As Filed Electronically with the Securities and Exchange Commission on July 31,
2001
Registration No. 333-46274
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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 Blvd. 28212
P.O. Box 18747 (Zip Code)
Charlotte, North Carolina
(Address of Principal Executive Offices)
SONIC AUTOMOTIVE, INC.
EMPLOYEE STOCK PURCHASE PLAN AMENDED AND RESTATED AS OF JUNE 5, 2000
(Full Title of the Plan)
Mr. O. Bruton Smith
Chairman and Chief Executive Officer
Sonic Automotive, Inc.
5401 East Independence Blvd.
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.
401 South Tryon Street, Suite 3000
Charlotte, North Carolina 28202
Telephone: (704) 372-9000
CALCULATION OF REGISTRATION FEE
Title of Amount Proposed Maximum Proposed Maximum Amount of
Securities to be Offering Aggregate Registration
to be Registered/1/ Price Offering Fee/1/
Registered Per Share/1/ Price/1/
Class A Not Applicable Not Applicable Not Applicable Not Applicable
Common Stock
($0.01 par value)
(1) A registration fee of $747.45 was paid with the initial filing
of this Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on September 20, 2000. No additional shares are being
registered under this post-effective amendment.
This Post-Effective Amendment No. 1 to the Registration Statement on Form
S-8 initially filed by the Registrant on September 21, 2000 (File No. 333-46274)
contains a Reoffer Prospectus relating to certain resales of Control Shares
prepared in accordance with the requirements of General Instruction C to Form S-
8.
PROSPECTUS
SONIC AUTOMOTIVE, INC.
2,414,518 SHARES
CLASS A COMMON STOCK
($.01 Par Value)
SONIC AUTOMOTIVE, INC.
FORMULA STOCK OPTION PLAN FOR INDEPENDENT DIRECTORS
SONIC AUTOMOTIVE, INC.
EMPLOYEE STOCK PURCHASE PLAN AMENDED AND RESTATED AS OF JUNE 5, 2000
SONIC AUTOMOTIVE, INC.
1997 STOCK OPTION PLAN AMENDED AND RESTATED AS OF JUNE 5, 2000
FIRSTAMERICA AUTOMOTIVE, INC.
1997 STOCK OPTION PLAN AMENDED AND RESTATED AS OF DECEMBER 10, 1999
The selling security holders identified in this Prospectus may periodically
offer and sell the shares of our Class A common stock being offered under this
Prospectus. These shares have been or will be issued upon the exercise of stock
options that have been granted to the selling security holders pursuant to our
Formula Stock Option Plan For Independent Directors, our Employee Stock Purchase
Plan Amended and Restated as of June 5, 2000, our 1997 Stock Option Plan Amended
and Restated as of June 5, 2000, and our FirstAmerica Automotive, Inc. 1997
Stock Option Plan Amended and Restated as of December 10, 1999. We are
registering the offer and sale of these shares to allow the selling security
holders to freely trade their shares. We will not receive any of the proceeds
from the sale of the selling stockholders' shares. We do not know when the
proposed sale of the shares by the selling security holders will occur. See "Use
of Proceeds," "Selling Security Holders" and "Plan of Distribution."
The Class A common stock is traded on the New York Stock Exchange under the
symbol "SAH." The last NYSE sale price of the Class A common stock on July 27,
2001 was $17.40 per share. You are urged to obtain current market data.
See "Risk Factors" beginning on page 4 for a discussion of certain factors
to be considered by purchasers of the Shares.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
You should rely only on the information contained in this Prospectus or to
which we have referred you. We have not authorized anyone to provide you with
different information. If anyone provides you with different or inconsistent
information, you should not rely on it. This Prospectus is not an offer to sell
the shares and is not soliciting an offer to buy the shares in any jurisdiction
where the offer or sale is not permitted. You should not assume that the
information in this Prospectus or any of its supplements is accurate as of any
date other than the date on the front of these documents. Our business,
financial condition, results of operations and prospects may have changed since
that date.
