsidiaries together with the
Company and Sonic Financial being hereinafter referred to as the "Sonic Group")
have joined with Sonic Financial in filing consolidated federal income tax
returns for several years. Such subsidiaries joined with Sonic Financial in
filing for 1996 and for the period ending on June 30, 1997. Under applicable
federal tax law, each corporation included in Sonic Financial's consolidated
return is jointly and severally liable for any resultant tax. Under a tax
allocation agreement dated as of June 30, 1997, however, the Company agreed to
pay to Sonic Financial, in the event that additional federal income tax is
determined to be due, an amount equal to the Company's separate federal income
tax liability computed for all periods in which any member of the Sonic Group
has been a member of Sonic Financial's consolidated group less amounts
previously recorded by the Company. Also pursuant to such agreement, Sonic
Financial agreed to indemnify the Company for any additional amount determined
to be due from Sonic Financial's consolidated group in excess of the federal
income tax liability of the Sonic Group for such periods. The tax allocation
agreement establishes procedures with respect to tax adjustments, tax claims,
tax refunds, tax credits and other tax attributes relating to periods ending
prior to the time that the Sonic Group shall leave Sonic Financial's
consolidated group.
The Company acquired the Sonic Dealerships in the Reorganization pursuant
to four separate stock subscription agreements (the "Subscription Agreements").
The Subscription Agreements provide for the acquisition of 100% of the capital
stock or membership interests, as the case may be, of each of the Sonic
Dealerships from Sonic Financial, Mr. Smith, the
24
Egan Group and Scott Smith in exchange for certain amounts of the Company's
issued and outstanding Class B Common Stock. See "Ownership of Capital
Securities."
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Sonic's executive officers, directors and persons who own more than ten percent
(10%) of Sonic's Voting Stock to file reports on ownership and changes in
ownership with the Securities and Exchange Commission (the "SEC").
Additionally, SEC regulations require that Sonic identify any individuals for
whom one of the referenced reports was not filed on a timely basis during the
most recent fiscal year or prior fiscal years. To the Company's knowledge,
based solely on review of reports furnished to it, all Section 16(a) filing
requirements applicable to its executive officers, directors and more than 10%
beneficial owners were complied with, except that Messrs. Bruton Smith, Scott
Smith, Wright and Brooks inadvertently filed late their Form 3 initial
statements of beneficial ownership of securities after the Company's initial
public offering and Mr. Benton inadvertently filed late his Form 3 after his
appointment as a director.
OTHER MATTERS
In the event that any matters other than those referred to in the
accompanying Notice should properly come before and be considered at the Annual
Meeting, it is intended that proxies in the accompanying form will be voted
thereon in accordance with the judgment of the person or persons voting such
proxies.
INCORPORATION BY REFERENCE
The following documents of the Company filed with the Securities and
Exchange Commission are hereby incorporated by reference:
(i) the Company's financial statements included as part of the Company's
Annual Report on Form 10-K for the year ended December 31, 1997;
(ii) Exhibit 99.4 to the Company's Form 8-K/A filed July 24, 1998
(Unaudited Pro Forma Financial Statements reflecting the Business
Combination of Sonic Automotive, Inc. and Clearwater Dealerships for the
year ended December 31, 1997);
(iii) Exhibit 99.2 to the Company's Form 8-K filed July 9, 1998 (Combined
Financial Statements of the Hatfield Automotive Group as of December 31,
1996 and 1997 and for each of the three years in the period ended
December 31, 1997 (Audited) and as of March 31, 1998 and for the three
months then ended (Unaudited)); and
(iv) Exhibit 99.5 to the Company's Form 8-K filed July 24, 1998 (Unaudited
Pro Forma Financial Statements reflecting the Business Combination of
Sonic Automotive, Inc. and Hatfield Dealerships for the year ended
December 31, 1997 and as of March 31, 1998 and for the three months then
ended).
