AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 10, 1999
REGISTRATION NO. 333-81053
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SONIC AUTOMOTIVE, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 56-2010790
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5401 EAST INDEPENDENCE BOULEVARD
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA 28212
(Address of Principal Executive Offices) (Zip Code)
SONIC AUTOMOTIVE, INC. 1997 STOCK OPTION PLAN
AMENDED AND RESTATED AS OF JUNE 8, 1999
(Full Title of Plan)
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MR. O. BRUTON SMITH
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
SONIC AUTOMOTIVE, INC.
5401 E. INDEPENDENCE BOULEVARD
P.O. BOX 18747
CHARLOTTE, NORTH CAROLINA 28212
(704) 532-3320
(Name, Address and Telephone Number, including Area Code, of Agent for Service)
COPIES TO:
PETER J. SHEA, ESQ.
PARKER, POE, ADAMS & BERNSTEIN L.L.P.
2500 CHARLOTTE PLAZA, CHARLOTTE, NORTH CAROLINA 28244
TELEPHONE (704) 372-9000
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CALCULATION OF REGISTRATION FEE
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TITLE OF SECURITIES AMOUNT PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT
TO BE TO BE OFFERING PRICE AGGREGATE OF
REGISTERED REGISTERED PER SHARE(1) OFFERING PRICE REGISTRATION FEE
Class A Common Stock,
par value $0.01 per share. 1,428,376 Not Applicable Not Applicable Not Applicable
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(1) A registration fee of $8,073 was paid with the initial filing of the
Registration Statement on Form S-8 filed with the Securities and Exchange
Commission on June 18, 1999.
THIS POST-EFFECTIVE AMENDMENT NO. 1 TO THE REGISTRATION STATEMENT ON FORM
S-8 INITIALLY FILED BY THE REGISTRANT ON JUNE 18, 1999 (FILE NO. 333-81053)
CONTAINS A REOFFER PROSPECTUS RELATING TO CERTAIN RESALES OF CONTROL SHARES
PREPARED IN ACCORDANCE WITH THE REQUIREMENTS OF GENERAL INSTRUCTION C TO FORM
S-8.
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PROSPECTUS
1,428,376 SHARES
[GRAPHIC]
CLASS A COMMON STOCK
---------------
SONIC AUTOMOTIVE, INC.
1997 STOCK OPTION PLAN AS AMENDED AND RESTATED AS OF JUNE 8, 1999
The selling stockholders who are identified in this prospectus may offer
and sell all of the shares of Class A common stock of Sonic Automotive, Inc.
offered hereby from time to time. We previously issued the shares either in
connection with our recent acquisition of the selling stockholders' businesses
or have or will have issued the shares upon the selling stockholders'
conversion of our preferred stock previously issued in connection with our
business acquisitions.
We are registering the offer and sale of the shares to satisfy our
contractual obligations to provide the selling stockholders with freely
tradable shares. Sonic will not receive any of the proceeds from the sale of
the shares offered hereby. We do not know when the proposed sale of the shares
by the selling stockholders will occur.
The Class A common stock is traded on the New York Stock Exchange under
the symbol "SAH." The last sale price of the Class A common stock on the New
York Stock Exchange on August 6, 1999 was $13 3/8 per share. You are urged to
obtain current market data.
INVESTING IN THE CLASS A COMMON STOCK INVOLVES RISKS WHICH ARE DESCRIBED
IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 4 OF THIS PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this prospectus is August 9, 1999
TABLE OF CONTENTS
PAGE
-----
Cautionary Notice Regarding Forward-Looking Statement2
Summary .......................................... 4
Risk Factors ..................................... 4
Where You Can Find More Information about Sonic .. 16
Use of Proceeds .................................. 17
Selling Stockholders ............................. 17
Plan of Distribution ............................. 18
Material Changes ................................. 19
Description of Capital Stock ..................... 19
Certain Manufacturer Restrictions ................ 23
Legal Matters .................................... 24
Experts .......................................... 24
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, its supplements and documents incorporated by reference
into it contain statements that constitute "forward-looking statements" within
the meaning of Section 27A of the Securities Act and Section 21E of the
Securities Exchange Act. We intend these forward-looking statements to be
covered by the safe harbor provisions for forward-looking statements contained
in the Private Litigation Securities Reform Act of 1995, and we are including
this statement for purposes of complying with these safe harbor provisions.
These statements appear in a number of places in this prospectus and include
statements regarding our intent, belief or current expectations, or of our
directors or officers, with respect to, among other things:
(1) our potential acquisitions;
(2) our financing plans;
(3) trends affecting our financial condition or results of operations; and
(4) our business and growth strategies.
You are cautioned that these forward-looking statements are not guarantees
of future performance and involve risks and uncertainties. Actual results may
differ materially from those projected in the forward-looking statements as a
result of various factors, including:
o local and regional economic conditions in the areas we serve;
o the level of consumer spending;
o our relationships with manufacturers;
o high competition;
o site selection and related traffic and demographic patterns;
o inventory management and turnover levels;
o realization of cost savings; and
o our success in integrating recent and potential future acquisitions.
Additional factors that could negatively affect our future financial
condition and operations are discussed under the heading "Risk Factors" and in
other parts of this prospectus. We urge you to consider these factors carefully
before investing in our Class A common stock.
All forward-looking statements made by us in this prospectus, its
supplements and documents incorporated by reference into it are qualified by
the cautionary statement above.
2
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS. WE HAVE NOT, AND THE SELLING STOCKHOLDERS HAVE
NOT, AUTHORIZED ANY OTHER PERSON TO PROVIDE YOU WITH DIFFERENT INFORMATION. IF
ANYONE PROVIDES YOU WITH DIFFERENT OR INCONSISTENT INFORMATION, YOU SHOULD NOT
RELY ON IT. WE ARE NOT, AND THE SELLING STOCKHOLDERS ARE NOT, MAKING AN OFFER
TO SELL THESE SECURITIES (1) IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED, (2) WHERE THE PERSON MAKING THE OFFER IS NOT QUALIFIED TO DO SO, OR
(3) TO ANY PERSON WHO CAN NOT LEGALLY BE OFFERED THE SECURITIES. YOU SHOULD
ASSUME THAT THE INFORMATION APPEARING IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE ON THE FRONT COVER OF THIS PROSPECTUS. OUR BUSINESS, FINANCIAL
CONDITION, RESULTS OF OPERATIONS AND PROSPECTS MAY HAVE CHANGED SINCE THAT
DATE.
3
SUMMARY
Sonic is one of the top ten automotive retailers in the United States, as
measured by total revenue, operating dealerships and collision repair centers
in several metropolitan areas of the southeastern, midwestern and southwestern
United States. We sell new and used cars, light trucks and replacement parts
and provide vehicle maintenance, warranty, paint and repair services. We also
arrange related financing and insurance for our automotive customers.
Sonic has implemented a "hub and spoke" acquisition strategy. Generally,
when we enter a new geographic market, we first seek to acquire a well
performing dealership with an excellent management team. We then capitalize on
management's operating experience and knowledge of the surrounding markets to
identify and acquire additional dealerships. In addition to indentifying,
consummating and integrating attractive acquisitions, we continually focus on
improving our existing dealership operations.
The Class A common stock is traded on the New York Stock Exchange under
the trading symbol "SAH." Our principal executive offices are located at 5401
East Independence Blvd., Charlotte, North Carolina 28212, Telephone (704)
532-3320.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER AND EVALUATE ALL OF THE INFORMATION IN THIS
PROSPECTUS, INCLUDING THE RISK FACTORS SET FORTH BELOW, BEFORE INVESTING IN THE
SHARES BEING OFFERED.
AUTOMOBILE MANUFACTURERS EXERCISE SIGNIFICANT CONTROL OVER SONIC'S OPERATIONS
AND SONIC IS DEPENDENT ON THEM TO OPERATE ITS BUSINESS
Each of Sonic's dealerships operates pursuant to a franchise agreement
with the applicable automobile manufacturer or manufacturer authorized
distributor. Sonic is dependent to a significant extent on its relationships
with such manufacturer. Without a franchise agreement, we cannot obtain new
vehicles from a manufacturer.
Vehicles manufactured by the following manufacturers accounted for the
indicated approximate percentage of our 1998 new vehicle revenue:
PERCENTAGE OF OUR
MANUFACTURER 1998 NEW VEHICLE REVENUES
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Ford Motor Company 44.0%
Daimler-Chrysler Corporation 19.0%
Toyota Motor Sales (U.S.A.) 10.7%
General Motors Corporation 6.2%
BMW 5.3%
No other manufacturer accounted for more than 5% of our new vehicle sales
during 1998. A significant decline in the sale of Ford, Daimler-Chrysler,
Toyota, GM or BMW new vehicles could have a material adverse effect on our
revenues and profitability.
Manufacturers exercise a great degree of control over the operations of
Sonic's dealerships. Each of our franchise agreements provides for termination
or non-renewal for a variety of causes, including any unapproved change of
ownership or management and other material breaches of the franchise
agreements. Manufacturers may also have a right of first refusal if we seek to
sell our dealerships. We believe that we will be able to renew all of our
existing franchise agreements upon expiration.
o We cannot assure you that any of our franchise agreements will be renewed
or that the terms and conditions of such renewals will be favorable to us.
o If a manufacturer is allowed under state franchise laws to terminate or
decline to renew one or more of Sonic's significant franchise agreements,
this action could have a material adverse effect on our results of
operations.
o Actions taken by manufacturers to exploit their superior bargaining
position in negotiating the terms of renewals of our franchise agreements
or otherwise could also have a material adverse effect on our results of
operations.
Manufacturers allocate their vehicles among dealerships generally based on
the sales history of each dealership. Consequently, we also depend on the
manufacturers to provide us with a desirable mix of popular new vehicles. These
popular vehicles produce the highest profit margins and tend to be the most
difficult to obtain from the manufacturers.
4
o Sonic's dealerships depend on the manufacturers for certain sales
incentives, warranties and other programs that are intended to promote and
support dealership new vehicle sales. Manufacturers have historically made
many changes to their incentive programs during each year. A reduction or
discontinuation of a manufacturer's incentive programs may materially
adversely affect our profitability.
ADVERSE CONDITIONS AFFECTING ONE OR MORE MANUFACTURERS MAY NEGATIVELY IMPACT
SONIC'S PROFITABILITY
The success of each of Sonic's dealerships depends to a great extent on
the manufacturers':
o financial condition;
o marketing;
o vehicle design;
o production capabilities; and
o management.
Events such as strikes and other labor actions by unions, or negative
publicity concerning a particular manufacturer or vehicle model, may materially
and adversely affect our results of operations. Similarly, the delivery of
vehicles from manufacturers later than scheduled, which may occur particularly
during periods when new products are being introduced, can reduce our sales.
Although, we have attempted to lessen our dependence on any one manufacturer by
establishing dealer relationships with a number of different domestic and
foreign automobile manufacturers, adverse conditions affecting manufacturers,
Ford, Daimler-Chrysler, Toyota or GM in particular, could have a material
adverse effect on our results of operations. For instance, workers at a
Chrysler engine plant went on strike in April 1997 for 29 days. The strike by
the United Auto Workers caused Chrysler's vehicle production to drop during the
Spring of 1997, especially for production of its most popular truck and van
models. This strike materially affected Sonic due to Chrysler's inability to
provide us with a sufficient supply of new vehicles and parts during the
strike. In addition, in June 1998, the United Auto Workers went on strike at
two GM facilities in Flint, Michigan. The strike lasted 53 days, causing 27 GM
manufacturing facilities to shut down during the strike and severely affecting
production of GM vehicles during the strike. In the event of another strike,
Sonic may need to purchase inventory from other automobile dealers at prices
higher than it would be required to pay to the affected manufacturer in order
to carry an adequate level and mix of inventory. Consequently, strikes or other
adverse labor actions could materially adversely affect our profitability.