The date of this Prospectus is July 30, 2001
TABLE OF CONTENTS
WHERE YOU CAN FIND MORE INFORMATION ABOUT SONIC.......................................................................... 2
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS................................................................... 3
THE COMPANY.............................................................................................................. 4
RISK FACTORS............................................................................................................. 4
USE OF PROCEEDS.......................................................................................................... 19
SELLING SECURITY HOLDERS................................................................................................. 19
PLAN OF DISTRIBUTION..................................................................................................... 20
RECENT DEVELOPMENTS...................................................................................................... 21
DESCRIPTION OF CAPITAL STOCK............................................................................................. 21
CERTAIN MANUFACTURER RESTRICTIONS........................................................................................ 26
EXPERTS.................................................................................................................. 27
WHERE YOU CAN FIND MORE INFORMATION ABOUT SONIC
We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. These reports and
information relate to our business, financial condition and other matters. You
may read and copy these reports, proxy statements and other information at the
Commission's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission 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 Commission's Public Reference Room in Washington, D.C. by
calling the Commission at 1-800-SEC-0330. Copies may be obtained from the
Commission by paying the required fees. The Commission maintains an Internet
web site that contains reports, proxy and information statements and other
information regarding us and other registrants that file electronically with the
Commission. The Commission's web site is http://www.sec.gov. Information that
we file with the Commission 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 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 documents we have previously filed with the Commission. The
information incorporated by reference is considered to be a part of this
prospectus, and information that we file later with the Commission will
automatically update and supersede this information. We incorporate by
reference the documents listed below, documents incorporated by reference
elsewhere in this prospectus, and any future filings made with the Commission
under Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), until selling security holders sell all the
shares that they may be allowed to offer from time to time in the future
hereunder or we decide to terminate this offering earlier:
(1) Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (File No. 1-13395);
(2) Our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2001.
(3) Our Definitive Proxy Statement dated April 4, 2001; and
(4) The description of our Class A common stock contained in our
registration statement on Form 8-A, as amended, filed with
the Commission pursuant to Section 12 of the Exchange Act.
We will provide upon request a free copy of any or all of the documents
incorporated by reference in this prospectus (excluding exhibits to such
documents unless such exhibits are specifically incorporated by reference) to
anyone who receives this prospectus. Written or telephone requests should be
directed to Mr. Todd Atenhan, Director of Investor Relations, P. O. Box 18747,
Charlotte, North Carolina 28218, Telephone
2
(888) 766-4218.
This prospectus is a part of our registration statements on Form S-8 filed
with the Commission. This prospectus does not contain all of the information set
forth in the registration statements and the exhibits to the registration
statements. 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 exhibits to the registration statements or such other filing. You may
obtain a copy of the registration statements and the exhibits filed with them
from the Commission at any of the locations listed above.
CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains statements that constitute "forward-looking"
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. These forward-looking statements are not historical
facts, but only predictions and generally can be identified by use of statements
that include words such as "believe," "expect," "anticipate," "intend," "plan,"
"foresee" or other words or phrases of similar import. Similarly, statements
that describe our objectives, plans or goals are also forward-looking
statements. We intend such 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 those of our directors or
officers, with respect to, among other things:
. our potential acquisitions;
. trends in our industry;
. our financing plans;
. the effect of the Internet on our business and our ability to
implement our Internet business strategy;
. trends affecting our financial condition or results of
operations; and
. our business and growth strategies.
You are cautioned that these forward-looking statements are not guarantees
of future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Among others, factors that could
materially adversely affect actual results and performance include:
. local and regional economic conditions in the areas we serve;
. the level of consumer spending;
. our relationships with manufacturers;
. high competition;
. site selection and related traffic and demographic patterns;
. inventory management and turnover levels;
. the effect of the Internet on our business;
. realization of cost savings; and
. our success in integrating recent and potential future
acquisitions, including integration of acquired information
systems.
3
THE COMPANY
Sonic is the second largest automotive retailer in the United States, as
measured by total revenue, operating dealerships and collision repair centers in
several metropolitan areas of the southeastern, midwestern, mid-Atlantic,
western 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 extended warranty and financing and
insurance for our automotive customers.
Our 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.
We were incorporated in Delaware in 1997.
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.
Our significant indebtedness could materially adversely affect our
financial health and prevent us from fulfilling our financial obligations.