25
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EXHIBIT A
RESOLUTIONS CREATING CLASS A CONVERTIBLE PREFERRED STOCK
RESOLVED, that, pursuant to the authority expressly granted to and vested
in the Board of Directors of the Corporation by Section 4.06 of the Amended and
Restated Certificate of Incorporation of the Corporation, there is hereby
created a class of 300,000 shares of preferred stock, designated as Class A
Convertible Preferred Stock, par value $0.10 per share, which shall be divided
into 100,000 shares of Series I Convertible Preferred Stock, par value $0.10
per share (the "SERIES I PREFERRED STOCK"), 100,000 shares of Series II
Convertible Preferred Stock, par value $0.10 per share (the "SERIES II
PREFERRED STOCK"), and 100,000 shares of Series III Convertible Preferred
Stock, par value $0.10 per share (the "SERIES III PREFERRED STOCK" and,
together with the Series I Preferred Stock and the Series II Preferred Stock,
collectively, the "CLASS A PREFERRED STOCK"). The Board of Directors reserves
the right, at any time and from time to time, subject to the filing of a
further Certificate or Certificates of Designation with respect thereto and to
compliance with any other applicable legal requirements, to redivide or
reclassify the Class A Preferred Stock into different numbers of shares of
Series I Preferred Stock, Series II Preferred Stock and/or Series III Preferred
Stock, or into other classes of preferred stock; PROVIDED, HOWEVER, that no
such redivision or reclassification shall affect any shares of Series I
Preferred Stock, Series II Preferred Stock or Series III Preferred Stock, as
the case may be, then issued and outstanding. All capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the
Amended and Restated Certificate of Incorporation of the Corporation as in
effect on the date hereof.
The powers, preferences and rights, and the qualifications, limitations or
restrictions, of each such Series of Class A Preferred Stock, in relation to
the other such Series of Class A Preferred Stock and in relation to the Common
Stock, shall be as follows:
SECTION 1. LIQUIDATION RIGHTS.
(A) TREATMENT AT LIQUIDATION, DISSOLUTION OR WINDING UP. In the event of
any liquidation, dissolution or winding up of the affairs of the Corporation,
whether voluntary or involuntary, the holders of each share of the Class A
Preferred Stock shall, subject to the preferential rights, if any, of the
holders of preferred stock other than the Class A Preferred Stock, be entitled
to be paid first out of the assets of the Corporation available for
distribution to holders of the Corporation's capital stock of all classes an
amount, and no other amount, equal to $1,000 per share of Class A Preferred
Stock. If the assets of the Corporation shall be insufficient to permit the
payment in full to the holders of the Class A Preferred Stock of all amounts
distributable to them under this Subsection 1(a) and to all other holders of
preferred stock, if any, entitled to share in such assets with the holders of
the Class A Preferred Stock, then the entire assets of the Corporation
available for such distribution shall be distributed ratably among the holders
of the Class A Preferred Stock and such other holders of preferred stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive. After such payments shall have been made in full to the
holders of the Class A Preferred Stock and such other holders of preferred
stock or funds necessary for such payments shall have been set aside by the
Corporation in trust for the account of holders of Class A Preferred Stock and
such other holders of preferred stock so as to be available for such payments,
the remaining assets available for distribution shall be distributed among the
holders of the Common Stock ratably in proportion to the number of shares of
Common Stock held by them. Upon conversion of shares of Class A Preferred Stock
into shares of Class A Common Stock pursuant to Section 2 below, the holder of
such Class A Common Stock shall not be entitled to any preferential payment or
distribution in case of any liquidation, dissolution or winding up, but shall
share ratably as a holder of Class A Common Stock in any distribution of the
assets of the Corporation to all the holders of Common Stock.
(B) DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution provided for
in this Section 1 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property, as
determined in good faith by the Board of Directors of the Corporation, which
determination shall be final.
SECTION 2. CONVERSION. The Class A Preferred Stock shall be convertible as
follows:
(A) RIGHT OF HOLDER TO CONVERT; CONVERSION AMOUNT.