MANUFACTURER STOCK OWNERSHIP/ISSUANCE LIMITS LIMIT SONIC'S ABILITY TO ISSUE
ADDITIONAL EQUITY TO MEET ITS FINANCING NEEDS
Standard automobile franchise agreements prohibit transfers of any
ownership interests of a dealership and its parent, such as Sonic, and,
therefore, often do not by their terms accommodate public trading of the
capital stock of a dealership or its parent. Our manufacturers have agreed to
permit trading in the Class A common stock. A number of manufacturers impose
restrictions upon the transferability of the Class A common stock.
o Ford may cause us to sell or resign from one or more of our Ford
franchises if any person or entity (other than the current holders of our
Class B common stock, and their lineal descendants and affiliates
(collectively, the "Smith Group")) acquires 15% or more of our voting
securities.
o General Motors, Toyota and Nissan Motor Corporation In U.S.A.
("Infiniti") may force the sale of their respective franchises if 20% of
more of our voting securities are similarly acquired.
o American Honda Co., Inc. may force the sale of our Honda franchise if any
person or entity, excluding members of the Smith Group, acquires 5% of the
common stock (10% if such entity is an institutional investor), and Honda
deems such person or entity to be unsatisfactory.
o Volkswagen of America, Inc. requires prior approval of any change in
voting or managerial control of Sonic that would affect Sonic's control or
management of its Volkswagen franchise subsidiaries.
o Chrysler requires prior approval of any future sales that would result in
a change in voting or managerial control of Sonic.
o Mercedes requires 60 days notice to approve the acquisition of securities
representing 20% or more of the voting rights of Sonic.
5
In addition, other manufacturers may seek to impose other similar restrictions.
In a similar manner, Sonic's lending arrangements require that the Smith
Group maintain voting control over Sonic. Any transfer of shares of common
stock, including a transfer by members of the Smith Group, will be outside our
control. If such transfer results in a change in control of Sonic, it could
result in the termination or non-renewal of one or more of our franchise
agreements and a default under our credit arrangements. Moreover, these
issuance limitations may impede Sonic's ability to raise capital through
additional equity offerings or to issue Sonic stock as consideration for future
acquisitions. The restrictions under Sonic's franchise agreements or lending
arrangements also may prevent or deter prospective acquirors from acquiring
control of Sonic and adversely impact the price of Sonic's Class A common
stock.
MANUFACTURERS' RESTRICTIONS ON ACQUISITIONS COULD LIMIT SONIC'S FUTURE GROWTH
We are required to obtain the consent of the applicable manufacturer
before the acquisition of any additional dealership franchises. We cannot
assure you that manufacturers will grant such approvals, although the denial of
such approval may be subject to certain state franchise laws. In the course of
acquiring Jaguar franchises associated with dealerships in Chattanooga,
Tennessee and Greenville, South Carolina, Jaguar declined to consent to Sonic's
proposed 1997 acquisitions of those franchises.
Obtaining manufacturer consent for acquisitions could also take a
significant amount of time. Obtaining manufacturer approval for our 1997 and
1998 acquisitions, other than Jaguar, which was not obtained, took
approximately five months. We believe that manufacturer approvals of subsequent
acquisitions from manufacturers with which Sonic has previously completed
applications and agreements may take less time, although we cannot provide you
with assurances to that effect.
If we experience delays in obtaining, or fail to obtain, manufacturer
approvals for dealership acquisitions, our growth strategy could be materially
adversely affected. In determining whether to approve an acquisition, the
manufacturers may consider many factors, including the moral character,
business experience, financial condition, ownership structure and customer
satisfaction index scores ("CSI scores") of Sonic and its management. In
addition, under an applicable franchise agreement or under state law a
manufacturer may have a right of first refusal to acquire a dealership in the
event we seek to acquire a dealership franchise.
In addition, a manufacturer may seek to limit the number of its
dealerships that may be owned by Sonic, Sonic's national market share of that
manufacturer's products or the number of dealerships Sonic may own in a
particular geographic area. These restrictions may not be enforceable under
state franchise laws.
o Ford currently limits us to no more than the lesser of (1) 15 Ford and 15
Lincoln Mercury dealerships or (2) that number of Ford and Lincoln Mercury
dealerships accounting for 2% of the preceding year's retail sales of
those brands in the United States. Ford also limits us to owning only one
Ford dealership in any Ford-defined market area having three or fewer Ford
dealerships in it and no more than 25% of the Ford dealerships in a market
area having four or more Ford dealerships.
o Toyota currently restricts the number of dealerships that may be owned by
any one group to seven Toyota and three Lexus dealerships nationally and
restricts the number of dealerships that may be owned to (1) the greater
of one dealership, or 20% of the Toyota dealer count in a Toyota-defined
"Metro" market, (2) the lesser of five dealerships or 5% of the Toyota
dealerships in any Toyota region (currently 12 geographic regions), and
(3) two Lexus dealerships in any one of the four Lexus geographic areas.
Toyota further requires that at least nine months elapse between
acquisitions.
o In late 1998, Honda announced its revised policy that it will enter into
a "framework agreement" with any publicly-owned Honda dealer entity. The
purpose of this agreement is primarily to set specific limitations on the
number of Honda and Acura dealerships nationally, in each Honda- and
Acura-defined geographic zones and in each Honda- and Acura-defined
"Metro" market. Honda has not yet provided us with such a framework
agreement. Presently, Honda restricts us from holding more than seven
Honda or more than three Acura franchises nationally and restricts the
number of franchises to (1) one Honda dealership in a Honda-defined
"Metro" market with two to 10 Honda dealerships, (2) two Honda dealerships
in a Metro market with 11 to 20 Honda dealerships, (3) three Honda
dealerships in a Metro market with 21 or more Honda dealerships, (4) no
more than 4% of the Honda dealerships in any one of 10 Honda-defined
geographic zones, (5) one Acura dealership in a Metro market, and (6) two
Acura dealerships in any one of the six Acura-defined geographic zones.
o Mercedes restricts any company from owning that number of Mercedes
dealerships with sales of more than 3% of total sales of Mercedes vehicles
in the U.S. during the previous calendar year. In addition, Mercedes has
limited Sonic from acquiring more than four additional Mercedes
dealerships until November 1999. During this period,
6
Mercedes will evaluate the performance of our acquired Mercedes
dealerships before permitting us to acquire additional Mercedes
dealerships.
o GM limited the number of GM dealerships that we may acquire during the
period from September 15, 1997 to June 10, 2000 to 15 additional GM
dealership locations. We currently own and have agreements to acquire a
total of 15 GM dealerships. GM currently limits the maximum number of GM
dealerships that we may acquire to 50% of the GM dealerships, by franchise
line, in a GM-defined geographic market area having multiple GM dealers.
o Toyota and Honda also prohibit ownership of contiguous dealerships.
o Subaru limits us to no more than two Subaru dealerships within certain
designated market areas, four Subaru dealerships within the Mid-America
region and twelve dealerships within Subaru's entire area of distribution.
o Toyota, Honda and Mercedes also prohibit the coupling of a franchise
with any other brand without their consent.
As a condition to granting their consent to our 1997 acquisitions, a
number of manufacturers forced Sonic to agree to additional restrictions. These
agreements principally restrict (1) material changes in Sonic or extraordinary
corporate transactions such as a merger, sale of a material amount of assets or
change in the Board of Directors or management of Sonic that could have a
material adverse effect on the manufacturer's image or reputation or could be
materially incompatible with the manufacturer's interests; (2) the removal of a
dealership general manager without the consent of the manufacturer; and (3) the
use of dealership facilities to sell or service new vehicles of other
manufacturers. If we are unable to comply with these restrictions, we generally
must (1) sell the assets of the dealerships to the manufacturer or to a third
party acceptable to the manufacturer, or (2) terminate the dealership
agreements with the manufacturer. Other manufacturers may impose other and more
stringent restrictions in connection with future acquisitions.
We own the following number of franchises for the following manufacturers:
NUMBER NUMBER
MANUFACTURER OF FRANCHISES MANUFACTURER OF FRANCHISES
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BMW 8 Volkswagon 3
Ford 7 Audi 2
Chevrolet 7 GMC 2
Cadillac 6 Hyundai 2
Chrysler 6 Infiniti 2
Oldsmobile 6 Lexus 2
Plymouth 6 Lincoln 2
Dodge 5 Porsche 2
Jeep 5 Acura 1
Volvo 4 Buick 1
Isuzu 3 Honda 1
KIA 3 Pontiac 1
Mercedes 3 Range Rover 1
Mercury 3 Subaru 1
Mitsubishi 3
Nissan 3
Toyota 3
JAGUAR HAS NOT CONSENTED TO TWO ACQUISITIONS
In the course of seeking to acquire Jaguar franchises in Chattanooga,
Tennessee and Greenville, South Carolina, Jaguar declined to consent to Sonic's
proposed acquisitions of these franchises. In settling legal actions brought
against Jaguar by the seller of the Chattanooga Jaguar franchise, Sonic agreed
with Jaguar not to acquire any Jaguar franchise until August 3, 2001.
SONIC'S FAILURE TO MEET A MANUFACTURER'S CONSUMER SATISFACTION REQUIREMENTS MAY
ADVERSELY AFFECT OUR ABILITY TO ACQUIRE NEW DEALERSHIPS
Many manufacturers attempt to measure customers' satisfaction with their
sales and warranty service experiences through systems which vary from
manufacturer to manufacturer but which are generally known as "CSI." These
manufacturers may use a dealership's CSI scores as a factor in evaluating
applications for additional dealership acquisitions. The components of CSI have
been modified by various manufacturers from time to time in the past, and we
cannot assure you that these components will not be further modified or
replaced by different systems in the future. To date, we have not been
7
materially adversely affected by these standards and have not been denied
approval of any acquisition based on low CSI scores, except for Jaguar's
refusal to approve our acquisition of a Chattanooga Jaguar franchise in 1997.
See " -- Jaguar Has Not Consented to Two Acquisitions." However, we cannot
assure you that Sonic will be able to comply with these standards in the
future. A manufacturer may refuse to consent to an acquisition of one of its
franchises if it determines our dealerships do not comply with the
manufacturer's CSI standards. This could adversely affect our acquisition
strategy.
LIMITATIONS ON SONIC'S FINANCIAL RESOURCES AVAILABLE FOR ACQUISITIONS
We intend to finance our acquisitions with cash on hand, through issuances
of our stock or debt securities and through borrowings under credit
arrangements.
o We cannot assure you that we will be able to obtain additional financing
by issuing our stock or debt securities.
o Using issuances of our stock to complete acquisitions could
significantly dilute our existing stockholders.
o Using cash to complete acquisitions could substantially limit our
operating or financial flexibility.
o If we are unable to obtain financing on acceptable terms, we may be
required to reduce the scope of our presently anticipated expansion, which
could materially adversely affect our growth strategy.