As of March 31, 2001, our total outstanding indebtedness was approximately
$1,150.9 million, including the following:
. $373.0 million under a revolving credit agreement with Ford Motor
Credit Company ("Ford Motor Credit") and Chrysler Financial Company,
LLC ("Chrysler Financial") (the "Revolving Facility") with a
borrowing limit of $500 million, subject to a borrowing base
calculated on the basis of our receivables, inventory and equipment
and a pledge of certain additional collateral by an affiliate of
Sonic (See "Recent Developments" for information regarding the
Revolving Facility);
. $481.7 million under a standardized secured inventory floor plan
facility (the "Ford Floor Plan Facility") with Ford Motor Credit;
. $110.2 million under a standardized secured floor plan facility (the
"Chrysler Floor Plan Facility") with Chrysler Financial;
. $52.1 million under a standardized secured floor plan facility (the
"GMAC Floor Plan Facility" and together with the Ford Floor Plan
Facility and the Chrysler Floor Plan Facility, the "Floor Plan
Facilities") with General Motors Acceptance Corporation ("GMAC");
. $121.3 million in 11% Senior Subordinated Notes due 2008 representing
$125.0 million in aggregate principal amount less unamortized
discount of approximately $3.7 million; and
. $12.6 million of other secured debt, including $4.6 million under a
revolving real estate acquisition and new dealership construction
line of credit (the "Construction Loan") and a related mortgage
refinancing facility (the "Permanent Loan" and together with the
Construction Loan, the "Mortgage Facility") with Ford Motor Credit.
As of March 31, 2001, we had approximately $60.1 million available for
additional borrowings under the Revolving Facility, based on a borrowing base
calculated on the basis of our receivables, inventory and equipment and certain
additional collateral pledged by an affiliate of Sonic. We also had
approximately $95.4 million available for additional borrowings under the
Mortgage Facility for real estate acquisitions and new dealership construction.
We also have significant additional capacity under the Floor Plan Facilities. In
addition, the indentures relating to our senior subordinated notes and other
debt instruments allow us to incur additional indebtedness, including secured
indebtedness.
The degree to which we are leveraged could have important consequences to
the holders of our securities, including the following:
4
. our ability to obtain additional financing for acquisitions, capital
the future;
. a substantial portion of our current cash flow from operations must
be dedicated to the payment of principal and interest on our senior
subordinated notes, borrowings under the Revolving Facility and the
Floor Plan Facilities and other indebtedness, thereby reducing the
funds available to us for our operations and other purposes;
. some of our borrowings are and will continue to be at variable rates
of interest, which exposes us to the risk of increased interest
rates;
. the indebtedness outstanding under our credit facilities is secured
by a pledge of substantially all the assets of our dealerships; and
. we may be substantially more leveraged than some 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 limit our
discretion with respect to business matters, including mergers or acquisitions,
paying dividends, incurring additional debt, making capital expenditures or
disposing of assets.
Our future operating results depend on our ability to integrate our operations
with recent acquisitions.
Our future operating results depend on our ability to integrate the
operations of our recently acquired dealerships, as well as dealerships we
acquire in the future, with our existing operations. In particular, we need to
integrate our systems, procedures and structures, which can be difficult. Our
growth strategy has focused on the pursuit of strategic acquisitions that either
expand or complement our business. We acquired 19 dealerships in 1998, 72 during
1999, and 11 in 2000 and 5 to date in 2001.
We cannot assure you that we will effectively and profitably integrate the
operations of these dealerships without substantial costs, delays or operational
or financial problems, including as a result of:
. the difficulties of managing operations located in geographic areas
where we have not previously operated;
. the management time and attention required to integrate and manage
newly acquired dealerships;
. the difficulties of assimilating and retaining employees; and
. the challenges of keeping customers.
These factors could have a material adverse effect on our financial
condition and results of operations.
Risks associated with acquisitions may hinder our ability to increase revenues
and earnings.
The automobile retailing 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 both past and future dealership 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:
. incurring significantly higher capital expenditures and operating
expenses;
. failing to assimilate the operations and personnel of the acquired
dealerships;
. entering new markets with which we are unfamiliar;
. potential undiscovered liabilities at acquired dealerships;
5
. disrupting our ongoing business;
. diverting our limited management resources;
. failing to maintain uniform standards, controls and policies;
. impairing relationships with employees, manufacturers and customers
as a result of changes in management;
. causing increased expenses for accounting and computer systems, as
well as integration difficulties; and
. failure to obtain a manufacturer's consent to the acquisition of one
or more of its dealership franchises.
We may not adequately anticipate all of the demands that our growth will
impose on our systems, procedures and structures, including our financial and
reporting control systems, data processing systems and management structure. If
we cannot adequately anticipate and respond to these demands, our business could
be materially harmed.
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 disrupted existing operations in the
past as management and salespersons adjust to new technologies. We cannot assure
you that we will overcome these risks or any other problems encountered with
either our past or future acquisitions.
Automobile manufacturers exercise significant control over our operations and we
are dependent on them to operate our business.