(i) DEFINITIONS. As used herein, the term "MARKET PRICE" shall mean the
average of the daily closing prices for one share of Class A Common Stock for
the twenty (20) consecutive trading days ending one (1) trading day immediately
prior to the date of determination. The closing price for each day shall be the
last regularly reported sales price, or in case no such reported sales took
place on such day, the average of the last regularly reported bid and asked
prices, in either case on the New York Stock Exchange or, if the shares of the
Class A Common Stock are not listed or admitted to trading on the New York
Stock Exchange, on the principal national securities exchange on which such
shares are listed or admitted to trading,
A-1
or, if such shares are not so listed or admitted to trading, the average of the
highest reported bid and lowest reported asked prices as furnished by the
National Association of Securities Dealers, Inc. through NASDAQ or through a
similar organization if NASDAQ is no longer reporting such information. If
shares of the Class A Common Stock are not listed or admitted to trading on any
exchange or quoted through NASDAQ or any similar organization, the Market Price
shall be deemed to be the fair value thereof determined in good faith by the
Corporation's board of directors as expressed by a resolution of such board as
of a date which is within fifteen days of the date as of which the
determination is to be made, which determination shall be final. As used
herein, the term "APPLICABLE CONVERSION AMOUNT" shall mean the Series I
Conversion Amount, the Series II Conversion Amount or the Series III Conversion
Amount (each as hereafter defined), as the case may be. As used herein, the
term "BUSINESS DAY" shall mean a day other than a Saturday, a Sunday or a day
in which banks are required to be closed in the State of North Carolina.
(ii) SERIES I PREFERRED STOCK. Subject to the other provisions of this
Section 2, each share of Series I Preferred Stock shall be convertible, without
the payment of any additional consideration by the holder thereof and at the
option of the holder thereof, on any business day after the date of issuance of
such share, at the principal executive office of the Corporation or the
designated office of any transfer agent for the Class A Preferred Stock, into
such number (rounded to four decimal places) of fully paid and nonassessable
shares of Class A Common Stock as is determined by dividing $1,000 by the
Market Price as of the date of conversion provided in the last sentence of
Section 2(b) below (such number of shares being the "SERIES I CONVERSION
AMOUNT"). The right of conversion with respect to any shares of Series I
Preferred Stock which shall have been called for redemption under Section 5
shall terminate at the close of business on the date of the mailing of the
notice of redemption with respect thereto; provided, however, if the
Corporation shall default in the payment of the redemption price on the
redemption date fixed in such notice of redemption, such right of conversion
shall continue.
(iii) SERIES II PREFERRED STOCK. Subject to the other provisions of this
Section 2, each share of Series II Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and
at the option of the holder thereof, on any business day after the date of
issuance of such share, at the principal executive office of the Corporation or
the designated office of any transfer agent for the Class A Preferred Stock,
into such number (rounded to four decimal places) of fully paid and
nonassessable shares of Class A Common Stock as is determined by dividing
$1,000 by the Market Price as of the date of issuance of such share of Series
II Preferred Stock (such number of shares being the "SERIES II CONVERSION
AMOUNT"), subject to adjustment as provided in the following two sentences. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series II Preferred Stock is less than
ninety percent (90%) of the Market Price as of the date of issuance of such
share of Series II Preferred Stock, the Series II Conversion Amount shall be
multiplied by a fraction, the numerator of which shall be an amount equal to
ninety percent (90%) of such Market Price as of such date of issuance and the
denominator of which shall be such Market Price as of such date of conversion,
and the product obtained thereby shall be the Series II Conversion Amount. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series II Preferred Stock is more than
one hundred ten percent (110%) of the Market Price as of the date of issuance
of such share of Series II Preferred Stock, the Series II Conversion Amount
shall be multiplied by a fraction, the numerator of which shall be an amount
equal to one hundred ten percent (110%) of such Market Price as of such date of
issuance and the denominator of which shall be such Market Price as of such
date of conversion, and the product obtained thereby shall be the Series II
Conversion Amount. The right of conversion with respect to any shares of Series
II Preferred Stock which shall have been called for redemption under Section 5
shall terminate at the close of business on the date of the mailing of the
notice of redemption with respect thereto; PROVIDED, HOWEVER, if the
Corporation shall default in the payment of the redemption price on the
redemption date fixed in such notice of redemption, such right of conversion
shall continue.