In addition, Sonic is dependent to a significant extent on its ability to
finance its inventory. Automotive retail inventory financing involves
significant sums of money in the form of "floor plan financing." Floor plan
financing is how a dealership finances its purchase of new vehicles from a
manufacturer. The dealership borrows money to buy a particular vehicle from the
manufacturer and pays off the loan when it sells that particular vehicle,
paying interest during this period. As of March 31, 1999, Sonic had
approximately $264.8 million of floor plan indebtedness outstanding, all of
which is under Sonic's floor plan credit facility (the "Floor Plan Facility")
with Ford Motor Credit. Substantially all the assets of our dealerships are
pledged to secure such indebtedness, which may impede our ability to borrow
from other sources. Ford Motor Credit is associated with Ford. Consequently,
any deterioration of our relationship with Ford could adversely affect our
relationship with Ford Motor Credit and vice-versa. In addition, Sonic must
obtain new floor plan financing or obtain consents to assume such financing in
connection with its acquisition of dealerships.
O. Bruton Smith, our Chief Executive Officer and Chairman of the Board,
initially guaranteed the obligations of Sonic under Sonic's unsecured
acquisition line of credit (the "Revolving Facility") with Ford Motor Credit.
Such obligations were further secured with a pledge of shares of common stock
of Speedway Motorsports, Inc. owned by Sonic Financial Corporation, a
corporation controlled by Mr. Smith, having an estimated value at the time of
pledge of approximately $50.0 million (the "Revolving Pledge"). When the
Revolving Facility's borrowing limit was increased to $75.0 million in 1997,
Mr. Smith's personal guarantee of Sonic's obligations under the Revolving
Facility was released, although the Revolving Pledge remained in place. Mr.
Smith was also required by Ford Motor Credit to lend $5.5 million (the
"Subordinated Smith Loan") to Sonic to increase Sonic's capitalization because
the net proceeds from Sonic's November 1997 initial public offering were
significantly less than expected by Sonic and Ford Motor Credit. In August
1998, Ford Motor Credit released the Revolving Pledge. In December 1998, Ford
Motor Credit agreed to increase the borrowing limit under the Revolving
Facility to $100.0 million, and in June 1999, Ford Motor Credit agreed to
further increase the borrowing limit under the Revolving Facility to $150.0
million. Mr. Smith may be unwilling to make any such commitments in the future
if such commitments are needed.
LEVERAGE
As of March 31, 1999, Sonic's long-term debt was 51.5% of its total
capitalization. As of March 31, 1999, Sonic's total consolidated long-term
indebtedness (including certain affiliated payables) was $189.4 million, its
total consolidated short-term indebtedness (including floor plan notes payable)
was $266.0 million and its total stockholders' equity was $178.6 million. In
addition, the indenture relating to our senior subordinated notes and other
debt instruments of Sonic and its subsidiaries allow Sonic and its subsidiaries
to incur additional indebtedness, including secured indebtedness.
The degree to which Sonic is leveraged could have important consequences
to the holders of our securities, including the following:
o our ability to obtain additional financing for acquisitions, capital
expenditures, working capital or general corporate purposes may be
impaired in the future;
o a substantial portion of our cash flow from operations must be dedicated
to the payment of principal and interest on our senior subordinated notes,
borrowings under the revolving facility, a standardized floor plan credit
facility with
8
Ford Motor Credit for each of our dealership subsidiaries and other
indebtedness, thereby reducing the funds available to us for our
operations and other purposes;
o certain of our borrowings are and will continue to be at variable rates
of interest, which exposes us to the risk of increased interest rates;
o the indebtedness outstanding under our credit facilities is secured by a
pledge of substantially all the assets of our dealerships; and
o we may be substantially more leveraged than certain of our competitors,
which may place us at a relative competitive disadvantage and make us more
vulnerable to changing market conditions and regulations.
In addition, our debt agreements contain numerous covenants that will
limit the discretion of Sonic's and its subsidaries' management with respect to
business matters, including mergers or acquisitions, paying dividends,
incurring additional debt, making capital expenditures or disposing assets.
AUTOMOBILE RETAILING IS A MATURE INDUSTRY WITH LIMITED GROWTH POTENTIAL IN NEW
VEHICLE SALES AND SONIC'S ACQUISITION STRATEGY WILL AFFECT ITS REVENUES AND
EARNINGS
The United States automobile dealership industry is considered a mature
industry in which minimal growth is expected in unit sales of new vehicles. As
a consequence, growth in our revenues and earnings is likely to be
significantly affected by our success in acquiring and integrating dealerships
and the pace and size of such acquisitions.
HIGH COMPETITION IN AUTOMOBILE RETAILING REDUCES SONIC'S PROFIT MARGINS ON
VEHICLE SALES
Automobile retailing is a highly competitive business with over 22,000
franchised automobile dealerships in the United States at the beginning of
1998. Our competition includes:
o Franchised automobile dealerships selling the same or similar makes of
new and used vehicles we offer in our markets and sometimes at lower
prices than us. Some of these dealer competitors may be larger and have
greater financial and marketing resources than Sonic;
o Other franchised dealers;
o Private market buyers and sellers of used vehicles;
o Used vehicle dealers;
o Service center chain stores; and
o Independent service and repair shops.
Gross profit margins on sales of new vehicles have been declining since
1986. The used car market faces increasing competition from untraditional
outlets such as used-vehicle "superstores." Many used-vehicle superstores use
sales techniques, such as one price shopping, that are untraditional and
appealing to certain consumers. Presently, only one of Sonic's dealerships uses
one price shopping techniques. Several groups have begun to establish
nationwide networks of used-vehicle superstores. Used-vehicle superstores
compete with us in many of the markets where we have significant operations.
"No negotiation" sales methods are also being tried for new cars by at least
one of these superstores and by dealers for Saturn and other dealerships. Some
of our competitors may be capable of operating on smaller gross margins than
us, and may have greater financial, marketing and personnel resources than us.
The Internet is becoming a significant part of the sales process in our
industry. Customers are using the Internet to compare pricing for cars and
related finance and insurance services which may further reduce margins for new
cars and profits for related finance and insurance services.
In addition, Ford and GM have announced that they are entering into joint
ventures to acquire dealerships in various cities in the United States and
Saturn has announced its intention to acquire its dealerships. In addition,
other manufacturers may directly enter the retail market in the future. Our
revenues and profitability could be materially adversely affected by
manufacturers' direct retailing efforts.
The increased popularity of short-term vehicle leasing also has resulted,
as these leases expire, in a large increase in the number of late model
vehicles available in the market, which puts added pressure on new vehicle
margins. As Sonic seeks
9
to acquire dealerships in new markets, it may face increasingly significant
competition as it strives to gain market share through acquisitions or
otherwise. This competition includes other large dealer groups and dealer
groups that have publicly-traded equity.
Our franchise agreements do not grant us the exclusive right to sell a
manufacturer's product within a given geographic area. Our revenues or
profitability could be materially adversely affected if any of our
manufacturers award franchises to others in the same markets where we operate,
although certain state franchise laws may limit such activities by the
manufacturers. A similar adverse affect could occur if existing competing
franchised dealers increase their market share in our markets. Our gross
margins may decline over time as we expand into markets where we do not have a
leading position. These and other competitive pressures could materially
adversely affect Sonic's results of operations.
THE CYCLICAL AND LOCAL NATURE OF AUTOMOBILE SALES MAY ADVERSELY AFFECT SONIC'S
PROFITABILITY
The automobile industry is cyclical and historically has experienced
periodic downturns characterized by oversupply and weak demand. Many factors
affect the industry, including general economic conditions and consumer
confidence, the level of discretionary personal income, interest rates and
credit availability. For the year ended December 31, 1998, industry retail unit
sales increased 2.9% as a result of retail car unit sales declines of 1.1%
offset by retail truck unit sales gains of 7.7% from the same period in 1997.
Future recessions may have a material adverse effect on our business.
Local economic, competitive and other conditions also affect the
performance of dealerships. Sonic's dealerships currently are located in the
Atlanta, Birmingham, Charlotte, Chattanooga, Columbus, Dallas, Daytona Beach,
Greenville/ Spartanburg, Houston, Montgomery, Nashville and Tampa/Clearwater
markets. We intend to pursue acquisitions outside of these markets, but our
operational focus is on our current markets. As a result, Sonic's results of
operations depend substantially on general economic conditions and consumer
spending habits in the Southeast and, to a lesser extent, in the Houston and
Columbus markets. Sonic's results of operations also depend on other factors,
such as tax rates and state and local regulations specific to Alabama, Florida,
Georgia, North Carolina, Ohio, South Carolina, Tennessee and Texas. Sonic may
not be able to expand geographically and any such expansion may not adequately
insulate it from the adverse effects of local or regional economic conditions.
RISKS OF CONSOLIDATING OPERATIONS AS A RESULT OF RECENT ACQUISITIONS MAY
ADVERSELY AFFECT SONIC'S FUTURE OPERATING RESULTS
We acquired 19 dealerships in 1998. These dealerships were operated and
managed independently from Sonic until we acquired them. Sonic's future
operating results will depend on our ability to integrate the operations of
these businesses and manage the combined enterprise. We cannot assure you that
we will be able to effectively and profitably integrate in a timely manner any
of the dealerships included in our 1998 acquisitions or any future
acquisitions, or to manage the combined entity without substantial costs,
delays or other operational or financial problems. Our inability to do so could
have a material adverse effect on Sonic's business, financial condition and
results of operations.
RISKS ASSOCIATED WITH ACQUISITIONS MAY HINDER SONIC'S ABILITY TO INCREASE
REVENUES AND EARNINGS
The retail automobile industry is considered a mature industry in which
minimal growth is expected in industry unit sales. Accordingly, our future
growth depends in large part on our ability to acquire additional dealerships
as well as on our ability to manage expansion, control costs in our operations
and consolidate dealership acquisitions, including our 1998 and completed 1999
acquisitions, into existing operations. In pursuing a strategy of acquiring
other dealerships, we face risks commonly encountered with growth through
acquisitions. These risks include, but are not limited to:
o incurring significantly higher capital expenditures and operating
expenses;
o failing to assimilate the operations and personnel of the acquired
dealerships;
o disrupting Sonic's ongoing business;
o diverting Sonic's limited management resources;
o failing to maintain uniform standards, controls and policies;
o impairing relationships with employees and customers as a result of
changes in management;
o causing increased expenses for accounting and computer systems, as well
as integration difficulties; and
o failure to obtain a manufacturer's consent to one of its dealership
franchises.
10
Failure to retain qualified management personnel at any acquired
dealership may increase the risk associated with integrating the acquired
dealership. Installing new computer systems has in the past disrupted existing
operations as management and salespersons adjust to new technologies. We cannot
assure you that we will be successful in overcoming these risks or any other
problems encountered with our acquisitions, including our 1998 and completed
1999 acquisitions.
Although there are many potential acquisition candidates that fit our
acquisition criteria, we cannot assure you that we will be able to consummate
any such transactions in the future or identify those candidates that would
result in the most successful combinations, or that future acquisitions will be
able to be consummated at acceptable prices and terms. In addition, increased
competition for acquisition candidates could result in fewer acquisition
opportunities for us and higher acquisition prices. The magnitude, timing and
nature of future acquisitions will depend upon various factors, including:
o the availability of suitable acquisition candidates;
o competition with other dealer groups for suitable acquisitions;
o the negotiation of acceptable terms;
o Sonic's financial capabilities;
o the availability of skilled employees to manage the acquired companies;
and
o general economic and business conditions.
In addition, Sonic's future growth as a result of our acquisition of
automobile dealerships will depend on our ability to obtain the requisite
manufacturer approvals. We cannot assure you that we will be able to obtain
such consents in the future.
We may be required to file applications and obtain clearances under
applicable federal antitrust laws before completing an acquisition. These
regulatory requirements may restrict or delay our acquisitions, and may
increase the cost of completing acquisitions.