Each of our dealerships operates pursuant to a franchise agreement with the
applicable automobile manufacturer or manufacturer authorized distributor. We
are significantly dependent on our relationships with these manufacturers.
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 new vehicle revenue for the three months
ended March 31, 2001:
Percentage of Historical
New Vehicle Revenues for
the Three Months Ended
Manufacturer March 31, 2001
------------ ---------------
Ford 16.7%
Honda 13.6%
Toyota 11.5%
BMW 11.1%
General Motors 11.0%
Chrysler 9.6%
Nissan 5.8%
Lexus 5.6%
No other manufacturer accounted for more than 5% of our new vehicle sales
during the first three months of 2001. A significant decline in the sale of
Ford, Honda, Chrysler, General Motors, BMW, Toyota, Nissan or Lexus new vehicles
could have a material adverse effect on our revenue and profitability.
Manufacturers exercise a great degree of control over the operations of our
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.
6
Manufacturers may also have a right of first refusal if we seek to sell
dealerships. We believe that we will be able to renew at expiration all of our
existing franchise agreements, other than our Oldsmobile franchise agreements.
General Motors is phasing out the Oldsmobile division, which will not materially
affect us.
. We cannot assure you that any of our existing franchise agreements
will be renewed or that the terms and conditions of such renewals
will be favorable to us.
. If a manufacturer is allowed under state franchise laws to terminate
or decline to renew one or more of our significant franchise
agreements, this action could have a material adverse effect on our
results of operations.
. Actions taken by manufacturers to exploit their superior bargaining
position in negotiating the terms of renewals of 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.
. Our 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.
Some of these programs include:
. customer rebates on new vehicles;
. dealer incentives on new vehicles;
. special financing or leasing terms;
. warranties on new and used vehicles; and
. sponsorship of used vehicle sales by authorized new
vehicle dealers.
Adverse conditions affecting one or more manufacturers may negatively impact our
profitability.
The success of each of our dealerships depends to a great extent on the
manufacturers':
. financial condition;
. marketing;
. vehicle design;
. production capabilities;
. management; and
. labor relations.
Nissan, Dodge (a Chrysler brand) and Volvo have had significant difficulty
in the U.S. market in the recent past. If any of our manufacturers, particularly
Ford, Honda, Chrysler, GM, BMW, Toyota, Nissan, or Lexus were unable to design,
manufacture, deliver and market their vehicles successfully, the manufacturer's
reputation and our ability to sell the manufacturer's vehicles could be
adversely affected.
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
7
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, Honda,
Chrysler, GM, BMW, Toyota, Nissan or Lexus in particular, could have a material
adverse effect on our results of operations. For example, 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, we may need to purchase inventory from
other automobile dealers at prices higher than we 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 restrictions limit our ability to issue
additional equity to meet our financing needs.
Standard automobile franchise agreements prohibit transfers of any
ownership interests of a dealership and its parent 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 Sonic's Class
A common stock. A number of manufacturers impose restrictions on the
transferability of the Class A common stock.
. Honda may force the sale of our Honda or Acura franchises if (1) an
automobile manufacturer or distributor acquires securities having 5%
or more of the voting power of Sonic's securities, (2) an individual
or entity that has either a felony criminal record or a criminal
record relating solely to dealings with an automobile manufacturer,
distributor or dealership acquires securities having 5% or more of
the voting power of Sonic's securities or (3) any individual or
entity acquires securities having 20% or more of the voting power of
Sonic's securities and Honda reasonably deems such acquisition to be
detrimental to Honda's interests in any material respect.
. Ford may cause us to sell or resign from one or more of our Ford,
Lincoln or Mercury franchises if any person or entity (other than O.
Bruton Smith and any entity controlled by him) acquires or has a
binding agreement to acquire securities having 50% or more of the
voting power of Sonic's securities.
. GM and Infiniti may force the sale of their respective franchises if
20% of more of Sonic's voting securities are similarly acquired.
. Toyota may force the sale of one or more of Sonic's Toyota or Lexus
dealerships if (1) an automobile manufacturer or distributor acquires
securities, or the right to vote securities by proxy or voting
agreement, having more than 5% of the voting power of Sonic's
securities, (2) any individual or entity acquires securities, or the
right to vote securities by proxy or voting agreement, having more
than 20% of the voting power of Sonic's securities, (3) there is a
material change in the composition of Sonic's Board of Directors that
Toyota reasonably concludes will be materially incompatible with
Toyota's interests or will have an adverse effect on Toyota's
reputation or brands in the marketplace or the performance of Sonic
or its Toyota and Lexus dealerships, (4) there occurs an
extraordinary transaction whereby Sonic's shareholders immediately
prior to such transaction own in the aggregate securities having less
than a majority of the voting power of Sonic or the successor entity,
or (5) any individual or entity acquires control of Sonic, Sonic
Financial Corporation or any Toyota or Lexus dealership owned by
Sonic.