(iv) SERIES III PREFERRED STOCK. Subject to the other provisions of this
Section 2, each share of Series III Preferred Stock shall be convertible,
without the payment of any additional consideration by the holder thereof and
at the option of the holder thereof, on any business day after the date of
issuance of such share, at the principal executive office of the Corporation or
the designated office of any transfer agent for the Class A Preferred Stock,
into such number (rounded to four decimal places) of fully paid and
nonassessable shares of Class A Common Stock as is determined by dividing
$1,000 by the Market Price as of the date of issuance of such shares of Series
III Preferred Stock (such number of shares being the "SERIES III CONVERSION
AMOUNT"), subject to adjustment as provided in the following two sentences. If
the Market Price as of the date of conversion (as provided in the last sentence
of Section 2(b) below) of such share of Series III Preferred Stock is less than
the Market Price as of the date of issuance of such share of Series III
Preferred Stock, the Series III Conversion Amount shall be multiplied by a
fraction, the numerator of which shall be an amount equal to such Market Price
as of such date of issuance and the denominator of which shall be such Market
Price as of such date of conversion, and the product obtained thereby shall be
the Series III Conversion Amount. If the Market Price as of the date of
conversion (as provided in the last sentence of Section 2(b) below) of such
share of Series III Preferred Stock is more than one hundred ten percent (110%)
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of the Market Price as of the date of issuance of such share of Series III
Preferred Stock, the Series III Conversion Amount shall be multiplied by a
fraction, the numerator of which shall be an amount equal to one hundred ten
percent (110%) of such Market Price as of such date of issuance and the
denominator of which shall be such Market Price as of such date of conversion,
and the product obtained thereby shall be the Series III Conversion Amount. The
right of conversion with respect to any shares of Series III Preferred Stock
which shall have been called for redemption under Section 5 shall terminate at
the close of business on the date of the mailing of the notice of redemption
with respect thereto; provided, however, if the Corporation shall default in
the payment of the redemption price on the redemption date fixed in such notice
of redemption, such right of conversion shall continue.
(v) CONVERSION CAP. Prior to the date on which holders of the Common Stock
approve the issuance of the Class A Preferred Stock, the Corporation may not
issue, upon the conversion of shares of the Class A Preferred Stock, more than
2,249,999 shares of Class A Common Stock in the aggregate (the "CONVERSION CAP
AMOUNT"). In lieu of any shares of Class A Common Stock to which a holder of
Class A Preferred Stock would otherwise be entitled upon conversion but for the
Conversion Cap Amount (the "EXCESS CONVERSION COMMON SHARES"), the Corporation
shall pay cash equal to the number of such Excess Conversion Common Shares
multiplied by the Market Price in effect at the time of conversion.
(vi) CONVERSION DURING FIRST YEAR. The right of any holder to convert any
of such holder's shares of the Class A Preferred Stock during the one (1) year
period commencing with the date of issuance of such Class A Preferred Stock
shall be subject to the Corporation's right of optional redemption under
Section 5 hereof. The holder of such share of Class A Preferred Stock shall not
exercise such holder's right to convert such share of Class A Preferred Stock
during such one (1) year period unless such holder shall have first delivered
to the Corporation, at its address at 5401 E. Independence Boulevard,
Charlotte, North Carolina 28212, Attention: Chief Financial Officer, or at such
other address as the Corporation may notify the holder in writing, written
notice of such holder's intention to convert a specified number of shares of
Class A Preferred Stock. For a period of ten (10) business days after receipt
by the Corporation of such notice, the Corporation shall have the right to
exercise its right of optional redemption under Section 5 hereof with respect
to some or all of the shares of Class A Preferred Stock proposed to be
converted by such holder. In the event that the Corporation shall not have
exercised such right of redemption within such ten (10) business day period,
such holder shall be entitled to convert such shares of Class A Preferred Stock
in accordance with the mechanics set forth in Subsection 2(b) below.