THE OPERATING CONDITION OF ACQUIRED BUSINESSES CANNOT BE DETERMINED ACCURATELY
UNTIL SONIC ASSUMES CONTROL
Although we have conducted what we believe to be a prudent level of
investigation regarding the operating condition of the businesses we purchase
in light of the circumstances of each transaction, certain unavoidable levels
of risk remain regarding the actual operating condition of these businesses.
Until we actually assume operating control of such assets, we may not be able
to ascertain the actual value of the acquired entity.
11
POTENTIAL ADVERSE MARKET PRICE EFFECT OF ADDITIONAL SHARES ELIGIBLE FOR FUTURE
SALE
The market price of our Class A common stock could be adversely affected
by the availability for public sale of up to 20,136,182 shares held or issuable
on August 9, 1999, including:
NUMBER OF SHARES OF
CLASS A COMMON STOCK MANNER OF HOLDING AND/OR ISSUANCE
- ------------------------ --------------------------------------------------------------
12,300,000(1) Issuable on conversion of 12,300,000 shares of our Class B
common stock owned by existing stockholders of Sonic.
These shares of Class A common stock are subject to
certain piggyback registration rights.
242,782(1) Issuable on exercise of warrants issued in our business
acquisitions.
2,101,862(1)(2) Issued or issuable on conversion of outstanding shares of
our Class A convertible preferred stock that were issued in
our business acquisitions.
1,440,022 Issued in our business acquisitions and currently registered
for sale under the Securities Act pursuant to a shelf
registration.
3,584,798 Issuable on exercise of options granted under our 1997
Stock Option Plan. All such shares are registered for sale
under the Securities Act.
396,718 Issuable on exercise of options granted under our employee
stock purchase plans. All such shares are registered for sale
under the Securities Act.
70,000 Issuable on exercise of options granted under our Directors
Formula Stock Option Plan. All such shares are registered
for sale under the Securities Act.
- ---------
(1) All such shares are "restricted securities" as defined in Rule 144 under
the Securities Act and may be resold in compliance with Rule 144.
(2) The number of shares of Class A common stock issuable upon conversion of
outstanding shares of our preferred stock is an estimate based on the
assumption that the average of the daily closing prices for the Class A
common stock on the NYSE for the 20 consecutive trading days ending one
trading day before such conversion was $14.425 per share. This number is
subject to adjustment based on the common stock price on the date of
conversion and could be materially more or less than this estimated
amount depending on factors that we cannot presently determine. These
factors include the future market price of the Class A common stock and
the decisions of the holders of the preferred stock as to when to
convert their shares of preferred stock. Generally, such issuances of
Class A common stock will vary inversely with the market price of the
Class A common stock.
In connection with pending acquisitions, Sonic has agreed to issue
approximately $11.2 million in Class A common stock. All of these shares have
registration rights. Sonic intends in its business acquisitions to issue
additional shares of equity securities that may have registration rights as
well as be eligible for resale under Rule 144. The resale of substantial
amounts of Class A common stock, or the perception that such resales may occur,
could materially and adversely affect the prevailing market prices for the
Class A common stock and the ability of Sonic to raise equity capital in the
future.
Sonic also has registration rights agreements with holders of:
o 500,833 shares of Class A common stock, and
o 4,750 shares of preferred stock, which are convertible into 318,430
shares of Class A common stock if such conversion was based on $14.425
being the 20-day average closing price of our Class A common stock.
12
POTENTIAL CONFLICTS OF INTEREST BETWEEN SONIC AND ITS OFFICERS COULD ADVERSELY
AFFECT OUR FUTURE PERFORMANCE
Bruton Smith serves as the chairman and chief executive officer of
Speedway Motorsports, Inc. and as the chairman of Mar Mar Realty Trust, a real
estate investment trust that is specializing in the acquisition and leasing of
the real estate of automobile dealerships and automotive related businesses.
Accordingly, Sonic competes with Speedway Motorsports and Mar Mar for the
management time of Mr. Smith. Under his employment agreement with Sonic, Mr.
Smith is required to devote approximately 50% of his business time to our
business. The remainder of his business time may be devoted to other entities
including Speedway Motorsports and Mar Mar.
We have in the past and will likely in the future enter into transactions
with entities controlled by Mr. Smith or other affiliates of Sonic. Sonic has
entered into certain property transactions with Mar Mar or its affiliates. We
believe that all of our existing arrangements with affiliates, including those
with Mar Mar, are favorable to us and are as if the arrangements were
negotiated between unaffiliated parties. Since no independent appraisals were
obtained, we cannot assure you that our transactions with Mar Mar are on terms
no less favorable than could have been obtained from unaffiliated third
parties. Potential conflicts of interest could also arise in the future between
Sonic and these affiliated parties in connection with the enforcement,
amendment or termination of these arrangements.
On June 30, 1999, Mr. Smith and other affiliates of Mar Mar signed an
agreement to sell the ownership of MMR Holdings to an affiliate of Capital
Automotive REIT, which is unaffiliated with Sonic, Mar Mar or Mr. Smith. MMR
Holdings, which is owned directly or indirectly by Mr. Smith, owns or will own
after the closing of our previously announced acquisitions, 52 properties
leased or to be leased to us. We anticipate that the sale of MMR Holdings will
close in the third quarter of 1999. In a separate transaction, Sonic entered
into an agreement with Capital Automotive whereby Capital Automotive agreed to
provide Sonic with up to $75,000,000 in real estate financing through December
31, 1999. When the agreement for the sale of MMR Holdings was signed, we, Mar
Mar and MMR Holdings terminated our strategic alliance agreement whereby Mar
Mar had provided Sonic with real estate financing, acquisition referral and
related services. After MMR Holdings is sold, Mar Mar and its affiliates will
cease their present operations. See "Material Changes."
Under Delaware law generally, a corporate insider is precluded from acting
on a business opportunity in his individual capacity if that opportunity is (a)
one which the corporation is financially able to undertake, (b) is in the line
of the corporation's business, (c) is of practical advantage to the corporation
and (d) is one in which the corporation has an interest or reasonable
expectancy. Accordingly, our corporate insiders are generally prohibited from
engaging in new business opportunities outside of Sonic unless a majority of
our disinterested directors decide that such opportunities are not in our best
interest.
Our charter contains provisions providing that transactions between Sonic
and its affiliates must be no less favorable to Sonic than would be available
in similar transactions with an unrelated third party. Moreover, any such
transactions involving aggregate payments in excess of $500,000 must be
approved by a majority of our directors and a majority of our independent
directors. Otherwise, Sonic must obtain an opinion as to the financial fairness
of the transaction to be issued by an investment banking or appraisal firm of
national standing. In addition, the terms of the Revolving Facility and our
senior subordinated notes restrict transactions with affiliates in a manner
similar to our charter restrictions.
LACK OF MAJORITY OF INDEPENDENT DIRECTORS COULD RESULT IN CONFLICTS WITH
MANAGEMENT AND MAJORITY STOCKHOLDERS THAT MAY REDUCE SONIC'S FUTURE PERFORMANCE
Independent directors do not constitute a majority of the Board, and our
Board may not have a majority of independent directors in the future. Without a
majority of independent directors, our executive officers, principal
stockholders and directors could establish policies and enter into transactions
without independent review and approval, subject to certain restrictions under
our charter. These policies and transactions could present the potential for a
conflict of interest between Sonic and its minority stockholders and the
controlling officers, stockholders or directors.
THE LOSS OF KEY PERSONNEL AND THE LIMITED MANAGEMENT AND PERSONNEL RESOURCES OF
SONIC COULD ADVERSELY AFFECT SONIC'S OPERATIONS AND GROWTH
Our success depends to a significant degree upon the continued
contributions of our management team (particularly its senior management) and
service and sales personnel. Additionally, manufacturer franchise agreements
require the prior approval of the applicable manufacturer before any change is
made in franchise general managers. For instance, Volvo has required that
Richard Dyer maintain a 20% interest in, and be the general manager of, Sonic's
Volvo dealerships formerly owned by him. In addition, Mercedes requires that
the individual dealer operator of our Mercedes dealerships own at least
13
a 20% interest in our Mercedes dealerships. We do not have employment
agreements with many of our dealership managers and other key dealership
personnel. Consequently, the loss of the services of one or more of these key
employees could have a material adverse effect on our results of operations.
In addition, as we expand we may need to hire additional managers and will
likely be dependent on the senior management of any businesses acquired. The
market for qualified employees in the industry and in the regions in which
Sonic operates, particularly for general managers and sales and service
personnel, is highly competitive and may subject Sonic to increased labor costs
during periods of low unemployment. The loss of the services of key employees
or the inability to attract additional qualified managers could have a material
adverse effect on our results of operations. In addition, the lack of qualified
management or employees employed by our potential acquisition candidates may
limit our ability to consummate future acquisitions.
SEASONALITY OF THE AUTOMOTIVE RETAIL BUSINESS ADVERSELY AFFECTS FIRST QUARTER
REVENUES
Our business is seasonal, with a disproportionate amount of revenues
received in the second, third and fourth fiscal quarters.
IMPORTED PRODUCT RESTRICTIONS AND FOREIGN TRADE RISKS MAY IMPAIR SONIC'S
ABILITY TO SELL FOREIGN VEHICLES PROFITABLY
Some of the vehicles and major components of vehicles we sell are
manufactured in foreign countries. Accordingly, we are subject to the import
and export restrictions of various jurisdictions and are dependent to some
extent upon general economic conditions in, and political relations with, a
number of foreign countries, particularly Germany, Japan and Sweden.
Fluctuations in currency exchange rates may also adversely affect our sales of
vehicles produced by foreign manufacturers. Imports into the United States may
also be adversely affected by increased transportation costs and tariffs,
quotas or duties.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL REGULATION COMPLIANCE COSTS MAY
ADVERSELY AFFECT SONIC'S PROFITABILITY
We are subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements, and consumer protection
laws. The violation of these laws and regulations can result in civil and
criminal penalties against us or in a cease and desist order against our
operations if we are not in compliance. Our future acquisitions may also be
subject to regulation, including antitrust reviews. We believe that we comply
in all material respects with all laws and regulations applicable to our
business, but future regulations may be more stringent and require us to incur
significant additional costs.
Our facilities and operations are also subject to federal, state and local
laws and regulations relating to environmental protection and human health and
safety, including those governing wastewater discharges, air emissions, the
operation and removal of underground and aboveground storage tanks, the use,
storage, treatment, transportation, release and disposal of solid and hazardous
materials and wastes and the clean up of contaminated property or water. We may
be required by these laws to pay the full amount of the costs of investigation
and/or remediation of contaminated properties, even if we are not at fault for
the materials disposed or if such disposal was legal at the time. People who
may be found liable under these laws and regulations include the present or
former owner or operator of a contaminated property and companies that
generated, disposed of or arranged for the disposal of hazardous substances
found at the property.
Our past and present business operations are subject to environmental laws
and regulations governing the use, storage, handling and disposal of hazardous
or toxic substances such as new and waste motor oil, oil filters, transmission
fluid, antifreeze, freon, new and waste paint and lacquer thinner, batteries,
solvents, lubricants, degreasing agents, gasoline and diesel fuels. We are also
subject to laws and regulations because of underground storage tanks that exist
or used to exist at many of our properties. Sonic, like many of its
competitors, has incurred, and will continue to incur, capital and operating
expenditures and other costs in complying with such laws and regulations. In
addition, soil and groundwater contamination exists at certain of our
properties. We cannot assure you that our other properties have not been or
will not become similarly contaminated. In addition, we could become subject to
new or unforeseen environmental costs or liabilities because of our
acquisitions.