. Chrysler requires prior approval of any future sales that would
result in a change in voting or managerial control of Sonic.
. Mercedes requires 60 days advance notice to approve any acquisition
of 20% or more of Sonic's voting securities.
. Volkswagen has approved the sale of no more than 25% of the voting
control of Sonic, and any future changes in ownership or transfers
among Sonic's current stockholders that could affect the voting or
managerial control of Sonic's Volkswagen franchise subsidiaries
requires the prior approval of Volkswagen.
Other manufacturers may impose similar or more limiting restrictions.
8
Our lending arrangements also require that holders of Sonic's Class B
common stock maintain voting control over Sonic. We are unable to prevent our
stockholders from transferring shares of our common stock, including transfers
by holders of the Class B common stock. 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 our ability to raise capital
through additional equity offerings or to issue our stock as consideration for
future acquisitions.
Manufacturers' restrictions on acquisitions could limit our 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. Jaguar declined to
consent to our proposed 1997 acquisitions of franchises associated with
dealerships in Chattanooga, Tennessee and Greenville, South Carolina, and we
subsequently agreed with Jaguar not to acquire any Jaguar franchise before
August 3, 2001.
Obtaining manufacturer consent for acquisitions could also take a
significant amount of time. Obtaining manufacturer approval for our completed
acquisitions has taken approximately three to five months. We believe that
manufacturer approvals of subsequent acquisitions from manufacturers with which
we have previously completed applications and agreements may take less time,
although we cannot provide you with assurances to that effect. 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 that dealership franchise.
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:
. our management's moral character;
. the business experience of the post-acquisition dealership management;
. our financial condition;
. our ownership structure; and
. manufacturer-determined consumer satisfaction index (CSI) scores.
In addition, a manufacturer may seek to limit the number of its dealerships
that we may own, our national market share of that manufacturer's products or
the number of dealerships we may own in a particular geographic area. These
restrictions may not be enforceable under state franchise laws.
. Our framework agreement with Ford places the following restrictions on
our ability to acquire Ford or Lincoln Mercury dealerships:
. We may not acquire additional Ford or Lincoln Mercury dealerships
unless we continue to satisfy Ford's requirement that 80% of our Ford
dealerships meet Ford's performance criteria. Beyond that, we may not
make an acquisition that would result in our owning Ford or Lincoln
Mercury dealerships with sales exceeding 5% of the total Ford or
total Lincoln Mercury retail sales of new vehicles in the United
States for the preceding calendar year.
. We may not acquire additional Ford or Lincoln Mercury dealerships in
a particular state if such an acquisition would result in our owning
Ford or Lincoln Mercury dealerships with sales exceeding 5% of the
total Ford or total Lincoln Mercury retail sales of new vehicles in
that state for the preceding calendar year.
. We may not acquire additional Ford dealerships in a Ford-defined
market area if such an acquisition would result in our owning more
than one Ford dealership in a market having a total of three or less
Ford dealerships or owning more than 25% of the Ford dealerships in a
market having a total of four or more Ford dealerships. An identical
market area restriction applies for Lincoln Mercury dealerships.
9
. In December 2000, Toyota and Sonic entered into a new framework
agreement that limits the number of Toyota and Lexus dealerships that
we may own on a national level, in each Toyota-defined geographic
region or distributor area, and in each Toyota or Lexus-defined
metropolitan market. Nationally, the limitations on Toyota dealerships
owned by us are for specified time periods and are based on specified
percentages of total Toyota unit sales in the United States. In
Toyota-defined geographic regions or distributor areas, the
limitations on Toyota dealerships owned by us are specified by the
applicable Toyota regional limitations policy or distributor's policy
in effect at such time. In Toyota-defined metropolitan markets, the
limitations on Toyota dealerships owned by us are based on Toyota's
metro markets limitation policy then in effect, which currently
provides a limitation based on the total number of Toyota dealerships
in the particular market. For Lexus, we may own no more than one Lexus
dealership in any one Lexus-defined metropolitan market and no more
than three Lexus dealerships nationally.