(B) MECHANICS OF OPTIONAL CONVERSIONS. In order for any holder of the
Class A Preferred Stock to convert the same into full shares of Class A Common
Stock pursuant to Subsection 2(a), such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the principal executive office of
the Corporation or the designated office of any transfer agent for the Class A
Preferred Stock, together with written notice to the Corporation at such office
that such holder elects to convert the number of shares of Class A Preferred
Stock set forth therein. No fractional shares of Class A Common Stock shall be
issued upon conversion of the Class A Preferred Stock. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the Market
Price as of the date of the conversion. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of the
Class A Preferred Stock, and in the name or names shown on such surrendered
certificate or certificates, a certificate or certificates for the number of
shares of Class A Common Stock to which such holder shall be entitled as
aforesaid, together with cash in lieu of any fraction of a share. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Class A Preferred Stock
to be converted, and the person or persons entitled to receive the shares of
Class A Common Stock issuable upon conversion shall be treated for all purposes
as the record holder or holders of such shares of Class A Common Stock on such
date.
(C) MANDATORY CONVERSION AT THE OPTION OF THE CORPORATION. After the
second anniversary of the date of its issuance, any share of the Class A
Preferred Stock which has not been converted into Class A Common Stock shall be
subject, at the option of the Corporation, to mandatory conversion as
hereinafter provided. The Corporation may exercise its option to convert any
such share of Class A Preferred Stock by giving notice in writing of such
conversion to the holder of such share of Class A Preferred Stock (a "MANDATORY
CONVERSION NOTICE") at such holder's address set forth in the books and records
of the Corporation. Upon the giving of a Mandatory Conversion Notice with
respect thereto, each such share of Class A Preferred Stock referred to in such
Mandatory Conversion Notice shall automatically and without any further action
on the part of the holder of such Class A Preferred Stock be converted into the
number of shares (rounded to four decimal places) of fully paid and
nonassessable Class A Common Stock based upon the Applicable Conversion Amount
as of the date of such Mandatory Conversion Notice. Until surrendered in
accordance with the provisions of Subsection 2(d) below, the certificate or
certificates evidencing the shares of Class A Preferred Stock so converted
shall be deemed to represent the applicable number of shares of Class A Common
Stock into which such shares of Class A Preferred Stock have been so converted.
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(D) MECHANICS OF MANDATORY CONVERSION. Upon mandatory conversion pursuant
to Subsection 2(c) above, the Corporation shall not be obligated to issue
certificates evidencing the shares of Class A Common Stock issuable upon such
conversion unless the certificate or certificates evidencing such share or
shares of the Class A Preferred Stock being converted are either delivered to
the Corporation or its designated transfer agent for the Class A Preferred
Stock, or the holder notifies the Corporation or such transfer agent that such
certificate or certificates have been lost, stolen, or destroyed and executes
an agreement satisfactory to the Corporation to indemnify the Corporation from
any loss incurred by it in connection therewith and, if the Corporation so
elects, provides an appropriate indemnity bond. Upon the mandatory conversion
of one or more shares of the Class A Preferred Stock, the holder or holders of
such Class A Preferred Stock shall surrender the certificates representing such
shares at the principal executive office of the Corporation or of its
designated transfer agent for the Class A Preferred Stock. Thereupon, there
shall be issued and delivered to such holder or holders, promptly at such
office and in the name or names as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Class A
Common Stock into which the shares of the Class A Preferred Stock surrendered
were convertible as of the date of the applicable Mandatory Conversion Notice.
No fractional shares of Class A Common Stock shall be issued upon such
mandatory conversion of the Class A Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall
pay cash equal to such fraction multiplied by the Market Price as of the date
of conversion. The right of the Corporation to effectuate mandatory conversion
of the Class A Preferred Stock may be exercised by the Corporation, in its
discretion, as to any or all shares of Class A Preferred Stock held by any or
all of the holders of the Class A Preferred Stock; and the exercise (or
non-exercise) of such right by the Corporation with respect to any shares of
Class A Preferred Stock held by one holder shall not in any way imply any
obligation or duty of the Corporation to exercise (or not to exercise) such
right with respect to any shares of Class A Preferred Stock held by any other
holder.