Environmental laws and regulations, including those governing air
emissions and underground storage tanks, require compliance with new or more
stringent standards that are imposed in the future. We cannot predict what
other environmental legislation or regulations will be enacted in the future,
how existing or future laws or regulations will be administered
14
or interpreted or what environmental conditions may be found to exist in the
future. Consequently, we may be required to make substantial expenditures in
the future.
CONCENTRATION OF VOTING POWER AND ANTITAKEOVER PROVISIONS OF OUR CHARTER MAY
REDUCE STOCKHOLDER VALUE IN ANY POTENTIAL CHANGE OF CONTROL OF SONIC
Our common stock is divided into two classes with different voting rights.
This dual class stock ownership allows the present holders of the Class B
common stock to control Sonic. Holders of Class A common stock have one vote
per share on all matters. Holders of Class B common stock have ten votes per
share on all matters, except that they have only one vote per share on any
transaction proposed by the Board of Directors or a Class B common stock holder
or otherwise benefitting the Class B common stock holders constituting a:
(a) "going private" transaction;
(b) disposition of substantially all of Sonic's assets;
(c) transfer resulting in a change in the nature of Sonic's business; or
(d) merger or consolidation in which current holders of common stock would
own less than 50% of the common stock following such transaction.
The holders of Class B common stock currently hold less than a majority of
Sonic's outstanding common stock, but a majority of Sonic's voting power. This
may prevent or discourage a change of control of Sonic even if such action were
favored by holders of Class A common stock.
Our charter and bylaws make it more difficult for our stockholders to take
certain corporate actions. See "Description of Capital Stock -- Delaware Law,
Certain Charter and Bylaw Provisions and Certain Franchise Agreement
Provisions." Options under our 1997 Stock Option Plan become immediately
exercisable on a change in control of Sonic. These agreements, corporate
documents and laws, as well as provisions of our franchise agreements
permitting manufacturers to terminate such agreements upon a change of control
and provisions of our lending arrangements creating an event of default on a
change in control, may have the effect of delaying or preventing a change in
control of Sonic or preventing stockholders from realizing a premium on the
sale of their shares upon an acquisition of Sonic.
YEAR 2000 COMPUTER PROBLEMS MAY CREATE COSTS AND PROBLEMS ADVERSELY AFFECTING
SONIC'S PROFITABILITY
We recognize the need to ensure that our operations will not be adversely
impacted by Year 2000 computer software failures. We have completed an
assessment of our operations in this regard and have determined that our
systems are either currently Year 2000 compliant or that the costs associated
with making our systems Year 2000 compliant are immaterial. However, many of
our lenders, suppliers, including manufacturers and suppliers of finance and
insurance products, and other third parties with whom our dealerships regularly
conduct business may be significantly impacted by Year 2000 complications.
Approximately half of our dealerships have received written verification
from their respective manufacturer that their Dealer Communication System
("DCS"), which provides on-line communication with manufacturers necessary for
ordering vehicles and parts inventory, submitting warranty claims, submitting
dealership financial statements, receiving delivery reports and receiving
technical reports used in service departments, is Year 2000 compliant. We have
asked the remaining manufacturers to inform us of their DCS Year 2000
compliance status.
Other than automobile manufacturers, we are primarily concerned with Year
2000 failures with banks and other financial service providers, companies
providing financing and insurance to our customers and utilities providing
electricity and water to our dealerships. We have received verification from
our primary banks and lenders that their systems are Year 2000 compliant and
that service is not expected to be interrupted by Year 2000 problems. We have
contacted other key vendors and suppliers and are awaiting their responses
concerning their Year 2000 remediation efforts.
While we believe that we are taking appropriate steps to ensure we are
adequately prepared to deal with Year 2000 problems as they arise, we cannot
assure you that Year 2000 problems will not have a material adverse effect on
our results of operations or financial condition. In a most reasonably likely
worst case scenario, Year 2000 problems may delay our ability to sell vehicles,
provide financing and insurance to our customers, provide parts and repair
service to our customers, complete acquisitions or meet third-party obligations
until Year 2000 problems can be resolved in the affected systems.
15
AMORTIZATION OF GOODWILL FROM ACQUISITIONS COULD CHANGE, RESULTING IN
SIGNIFICANT REDUCTION IN EARNINGS FOR FUTURE PERIODS
Goodwill represented approximately 31.3% of our total assets and 126.4% of
our stockholders' equity as of December 31, 1998, and 33.3% of our total assets
and 129.7% of our stockholders' equity as of March 31, 1999. Goodwill arises
when an acquiror pays more for a business than the fair value of the tangible
and separately measurable intangible net assets. Generally accepted accounting
principles require that this and all other intangible assets be amortized over
the period benefited. We determined that the period benefited by all of the
goodwill will be no less than 40 years. Accordingly, we amortize goodwill over
a 40 year period. Earnings reported in periods immediately following the
acquisition would be overstated if Sonic attributed a 40 year benefit period to
an intangible asset that should have had a shorter benefit period. In later
years, we would be burdened by a continuing charge against earnings without the
associated benefit to income valued by management in arriving at the price paid
for the businesses. Earnings in later years also could be significantly
affected if management determined then that the remaining balance of goodwill
was impaired. We periodically compare the carrying value of goodwill with
anticipated undiscounted future cash flows from operations of the businesses we
have acquired to evaluate the recoverability of goodwill. We have concluded
that the anticipated future cash flows associated with intangible assets
recognized in the acquisitions will continue indefinitely, and there is no
persuasive evidence that any material portion will dissipate over a period
shorter than 40 years. Sonic will incur additional goodwill in its future
acquisitions.
WHERE YOU CAN FIND MORE INFORMATION ABOUT SONIC
Sonic files annual, quarterly and special reports, proxy statements and
other information with the SEC. These reports and information relate to Sonic's
business, financial condition and other matters. You may read and copy these
reports, proxy statements and other information at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the regional
offices of the SEC located at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
You may obtain information on the operation of the SEC's Public Reference Room
in Washington, D.C. by calling the SEC at 1-800-SEC-0330. Copies may be
obtained from the SEC by paying the required fees. The SEC maintains an
internet web site that contains reports, proxy and information statements and
other information regarding Sonic and other registrants that file
electronically with the SEC. The SEC's web site is located at
http://www.sec.gov. This information may also be read and copied at the offices
of the New York Stock Exchange at 20 Broad Street, New York, New York 10005.
The SEC allows us to "incorporate by reference" the information we file
with them, which means that we can disclose important information to you by
referring to documents we have previously filed with the SEC. The information
incorporated by reference is considered to be part of this prospectus, and
information that we file later with the SEC will automatically update and
supercede this information. We incorporate by reference the documents listed
below and any future filings made with the SEC under Sections 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act, until the selling stockholders sell
all the shares offered by this prospectus or we decide or terminate this
offering earlier:
(1) Sonic's Annual Report on Form 10-K for its fiscal year ended December
31, 1998 (File No. 1-13395);
(2) Sonic's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1999;
(3) Sonic's Definitive Proxy Materials dated May 19, 1999;
(4) The unaudited pro forma consolidated financial data of Sonic
Automotive, Inc., the combined financial statements of Williams Automotive
Group, the financial statements of Economy Cars, Inc., the financial
statements of Global Imports, Inc., the combined financial statements of
Newsome Automotive Group, the combined financial statements of Lloyd
Automotive Group and the financial statements of Lute Riley Motors, Inc.,
included in Sonic's Registration Statement on Form S-3 (Registration No.
333-71803);
(5) The combined financial statements of Hatfield Automotive Group, the
financial statements of Casa Ford of Houston, Inc. and the combined
financial statements of Higginbotham Automotive Group, included in Sonic's
Registration Statement on Form S-4 (Registration Nos. 333-64397 and
333-64397-001 through 333-64397-044); and
(6) The description of Sonic's Class A common stock contained in Sonic's
Registration Statement on Form 8-A, as amended, filed with the SEC pursuant
to the Securities Exchange Act.
We will provide upon request a free copy of any or all of the documents
incorporated by reference in this prospectus (excluding exhibits to such
documents unless such exhibits are specifically incorporated by reference) to
anyone who
16
receives this prospectus. Written or telephone requests should be directed to
Mr. Todd Atenhan, Director of Investor Relations, P.O. Box 18747, Charlotte,
North Carolina, 28218, Telephone (888) 766-4218.
This prospectus is a part of a registration statement on Form S-3 filed
with the SEC by Sonic. This prospectus does not contain all of the information
set forth in the registration statement and the exhibits to the registration
statement. Statements about the contents of contracts or other documents
contained in this prospectus or in any other filing to which we refer you are
not necessarily complete. You should review the actual copy of these documents
filed as an exhibit to the registration statement or such other filing. You may
obtain a copy of the registration statement and the exhibits filed with it from
the SEC at any of the locations listed above.
USE OF PROCEEDS
Sonic will not receive any proceeds from the sale by the selling
stockholders of the shares offered hereby. The proceeds from the sales of
shares offered hereby shall be retained solely for the account of the selling
stockholders.
SELLING STOCKHOLDERS
The following persons are currently directors of the Company, and are
eligible to sell the number of shares set forth opposite their name in the
table below.
NUMBER OF SHARES OF
CLASS A
COMMON STOCK
BENEFICIALLY
NUMBER OF SHARES OF OWNED AFTER OFFERING
CLASS A COMMON NUMBER OF PURSUANT TO THIS
STOCK BENEFICIALLY SHARES OFFERED PROSPECTUS:
OWNED PRIOR TO PURSUANT TO -------------------
NAME OF SELLING STOCKHOLDER OFFERING THIS PROSPECTUS NUMBER PERCENT
- ------------------------------------------------------ -------------------- ---------------- ---------- --------
O. Bruton Smith, Chief Executive Officer and Chairman 425,400(1) 400,000 25,400 *
Bryan Scott Smith, President, Chief Operating Officer,
and Director ........................................ 399,750(2) 399,750 0 *
Theodore M. Wright, Chief Financial Officer, Vice
President-Finance, Treasurer, Secretary and Director 277,351(3) 276,376 975 *
Dennis D. Higginbotham, President of Retail Operations
and Director ........................................ 1,112,088(4) 150,000 962,088 3.9
Jeffrey C. Rachor, Vice President of Retail Operations
and Director ........................................ 203,225(5) 202,250 975 *
- ---------
* Less than one percent.
(1) This amount includes 400,000 shares under options granted pursuant to our
1997 Stock Option Plan. Of this 400,000, options exercisable for 200,000
shares were granted on October 6, 1998, vested on April 6, 1999 and became
exercisable on June 8, 1999. Options exercisable for the remaining 200,000
shares were granted on May 5, 1999 and will vest on November 5, 1999.
(2) This amount includes 199,750 shares under options granted pursuant to our
1997 Stock Option Plan, which became exercisable in three equal annual
installments beginning in October 1998. This amount also includes 200,000
additional shares under options granted pursuant to our 1997 Stock Option
Plan. Of this 200,000, options exercisable for 100,000 shares were granted
on October 6, 1998, vested on April 6, 1999 and became exercisable on June
8, 1999. Options exercisable for the remaining 100,000 shares were granted
on May 5, 1999 and will vest in five equal annual installments beginning on
May 5, 2000.
(3) This amount includes 76,376 shares under options granted pursuant to our
1997 Stock Option Plan, which became exercisable in three equal annual
installments beginning in October 1998. This amount also includes 200,000
additional shares under options granted pursuant to our 1997 Stock Option
Plan. Of this 200,000, options exercisable for 100,000 shares were granted
on October 6, 1998, vested on April 6, 1999 and became exercisable on June
8, 1999. Options exercisable for the remaining 100,000 shares were granted
on May 5, 1999 and will vest in five equal annual installments beginning on
May 5, 2000. The amount indicated for Mr. Wright in the table above also
includes 355 shares under options granted pursuant to our Employee Stock
Purchase Plan in January 1999.
(4) This amount includes 150,000 shares under options granted pursuant to our
1997 Stock Option Plan. These options will vest and become exercisable in
three equal annual installments beginning on October 6, 1999. All shares
shown are held of record by the Dennis D. Higginbotham Revocable Trust,
over which Mr. Higginbotham exercises control.
(5) This amount includes 174,836 shares under options granted pursuant to our
1997 Stock Option Plan. Of the 174,836 shares under these options, 54,836
shares represent options granted in November 1997 which will become
exercisable in two equal annual installments beginning in October 1999,
20,000 shares represent options granted in December 1998 which will become
exercisable in three annual installments beginning in December 1999, and
100,000 shares represent
17
options granted in May 1999 which will become exercisable in three equal
annual installments beginning in May 2000. The amount indicated for Mr.
Rachor in the table above also includes 355 shares under options granted
pursuant to our Employee Stock Purchase Plan in January 1999.
PLAN OF DISTRIBUTION
The selling stockholders may sell or distribute some or all of the shares
from time to time through dealers or brokers or other agents or directly to one
or more purchasers, including pledgees, in a variety of ways, including:
o transactions (which may involve crosses and block transactions) on the
New York Stock Exchange or other exchanges on which the Class A common
stock may be listed for trading;
o privately negotiated transactions (including sales pursuant to pledges);
o in the over-the-counter market;
o in brokerage transactions; or
o in a combination of these types of transactions.
These transactions may be effected by the selling stockholders at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices, at negotiated prices, or at fixed prices, which may be changed.
Brokers, dealers, or other agents participating in these transactions as agent
may receive compensation in the form of discounts, concessions or commissions
from the selling stockholders (and, if they act as agent for the purchaser of
such shares, from such purchaser). These discounts, concessions or commissions
as to a particular broker, dealer, or other agent might be in excess of those
customary in the type of transaction involved. This prospectus also may be
used, with Sonic's consent, by donees of the selling stockholders, or by other
persons, including pledgees, acquiring the shares and who wish to offer and
sell their shares under circumstances requiring or making desirable its use. To
the extent required, Sonic will file, during any period in which offers or
sales are being made, one or more supplements to this prospectus to set forth
the names of donees or pledgees of selling stockholders and any other material
information with respect to the plan of distribution not previously disclosed.
The selling stockholders and any such brokers, dealers or other agents
that participate in such distribution may be deemed to be "underwriters" within
the meaning of the Securities Act, and any discounts, commissions or
concessions received by any such brokers, dealers or other agents might be
deemed to be underwriting discounts and commissions under the Securities Act.
Neither Sonic nor the selling stockholders can presently estimate the amount of
such compensation. Sonic knows of no existing arrangements between any selling
stockholder and any other selling stockholder, broker, dealer or other agent
relating to the sale or distribution of the shares.
Under applicable rules and regulations under the Securities Exchange Act,
any person engaged in a distribution of any of the shares may not
simultaneously engage in market activities with respect to the Class A common
stock for the applicable period under Regulation M prior to the commencement of
such distribution. In addition and without limiting the foregoing, the selling
stockholders will be subject to applicable provisions of the Securities
Exchange Act and the rules and regulations thereunder, including without
limitation Rule 10b-5 and Regulation M, which provisions may limit the timing
of purchases and sales of any of the shares by the selling stockholders. All of
the foregoing may affect the marketability of the Class A common stock.
Sonic will pay substantially all of the expenses incident to this offering
of the shares by the selling stockholders to the public other than commissions,
concessions and discounts of brokers, dealers or other agents. Each selling
stockholder may indemnify any broker, dealer, or other agent that participates
in transactions involving sales of the shares against certain liabilities,
including liabilities arising under the Securities Act. Sonic may agree to
indemnify the selling stockholders and any such statutory "underwriters" and
controlling persons of such "underwriters" against certain liabilities,
including certain liabilities under the Securities Act.
In order to comply with certain states' securities laws, if applicable,
the shares will be sold in such jurisdictions only through registered or
licensed brokers or dealers.
18
MATERIAL CHANGES
Jeffrey C. Rachor, Sonic's Vice President of Retail Operations, was
elected as a director of Sonic effective May 31, 1999. Pursuant to authority
granted to Sonic's Board of Directors under Sonic's bylaws, the Board of
Directors increased the number of directors of Sonic from seven to eight and
appointed Mr. Rachor to fill the vacancy created by this increase.
On June 8, 1999, the stockholders of Sonic approved an amendment to
Sonic's charter increasing the number of shares of Class A common stock
authorized for issuance from 50,000,000 to 100,000,000 and the number of shares
of Class B common stock authorized for issuance from 15,000,000 to 30,000,000.
This charter amendment was filed with the Delaware Secretary of State on June
17, 1999.
On June 30, 1999, Sonic entered into an agreement with Capital Automotive
REIT whereby Capital Automotive agreed to provide Sonic with up to $75,000,000
in real estate financing through December 31, 1999. In a separate transaction,
Capital Automotive agreed to purchase all of the ownership interests of MMR
Holdings, LLC, which owns or will own after the closing of Sonic's previously
announced acquisitions, 52 properties leased or to be leased by Sonic. MMR
Holdings currently is owned directly or indirectly by Bruton Smith, Sonic's
Chairman and Chief Executive Officer. It is anticipated that Capital
Automotive's acquisition of MMR Holdings will be completed in the third quarter
of 1999. In addition, when the agreement for the sale of MMR Holdings was
signed, Sonic, Mar Mar Realty Trust and MMR Holdings terminated the strategic
alliance agreement whereby Mar Mar had provided Sonic with real estate
financing, acquisition referral and related services.
On August 3, 1999, Sonic completed its acquisition of all of the
outstanding stock of Manhattan Auto, Inc., and its acquisition of all of the
assets of L.O.R., Inc, and Waldorf Automotive, Inc. and substantially all of
the assets of Manhattan Imported Car, Inc. related to its Porsche and Audi
automobile dealership businesses. In connection with these acquisitions, Sonic
issued cash and 1,398,902 shares of its Class A common stock.
The historical audited financial statements of certain businesses acquired
by Sonic since December 31, 1998 and the pro forma financial statements of
Sonic for these acquisitions are hereby incorporated by reference to the
Unaudited Pro Forma Consolidated Financial Data of Sonic, the Combined
Financial Statements of Williams Automotive Group, the Financial Statements of
Economy Cars, Inc., the Financial Statements of Global Imports, Inc., the
Combined Financial Statements of Newsome Automobile Group, the Combined
Financial Statements of Lloyd Automotive Group and the Financial Statements of
Lute Riley Motors, Inc., included in our final prospectus dated April 29, 1999
that was filed with the SEC pursuant to Rule 424(b) under the Securities Act
and that was a part of Sonic's Registration Statement on Form S-3 (No. 333-
71803), which was declared effective by the SEC on April 29, 1999. The
historical audited financial statements of certain businesses acquired by Sonic
since December 31, 1997 are hereby incorporated by reference to the Combined
Financial Statements of Hatfield Automotive Group, the Financial Statements of
Casa Ford of Houston, Inc., and the Combined Financial Statements of
Higginbotham Automotive Group, included in our Registration Statement on Form
S-4 (Nos. 333-64397 and 333-64397-001 through 333-64397-044) dated November 3,
1998.
Except as described above, there have been no material changes in Sonic's
affairs which have occurred since the end of the latest fiscal year for which
certified financial statements were included in the latest annual report to
security holders and which have not been described in a report on Form 10-Q or
Form 8-K under the Securities Exchange Act.
DESCRIPTION OF CAPITAL STOCK
Sonic's authorized capital stock consists of (a) 100,000,000 shares of
Class A common stock, $.01 par value, (b) 30,000,000 shares of Class B common
stock, $.01 par value, and (c) 3,000,000 shares of preferred stock, $.10 par
value (of which 300,000 shares have been designated as Class A convertible
preferred stock). As of August 9, 1999, Sonic had 23,405,462 outstanding shares
of Class A common stock, 12,300,000 outstanding shares of Class B common stock
and 29,824 outstanding shares of Class A convertible preferred stock. In
connection with pending acquisitions, Sonic has agreed to issue approximately
$11.2 million in Class A common stock.
The following summary description of Sonic's capital stock does not
purport to be complete and is qualified in its entirety by reference to Sonic's
Amended and Restated Certificate of Incorporation (which was filed as an
exhibit to Sonic's Registration Statement on Form S-1 (File No. 333-33295)),
Sonic's amendment to its Amended and Restated Certificate of Incorporation
(which is filed as an exhibit to the registration statement on Form S-3 of
which this prospectus forms a part), Sonic's Certificate of Designations
relating to the Class A convertible preferred stock (the "Designation") (which
was
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filed as an exhibit to Sonic's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1998), and to Delaware law. Reference is made to such exhibits
and to Delaware law for a detailed description of the provisions thereof
summarized below.
COMMON STOCK
Sonic's Class A common stock and Class B common stock are equal in all
respects except for voting rights, conversion rights of the Class B common
stock and as required by law, as discussed more fully below.
VOTING RIGHTS; CONVERSION OF CLASS B COMMON STOCK TO CLASS A COMMON STOCK
The voting powers, preferences and relative rights of the Class A common
stock and the Class B common stock are subject to the following provisions.
Holders of Class A common stock have one vote per share on all matters
submitted to a vote of the stockholders of Sonic. Holders of Class B common
stock are entitled to ten votes per share except as described below. Holders of
all classes of common stock entitled to vote will vote together as a single
class on all matters presented to the stockholders for their vote or approval
except as otherwise required by Delaware Law. There is no cumulative voting
with respect to the election of directors.
In the event any shares of Class B common stock held by a member of the
Smith Group are transferred outside of the Smith Group, such shares will
automatically be converted into shares of Class A common stock. In addition, if
the total number of shares of common stock held by members of the Smith Group
is less than 15% of the total number of shares of common stock outstanding, all
of the outstanding shares of Class B common stock automatically will be
reclassified as Class A common stock. In any merger, consolidation or business
combination, the consideration to be received per share by holders of Class A
common stock must be identical to that received by holders of Class B common
stock, except that in any such transaction in which shares of common stock are
distributed, such shares may differ as to voting rights to the extent that
voting rights now differ between the classes of common stock.
Notwithstanding the foregoing, the holders of Class A common stock and
Class B common stock vote as a single class, with each share of each class
entitled to one vote per share, with respect to any transaction proposed or
approved by the Board of Directors of Sonic or proposed by or on behalf of
holders of the Class B common stock or as to which any member of the Smith
Group or any affiliate thereof has a material financial interest other than as
a then existing stockholder of Sonic constituting a
o "going private" transaction,
o sale or other disposition of all or substantially all of Sonic's assets,
o sale or transfer which would cause the nature of Sonic's business to be
no longer primarily oriented toward automobile dealership operations and
related activities, or
o merger or consolidation of Sonic in which the holders of the common stock
will own less than 50% of the common stock following such transaction.