(E) ADJUSTMENTS FOR STOCK DIVIDENDS, STOCK DISTRIBUTIONS, SUBDIVISIONS,
COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK. In the event that all the
outstanding shares of Class A Common Stock shall be increased by way of stock
dividend, stock distribution or subdivision, the Applicable Conversion Amount
in effect immediately prior to such stock dividend, stock distribution or
subdivision shall, concurrently with the effectiveness of such stock dividend,
stock distribution or subdivision, be proportionately increased. In the event
that all the outstanding shares of Class A Common Stock shall be combined or
consolidated, by reclassification or otherwise, into a lesser number of shares
of Class A Common Stock, the Applicable Conversion Amount in effect immediately
prior to such combination or consolidation shall, concurrently with the
effectiveness of such combination or consolidation, be proportionately
decreased.
(F) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. In the
event that at any time or from time to time after the date of issuance of a
share of Class A Preferred Stock, the Class A Common Stock issuable upon the
conversion of such share of the Class A Preferred Stock shall be changed into
the same or a different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other than a
subdivision or combination of shares or stock dividend provided for above, or a
merger, consolidation, or sale of assets provided for below), then and in each
such event the holder of such share of Class A Preferred Stock shall have the
right thereafter to convert such share into the kind and amount of shares of
stock and other securities and property receivable upon such reorganization,
reclassification, or other change, by holders of the number of shares of Class
A Common Stock into which such share of Class A Preferred Stock would have been
converted immediately prior to such reorganization, reclassification, or
change.
(G) ADJUSTMENT FOR MERGER, CONSOLIDATION OR SALE OF ASSETS. In the event
that at any time or from time to time after the date of issuance of a share of
Class A Preferred Stock, the Corporation shall merge or consolidate with or
into another entity or sell all or substantially all of its assets, such share
of Class A Preferred Stock shall thereafter be convertible into the kind and
amount of shares of stock or other securities or property to which a holder of
the number of shares of Class A Common Stock deliverable upon conversion of
such share of Class A Preferred Stock would have been entitled upon such
consolidation, merger or sale; and, in such case, appropriate adjustment (as
determined in good faith by the Board of Directors) shall be made in the
application of the provisions of this Section 2 set forth with respect to the
rights and interest thereafter of the holders of Class A Preferred Stock, to
the end that the provisions set forth in this Section 2 (including provisions
with respect to changes in and other adjustments of the Applicable Conversion
Amount) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the conversion of the Class A Preferred Stock.
(H) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment
or readjustment pursuant to this Section 2, the Corporation at its expense
shall promptly compute such adjustment or readjustment in accordance with the
terms hereof and furnish to each affected holder of Class A Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
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(I) COMMON STOCK RESERVED. The Corporation shall reserve and keep
available out of its authorized but unissued Class A Common Stock such number
of shares of Class A Common Stock as shall from time to time be sufficient to
effect conversion of the Class A Preferred Stock.
SECTION 3. VOTING RIGHTS.
(A) NOTICE OF MEETING. Except as otherwise required by law or as
hereinafter set forth, the holders of the Class A Preferred Stock shall be
entitled to notice of any meeting of stockholders at which any matter is to be
voted on by the holders of the Class A Common Stock.
(B) VOTING. Except as otherwise required by law or as hereinafter set
forth, the holders of the Class A Preferred Stock shall be entitled to vote
with the holders of the Class A Common Stock on any matter which is to be voted
on by the holders of the Class A Common Stock, whether such matter is to be
voted on by the holders of the Class A Common Stock and the holders of the
Class B Common Stock voting together as a single class, or by the holders of
the Class A Common Stock voting separately as a class. Each holder of Class A
Preferred Stock shall have that number of votes equal to the number of shares
of Class A Common Stock into which the shares of Class A Preferred Stock held
by such holder could be converted on the date for determination of stockholders
entitled to vote at a meeting.