A "going private" transaction is defined as any "Rule 13e-3 Transaction,"
as such term is defined in Rule 13e-3 promulgated under the Securities Exchange
Act of 1934. An "affiliate" is defined as (a) any individual or entity who or
that, directly or indirectly, controls, is controlled by, or is under common
control with any member of the Smith Group, (b) any corporation or organization
(other than Sonic or a majority-owned subsidiary of Sonic) of which any member
of the Smith Group is an officer, partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of voting securities, or in which
any member of the Smith Group has a substantial beneficial interest, (c) a
voting trust or similar arrangement pursuant to which any member of the Smith
Group generally controls the vote of the shares of common stock held by or
subject to such trust or arrangement, (d) any other trust or estate in which
any member of the Smith Group has a substantial beneficial interest or as to
which any member of the Smith Group serves as trustee or in a similar fiduciary
capacity, or (e) any relative or spouse of any member of the Smith Group or any
relative of such spouse, who has the same residence as any member of the Smith
Group.
As used in this prospectus, the term the "Smith Group" consists of the
following persons:
o Mr. Smith and his guardian, conservator, committee, or attorney-in-fact;
o William S. Egan and his guardian, conservator, committee, or
attorney-in-fact;
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o each lineal descendant of Messrs. Smith and Egan (a "Descendant") and
their respective guardians, conservators, committees or attorneys-in-fact;
and
o each "Family Controlled Entity."
The term "Family Controlled Entity" means (a) any not-for-profit
corporation if at least 80% of its board of directors is composed of Mr. Smith,
Mr. Egan and/or Descendants; (b) any other corporation if at least 80% of the
value of its outstanding equity is owned by members of the Smith Group; (c) any
partnership if at least 80% of the value of the partnership interests are owned
by members of the Smith Group; and (d) any limited liability or similar company
if at least 80% of the value of the company is owned by members of the Smith
Group. For a discussion of the effects of the disproportionate voting rights of
the common stock, see "Risk Factors -- Concentration of Voting Power and
Antitakeover Provisions of our Charter May Reduce Stockholder Value in Any
Potential Change of Control of Sonic."
Under Sonic's charter and Delaware law, the holders of Class A common
stock and/or Class B common stock are each entitled to vote as a separate
class, as applicable, with respect to any amendment to Sonic's Certificate that
would increase or decrease the aggregate number of authorized shares of such
class, increase or decrease the par value of the shares of such class, or
modify or change the powers, preferences or special rights of the shares of
such class so as to affect such class adversely.
DIVIDENDS
Holders of the Class A common stock and the Class B common stock are
entitled to receive ratably such dividends, if any, as are declared by our
Board of Directors out of funds legally available for that purpose. An
additional requirement is that dividends paid in shares of Class A common stock
shall be paid only to holders of Class A common stock, and dividends paid in
shares of Class B common stock shall be paid only to holders of Class B common
stock. Sonic's charter provides that if there is any dividend, subdivision,
combination or reclassification of either class of common stock, a
proportionate dividend, subdivision, combination or reclassification of the
other class of common stock must be made at the same time.
OTHER RIGHTS
Stockholders of Sonic have no preemptive or other rights to subscribe for
additional shares. In the event of the liquidation, dissolution or winding up
of Sonic, holders of Class A common stock and Class B common stock are entitled
to share ratably in all assets available for distribution to holders of common
stock after payment in full of creditors. No shares of any class of common
stock are subject to a redemption or a sinking fund.
TRANSFER AGENT AND REGISTRAR
First Union National Bank is the transfer agent and registrar for the
common stock.
PREFERRED STOCK
DIVIDENDS. The preferred stock has no preferential dividends. Rather,
holders of preferred stock are entitled to participate in dividends payable on
the Class A common stock on an "as-if-converted" basis.
VOTING RIGHTS. Each share of preferred stock entitles its holder to a
number of votes equal to that number of shares of Class A Common Stock into
which it could be converted as of the record date for the vote.
LIQUIDATION RIGHTS. The preferred stock has a liquidation preference of
$1,000 per share.
CONVERSION RIGHTS. Each share of preferred stock is convertible into
shares of Class A common stock at the holder's option at specified conversion
rates. After the second anniversary of the date of issuance, any shares of
preferred stock which have not been converted are subject to mandatory
conversion to Class A common stock at the option of Sonic. No fractional shares
of Class A common stock will be issued upon conversion of any shares of
preferred stock. Instead, Sonic will pay cash equal to the value of such
fractional share.
Generally, each share of preferred stock is convertible into that number
of shares of Class A common stock that has an aggregate Market Price at the
time of conversion equal to $1,000 (with certain adjustments for the Series II
and Series III preferred stock). Conversion of Series II preferred stock is
subject to certain adjustments which have the effect of limiting increases and
decreases in the value of the Class A common stock receivable upon conversion
by 10% of the original value of the shares of Series II preferred stock.
Conversion of Series III preferred stock is subject to certain adjustments
which
21
have the effect of limiting increases in the value of Class A common stock
receivable upon conversion by 10% of the original value of the shares of Series
III preferred stock. "Market Price" is defined as the average closing price per
share of Class A common stock on the New York Stock Exchange for the twenty
trading days immediately preceding the date of conversion. If the Class A
common stock is no longer listed on the New York Stock Exchange, then the
Market Price will be determined on the basis of prices reported on the
principal exchange on which the Class A common stock is listed, or if not so
listed, prices furnished by NASDAQ. If the Class A common stock is not listed
on an exchange or reported on by NASDAQ, then the Market Price will be
determined by Sonic's Board of Directors.
Before the first anniversary of the date of issuance of preferred stock,
each holder of preferred stock is unable to convert without first giving Sonic
ten business days' notice and an opportunity to redeem such preferred stock at
the then applicable redemption price.
REDEMPTION. The preferred stock is redeemable at Sonic's option at any
time after the date of issuance. The redemption price for the Series I
preferred stock is $1,000 per share. The redemption price for the Series II
preferred stock and the Series III preferred stock is as follows: (a) prior to
the second anniversary of the date of issuance, the redemption price is the
greater of $1,000 per share or the aggregate Market Price of the Class A common
stock into which it could be converted at the time of redemption, and (b) after
the second anniversary of the date of issuance, the redemption price is the
aggregate Market Price of the Class A common stock into which it could be
converted at the time of redemption. There is no restriction on Sonic's ability
to redeem the preferred stock while there is an arrearage in payment of
dividends on such preferred stock.
DELAWARE LAW, CERTAIN CHARTER AND BYLAW PROVISIONS AND CERTAIN FRANCHISE
AGREEMENT PROVISIONS
Certain provisions of Delaware Law and of Sonic's Charter and Bylaws,
summarized in the following paragraphs, may be considered to have an
antitakeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt that a stockholder might consider to be in
such stockholder's best interest, including such an attempt as might result in
payment of a premium over the market price for shares held by stockholders.
DELAWARE ANTITAKEOVER LAW. Sonic is subject to the provisions of Delaware
law, including Section 203. In general, Section 203 prohibits a public Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which such person became an interested stockholder unless: (a) prior to such
date, the Board of Directors approved either the business combination or the
transaction which resulted in the stockholder becoming an interested
stockholder; or (b) upon becoming an interested stockholder, the stockholder
then owned at least 85% of the voting stock, as defined in Section 203; or (c)
subsequent to such date, the business combination is approved by both the Board
of Directors and by holders of at least 66 2/3% of the corporation's
outstanding voting stock, excluding shares owned by the interested stockholder.
For these purposes, the term "business combination" includes mergers, asset
sales and other similar transactions with an "interested stockholder." An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or, within the prior three years, did own) 15% or more of the
corporation's voting stock. Although Section 203 permits a corporation to elect
not to be governed by its provisions, Sonic to date has not made this election.
CLASSIFIED BOARD OF DIRECTORS. Sonic's Bylaws provide for the Board of
Directors to be divided into three classes of directors serving staggered
three-year terms. As a result, approximately one-third of the Board of
Directors will be elected each year. Classification of the Board of Directors
expands the time required to change the composition of a majority of directors
and may tend to discourage a takeover bid for Sonic. Moreover, under Delaware
law, in the case of a corporation having a classified board of directors, the
stockholders may remove a director only for cause. This provision, when coupled
with the provision of the Bylaws authorizing only the board of directors to
fill vacant directorships, will preclude stockholders of Sonic from removing
incumbent directors without cause, simultaneously gaining control of the Board
of Directors by filing the vacancies with their own nominees.
SPECIAL MEETINGS OF STOCKHOLDERS. Sonic's Bylaws provide that special
meetings of stockholders may be called only by the Chairman or by the Secretary
or any Assistant Secretary at the request in writing of a majority of Sonic's
Board of Directors. Sonic's Bylaws also provide that no action required to be
taken or that may be taken at any annual or special meeting of stockholders may
be taken without a meeting; the powers of stockholders to consent in writing,
without a meeting, to the taking of any action is specifically denied. These
provisions may make it more difficult for stockholders to take action opposed
by the Board of Directors.
ADVANCE NOTICE REQUIREMENTS FOR STOCKHOLDER PROPOSALS AND DIRECTOR
NOMINATIONS. Sonic's Bylaws provide that stockholders seeking to bring business
before an annual meeting of stockholders, or to nominate candidates for
election as directors at an annual or a special meeting of stockholders, must
provide timely notice thereof in writing. To be timely, a stockholder's notice
must be delivered to, or mailed and received at, the principal executive office
of Sonic, (a) in the case of an
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annual meeting that is called for a date that is within 30 days before or after
the anniversary date of the immediately preceding annual meeting of
stockholders, not less than 60 days nor more than 90 days prior to such
anniversary date, and, (b) in the case of an annual meeting that is called for
a date that is not within 30 days before or after the anniversary date of the
immediately preceding annual meeting, or in the case of a special meeting of
stockholders called for the purpose of electing directors, not later than the
close of business on the tenth day following the day on which notice of the
date of the meeting was mailed or public disclosure of the date of the meeting
was made, whichever occurs first. The Bylaws also specify certain requirements
for a stockholder's notice to be in proper written form. These provisions may
preclude some stockholders from bringing matters before the stockholders at an
annual or special meeting or from making nominations for directors at an annual
or special meeting.
CONFLICT OF INTEREST PROCEDURES. Sonic's charter contains provisions
providing that transactions between Sonic and its affiliates must be no less
favorable to Sonic than would be available in transactions involving
arms'-length dealing with unrelated third parties. Moreover, any such
transaction involving aggregate payments in excess of $500,000 must be approved
by a majority of Sonic's directors and a majority of Sonic's independent
directors. Otherwise, Sonic must obtain an opinion as to the financial fairness
of the transactions to be issued by an investment banking or appraisal firm of
national standing.
RESTRICTIONS UNDER FRANCHISE AGREEMENTS. Sonic's franchise agreements
impose restrictions on the transfer of the common stock. A number of
Manufacturers prohibit transactions which affect changes in management control
of Sonic. For instance, Ford may cause Sonic to sell or resign from its Ford
franchises if any person or entity acquires 15% or more of Sonic's voting
securities. Likewise, GM, Toyota and Infiniti may force the sale of their
respective franchises if 20% or more of Sonic's voting securities are so
acquired. Honda may force the sale of Sonic's Honda franchise if any person or
entity, other than members of the Smith Group, acquires 5% of the Common Stock
(10% if such entity is an institutional investor), and Honda deems such person
or entity to be unsatisfactory. Volkswagen requires prior approval of any
change in voting or managerial control of Sonic that would affect Sonic's
voting or managerial control of its Volkswagen franchisee subsidiaries.