With respect to all questions as to which, under law, stockholders are
entitled to vote by classes, the Class A Preferred Stock shall vote together as
a single class separately from the Common Stock.
SECTION 4. DIVIDEND RIGHTS. The holders of the Class A Preferred Stock shall
have no preferential dividend rights. Subject to the preferential rights, if
any, of the holders of preferred stock other than the Class A Preferred Stock,
each holder of the Class A Preferred Stock shall be entitled to receive all
dividends and other distributions of cash and other property as may be declared
on the Class A Common Stock by the Board of Directors from time to time out of
assets or funds of the Corporation legally available therefor, as if all shares
of the Class A Preferred Stock held by such holder had been converted into the
applicable number of shares of Class A Common Stock on the day any such
dividend was declared.
SECTION 5. REDEMPTION. The Class A Preferred Stock shall be subject to optional
redemption by the Corporation as follows:
(A) RIGHT OF CORPORATION TO REDEEM; REDEMPTION PRICE.
(i) SERIES I PREFERRED STOCK. Any share of the Series I Preferred Stock
which has not been surrendered for optional conversion by the holder thereof
and as to which the Corporation has not issued a Mandatory Conversion Notice
may be redeemed by the Corporation, at the option of the Corporation, at any
time after the date on which such share of Series I Preferred Stock was first
issued at a redemption price equal to $1,000 per share.
(ii) SERIES II PREFERRED STOCK. Any share of the Series II Preferred Stock
which has not been surrendered for optional conversion by the holder thereof
and as to which the Corporation has not issued a Mandatory Conversion Notice
may be redeemed by the Corporation, at the option of the Corporation, at any
time after the date on which such share of Series II Preferred Stock was first
issued at a redemption price per share equal to (A) if the date of the mailing
of the notice of redemption is on or before the second anniversary of the date
of issuance of such share of Series II Preferred Stock, the greater of (I)
$1,000 or (II) the Market Price as of the date of the mailing of such notice of
redemption multiplied by the number of shares of Class A Common Stock into
which such share of Series II Preferred Stock could be converted as of the date
of the mailing of such notice of redemption, or (B) if the date of the mailing
of the notice of redemption is after the second anniversary of the date of
issuance of such share of Series II Preferred Stock, the Market Price as of the
date of the mailing of such notice of redemption multiplied by the number of
shares of Class A Common Stock into which such share of Series II Preferred
Stock could be converted as of the date of the mailing of such notice of
redemption.
(iii) SERIES III PREFERRED STOCK. Any share of the Series III Preferred
Stock which has not been surrendered for optional conversion by the holder
thereof and as to which the Corporation has not issued a Mandatory Conversion
Notice may be redeemed by the Corporation, at the option of the Corporation, at
any time after the date on which such share of Series III Preferred Stock was
first issued at a redemption price per share equal to (A) if the date of the
mailing of the notice of redemption is on or before the second anniversary of
the date of issuance of such share of Series III Preferred Stock, the greater
of (I) $1,000 or (II) the Market Price as of the date of the mailing of such
notice of redemption multiplied by the number of shares of Class A Common Stock
into which such share of Series III Preferred Stock could be converted as of
the date of the mailing of such notice of redemption, or (B) if the date of the
mailing of the notice of redemption is after the second anniversary of the date
of issuance of such share of Series III Preferred Stock, the Market Price as of
the date of the mailing of such notice of redemption multiplied by the number
of shares of Class A Common Stock into which such share of Series III Preferred
Stock could be converted as of the date of the mailing of such notice of
redemption.