Chrysler also requires prior approval of any future sales that would result in
a change in voting or managerial control of Sonic. Such restrictions may
prevent or deter prospective acquirers from obtaining control of Sonic. See
"Risk Factors -- Manufacturer Stock Ownership/Issuance Limits Limit Sonic's
Ability to Issue Additional Equity to Meet Its Financing Needs."
CERTAIN MANUFACTURER RESTRICTIONS
Under agreements between Sonic and certain manufacturers, Sonic has agreed
to provide the statements provided below.
Sonic's agreements with Honda and Mercedes require that it provide the
following statement in this prospectus:
No automobile manufacturer has been involved, directly or indirectly, in
the preparation of this prospectus or in the offering being made hereby. No
automobile manufacturer has made any statements or representations in
connection with the offering or has provided any information or materials
that were used in connection with the offering, and no automobile
manufacturer has any responsibility for the accuracy or completeness of
this prospectus.
Under Sonic's Dealer Agreement with GM, Sonic has agreed, among other
things, to disclose the following provisions:
Sonic will deliver to GM copies of all Schedules 13D and 13G, and all
amendments thereto and terminations thereof, received by Sonic, within five
days of receipt of such Schedules. If Sonic is aware of any ownership of
its stock that should have been reported to it on Schedule 13D but that is
not reported in a timely manner, it will promptly give GM written notice of
such ownership, with any relevant information about the owner that Sonic
possesses.
If Sonic, through its Board of Directors or through shareholder action,
proposes or if any person, entity or group sends Sonic a Schedule 13D, or
any amendments thereto, disclosing (a) an agreement to acquire or the
acquisition of aggregate ownership of more than 20% of the voting stock of
Sonic and (b) Sonic, through its Board of Directors or through shareholder
action, proposes or if any plans or proposals which relate to or would
result in the following: (i) the acquisition by any person of more than 20%
of the voting stock of Sonic other than for the purposes of ordinary
passive investment; (ii) an extraordinary corporate transaction, such as a
material merger, reorganization or liquidation, involving Sonic or a sale
or transfer of a material amount of assets of Sonic and its subsidiaries;
(iii) any change which, together with any changes made to the Board of
Directors within the preceding year, would result in a change in control of
the then current Board of Sonic; or (iv) in the case of an entity that
produces motor vehicles or controls or is controlled by or is under common
control with an entity that either produces motor vehicles or is a motor
vehicle
23
franchisor, the acquisition by any person, entity or group of more than 20%
of the voting stock of Sonic and any proposal by any such person, entity or
group, through the Sonic Board of Directors or shareholders action, to
change the Board of Directors of Sonic, then, if such actions in GM's
business judgment could have a material or adverse effect on its image or
reputation in the GM dealerships operated by Sonic or be materially
incompatible with GM's interests (and upon notice of GM's reasons for such
judgment), Sonic has agreed that it will take one of the remedial actions
set forth in the next paragraph within 90 days of receiving such Schedule
13D or such amendment.
If Sonic is obligated under the previous paragraph to take remedial
action, it will (a) transfer to GM or its designee, and GM or its designee
will acquire the assets, properties or business associated with any GM
dealership operated by Sonic at fair market value as determined in
accordance with GM's Dealership Agreement with the Company, or (b) provide
evidence to GM that such person, entity or group no longer has such
threshold level of ownership interest in Sonic or that the actions
described in clause (b) of the previous paragraph will not occur.
Should Sonic or its GM franchisee subsidiary enter into an agreement to
transfer the assets of the GM franchisee subsidiary to a third party, the
right of first refusal described in the GM Dealer Agreement shall apply to
any such transfer.
LEGAL MATTERS
The validity of the shares of Class A common stock offered hereby has been
passed upon for Sonic by Parker, Poe, Adams & Bernstein, L.L.P., Charlotte,
North Carolina.
EXPERTS
The consolidated financial statements of Sonic Automotive, Inc. and
Subsidiaries, the combined financial statements of Hatfield Automotive Group,
the combined financial statements of Higginbotham Automotive Group, the
financial statements of Casa Ford of Houston, Inc., the combined financial
statements of Williams Automotive Group, the financial statements of Economy
Cars, Inc., the financial statements of Global Imports, Inc., the combined
financial statements of Newsome Automotive Group, the combined financial
statements of Lloyd Automotive Group, and the financial statements of Lute
Riley Motors, Inc. incorporated by reference in this prospectus and elsewhere
in the Registration Statement, have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports, which are incorporated by
reference herein, and have been so incorporated in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
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CLASS A COMMON STOCK
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P R O S P E C T U S
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AUGUST 9, 1999
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PART II
INFORMATION REQUIRED IN THE
REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The Securities and Exchange Commission allows us to "incorporate by
reference" the information we file with them, which means that we can disclose
important information to you by referring to those documents. The information
incorporated by reference is considered to be part of this Registration
Statement, and information that we file later with the Securities and Exchange
Commission will automatically update and supersede this information. Sonic
Automotive, Inc. ("Sonic", and sometimes referred to herein as the
"Registrant") incorporates by reference the documents listed below and any
future filings made with the Securities and Exchange Commission under Sections
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"):
(i) Sonic's Annual Report on Form 10-K for its fiscal year ended December
31, 1998 (File No. 1-13395);
(ii) Sonic's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1999;
(iii) Sonic's Definitive Proxy Materials dated May 19, 1999;
(iv) The unaudited pro forma consolidated financial data of Sonic
Automotive, Inc., the combined financial statements of Williams Automotive
Group, the financial statements of Economy Cars, Inc., the financial
statements of Global Imports, Inc., the combined financial statements of
Newsome Automotive Group, the combined financial statements of Lloyd
Automotive Group and the financial statements of Lute Riley Motors, Inc.,
included in Sonic's Registration Statement on Form S-3 (Registration No.
333-71803);
(v) The combined financial statements of Hatfield Automotive Group, the
financial statements of Casa Ford of Houston, Inc. and the combined
financial statements of Higginbotham Automotive Group, included in Sonic's
Registration Statement on Form S-4 (Registration Nos. 333-64397 and
333-64397-001 through 333-64397-044); and
(vi) The description of Sonic's Class A common stock contained in Sonic's
Registration Statement on Form 8-A, as amended, filed with the Commission
pursuant to Section 12 of the Exchange Act.
All documents subsequently filed by Sonic pursuant to sections 13(a), 13(c), 14
or 15(d) of the Exchange Act, prior to the filing of a post-effective amendment
which indicates that all securities offered hereby have been sold or which
deregisters all securities then remaining unsold, shall be deemed to be
incorporated by reference into this Registration Statement and to be a part
hereof from the date of filing of such documents. Any statement contained
herein or in a document, all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of this Registration Statement to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or amended, to constitute a part of this
Registration Statement.
ITEM 6. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Sonic's Bylaws effectively provide that Sonic shall, to the full extent
permitted by Section 145 of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 145"), indemnify all persons
whom it may indemnify pursuant thereto. In addition, Sonic's Certificate of
Incorporation eliminates personal liability of its directors to the full extent
permitted by Section 102(b)(7) of the General Corporation Law of the State of
Delaware, as amended from time to time ("Section 102(b)(7)").
Section 145 permits a corporation to indemnify its directors and officers
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlements actually and reasonably incurred by them in connection with any
action, suit or proceeding brought by a third party if such directors or
officers acted in good faith and in a manner they reasonably believed to be in,
or not opposed to, the best interests of the corporation and, with respect to
any criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, indemnification may be made only for expenses
actually and reasonably incurred by directors and officers in connection with
the defense or settlement of an action or suit and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent
that the court in which the action
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or suit was brought shall determine upon application that the defendant
officers or directors are reasonably entitled to indemnity for such expenses
despite such adjudication of liability.
Section 102(b)(7) provides that a corporation may eliminate or limit the
personal liability of a director to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) for willful or
negligent conduct in paying dividends or repurchasing stock out of other than
lawfully available funds, or (iv) for any transaction from which the director
derived an improper personal benefit. No such provision shall eliminate or
limit the liability of a director for any act or omission occurring prior to
the date when such provision becomes effective.
Sonic maintains insurance against liabilities under the Securities Act for
the benefit of its officers and directors.
ITEM 8. EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----------- ---------------------------------------------------------------------------------------------------
4.1* Sonic Automotive, Inc. 1997 Stock Option Plan Amended and Restated as of June 8, 1999 (the
"Plan")
4.2* Form of Incentive Stock Option Agreement and Grant pursuant to the Plan (incorporated by reference
to Exhibit 4.2 to Sonic's Registration Statement on Form S-8 (Registration No. 333-65447) filed
October 8, 1998)
4.3* Form of Nonstatutory Stock Option Agreement and Grant pursuant to the Plan
5.1* Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of securities registered
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration
Statement)
- ---------
* Filed previously.
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ITEM 9. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to the registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in the volume of securities offered (if the total dollar
value of securities offered would not exceed that which was registered)
and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more that 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the
registration statement is on Form S-3, Form S-8, or Form F-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Securities and Exchange Commission by the Registrant pursuant to Section 13 or
Section 15(d) of the Exchange Act that are incorporated by reference in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Exchange Act (and, where applicable, each filing of an employee benefit plan's
annual report pursuant to Section 15(d) of the Exchange Act) that is
incorporated by reference in the registration statement shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
[Signatures begin on next page]
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SIGNATURES
THE REGISTRANT. Pursuant to the requirements of the Securities Act, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-8 and has duly caused this
Post-Effective Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Charlotte, State of North Carolina, on August 10, 1999.
SONIC AUTOMOTIVE, INC.
By: /S/ THEODORE M. WRIGHT
-----------------------------------
THEODORE M. WRIGHT
CHIEF FINANCIAL OFFICER, VICE PRESIDENT-FINANCE, TREASURER
AND SECRETARY
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
SIGNATURE TITLE DATE
- -------------------------------------- ------------------------------------------ ----------------
* Chief Executive Officer (Principle August 10, 1999
----------------------------------
O. BRUTON SMITH Executive Officer) and Chairman
* President, Chief Operating Officer and
----------------------------------
B. SCOTT SMITH Director
/s/ THEODORE M. WRIGHT Chief Financial Officer, Vice President- August 10, 1999
----------------------------------
THEODORE M. WRIGHT Finance, Treasurer, Secretary
(Principle Financial and Accounting
Officer) and Director
* President -- Retail Operations and August 10, 1999
----------------------------------
DENNIS D. HIGGINBOTHAM Director
* Vice President of Retail Operations and August 10, 1999
----------------------------------
JEFFREY C. RACHOR Director
* Director August 10, 1999
----------------------------------
WILLIAM R. BROOKS
* Director August 10, 1999
----------------------------------
WILLIAM P. BENTON
* Director August 10, 1999
----------------------------------
WILLIAM I. BELK
*By: /s/ THEODORE M. WRIGHT
----------------------------------
EODORE M. WRIGHT
(ATTORNEY-IN-FACT FOR EACH OF THE PERSONS INDICATED)
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INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
4.1* Sonic Automotive, Inc. 1997 Stock Option Plan Amended and Restated as of June 8, 1999 (the "Plan")
4.2* Form of Incentive Stock Option Agreement and Grant pursuant to the Plan (incorporated by reference to
Exhibit 4.2 to Sonic's Registration Statement on Form S-8 (Registration No. 333-65447) filed
October 8, 1998)
4.3* Form of Nonstatutory Stock Option Agreement and Grant pursuant to the Plan
5.1* Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the legality of securities registered
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in Exhibit 5.1 to this Registration
Statement)
- ---------
* Filed previously.