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(B) NOTICE OF REDEMPTION. Notice of redemption shall be sent by first
class mail, postage prepaid, to the holder of record of the Class A Preferred
Stock to be redeemed, not less than 30 days nor more than 60 days prior to the
redemption date set forth therein, at its address as it appears on the books of
the Corporation. Such notice shall set forth (i) the date and place of
redemption; and (ii) the number of shares to be redeemed and the redemption
price with respect thereto. In the event that a notice of redemption is given
under this Subsection 5(b), the Corporation shall be obligated to redeem the
Class A Preferred Stock on the date and in the amounts set forth in the notice.
(c) If, on or before a redemption date, the funds necessary for such
redemption shall have been set aside by the Corporation and deposited with a
bank or trust company, in trust for the pro rata benefit of the holders of the
Class A Preferred Stock that has been called for redemption, then,
notwithstanding that any certificates for shares that have been called for
redemption shall not have been surrendered for cancellation, the shares
represented thereby shall no longer be deemed outstanding from and after such
redemption date, and all rights of holders of such shares so called for
redemption shall forthwith, after such redemption date, cease and terminate
with respect to such shares, excepting only the right to receive the redemption
funds therefor to which they are entitled, but without interest. Any interest
accrued on funds so deposited and unclaimed by stockholders entitled thereto
shall be paid to such stockholders at the time their respective shares are
redeemed or to the Corporation at the time unclaimed amounts are paid to it.
(d) The right of the Corporation to redeem the Class A Preferred Stock may
be exercised by the Corporation, in its discretion, as to any or all shares of
Class A Preferred Stock held by any or all of the holders of the Class A
Preferred Stock; and the exercise (or non-exercise) of such right by the
Corporation with respect to any shares of Class A Preferred Stock held by one
holder shall not in any way imply any obligation or duty of the Corporation to
exercise (or not to exercise) such right with respect to any shares of Class A
Preferred Stock held by any other holders.
SECTION 7. WAIVER. Except to the extent prohibited by applicable law, the
Corporation may waive any right it may have hereunder. Any such waiver shall be
in writing; and no waiver of (or failure to waive) any such right by the
Corporation in any one instance shall constitute a waiver (or non-waiver) by
the Corporation of a similar or other right in any other instance.
SECTION 8. RESIDUAL RIGHTS. Subject to the preferential rights, if any, of the
holders of preferred stock other than the Class A Preferred Stock, all rights
accruing to the outstanding shares of the Corporation not expressly provided
for to the contrary herein shall be vested in the Common Stock.
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SONIC AUTOMOTIVE, INC.
PROXY CHARLOTTE, NORTH CAROLINA
[THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF SONIC
AUTOMOTIVE, INC.]
The undersigned hereby appoints Mr. Theodore M. Wright and Mr. William R.
Brooks as Proxies, each with the power to appoint his substitute, and hereby
authorizes them to represent and vote, as designated below, all the shares of
the Voting Stock of Sonic Automotive, Inc. held of record by the undersigned on
September , 1998, at the Annual Meeting of Stockholders to be held on , 1998
or any adjournment thereof.
1. ELECTION OF DIRECTORS
Nominees: William P. Benton, William I. Belk and Bryan Scott Smith (Mark only
one of the following boxes.)
[ ] VOTE FOR all nominees listed above, except vote withheld as to the
following nominee (if any):
[ ] VOTE WITHHELD as to all nominees
2. APPROVAL OF AMENDMENT OF SONIC EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. APPROVAL OF SONIC FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. APPROVAL AND RATIFICATION OF ISSUANCE OF CLASS A PREFERRED STOCK
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP
[ ] FOR [ ] AGAINST [ ] ABSTAIN
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE MARK, SIGN BELOW, DATE AND RETURN THIS
PROXY PROMPTLY IN THE ENVELOPE FURNISHED.
Please sign exactly as name appears below.
When shares are held by joint tenants, both should sign. When signing as
attorney, as executor, administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
Class A Common Stock Shares:
Class B Common Stock Shares:
Class A Preferred Stock:
Series III Preferred Stock
Shares:
Dated: , 1998
Signature:
Printed Name:
Signature, if held jointly:
Printed Name:
[ ] Please mark here if you
intend to attend the Meeting of
Stockholders.