. Our framework agreement with Honda limits the number of Honda and
Acura dealerships that we may own on a national level, in each Honda
and Acura-defined geographic zone, and in each Honda-defined
metropolitan market. Nationally, the limitations on Honda dealerships
owned by us are based on specified percentages of total Honda unit
sales in the United States. In Honda-defined geographic zones, the
limitations on Honda dealerships owned by us are based on specified
percentages of total Honda unit sales in each of 10 Honda-defined
geographic zones. In Honda-defined metropolitan markets, the
limitations on Honda dealerships owned by us are specified numbers of
dealerships in each market, which numerical limits vary based mainly
on the total number of Honda dealerships in a particular market. For
Acura, we may own no more than (1) two Acura dealerships in a Honda-
defined metropolitan market, (2) three Acura dealerships in any one of
six Honda-defined geographic zones and (3) five Acura dealerships
nationally.
. Mercedes restricts any company from owning Mercedes dealerships with
sales of more than 3% of total sales of Mercedes vehicles in the U.S.
during the previous calendar year.
. GM currently limits the maximum number of GM dealerships that we may
acquire to 50% of the GM dealerships, by brand line, in a GM-defined
geographic market area having multiple GM dealers.
. Subaru limits us to no more than two Subaru dealerships within certain
designated market areas, four Subaru dealerships within its Mid-
America region and 12 dealerships within Subaru's entire area of
distribution.
. BMW currently prohibits publicly held companies from owning BMW
dealerships representing more than 10% of all BMW sales in the U.S. or
more than 50% of BMW dealerships in a given metropolitan market.
. Toyota, Honda and Mercedes also prohibit the coupling of a franchise
with any other brand without their consent.
. Honda also prohibits ownership of contiguous dealerships.
As a condition to granting their consent to our acquisitions, a number of
manufacturers required additional restrictions. These agreements principally
restrict:
. material changes in our company or extraordinary corporate
transactions such as a merger, sale of a material amount of assets or
change in our board of directors or management that could have a
material adverse effect on the manufacturer's image or reputation or
could be materially incompatible with the manufacturer's interests;
. the removal of a dealership general manager without the consent of the
manufacturer; and
. the use of dealership facilities to sell or service new vehicles of
other manufacturers.
In addition, manufacturer consent to our acquisitions may impose
conditions, such as requiring facilities improvements by us at the acquired
dealership.
10
If we are unable to comply with these restrictions, we generally:
. must sell the assets of the dealerships to the manufacturer or to a
third party acceptable to the manufacturer; or
. terminate the dealership agreements with the manufacturer.
Other manufacturers may impose other and more stringent restrictions in
connection with future acquisitions.
As of March 31, 2001, we owned the following number of franchises for the
following manufacturers:
Number of Number of
Manufacturer Franchises Manufacturer Franchises
- ------------ ---------- ----------- ----------
Ford 13 Lexus 4
Chevrolet 11 Lincoln 4
Honda 11 Mercedes 4
BMW 10 Hyundai 3
Cadillac 10 Isuzu 3
Nissan 10 Kia 3
Toyota 9 Mitsubishi 3
Dodge 8 Audi 2
Volvo 8 GMC 2
Chrysler 7 Infiniti 2
Jeep 7 Pontiac 2
Oldsmobile 7 Porsche 2
Plymouth 7 Acura 1
Mercury 5 Land Rover 1
Volkswagen 5 Subaru 1
Our failure to meet a manufacturer's consumer satisfaction requirements may
adversely affect our ability to acquire new dealerships and our profitability.
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 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. However, we cannot assure
you that we 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 materially adversely affect our acquisition strategy. In
addition, we receive payments from the manufacturers based, in part, on CSI
scores, which could be materially adversely affected if our CSI scores decline.
There are limitations on our financial resources available for acquisitions.
We intend to finance our acquisitions with cash generated from operations,
through issuances of our stock or debt securities and through borrowings under
credit arrangements.
. We cannot assure you that we will be able to obtain additional
financing by issuing stock or debt securities.
. Using cash to complete acquisitions could substantially limit our
operating or financial flexibility.
11
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.
We estimate that as of March 31, 2001, we had approximately $60.1 million
available for additional borrowings under the Revolving Facility, based on a
borrowing base calculated on the basis of our receivables, inventory and
equipment and a pledge of certain additional collateral by an affiliate of
Sonic (which borrowing base was $433.0 million of the $500.0 million facility
at March 31, 2001).
In addition, we are dependent to a significant extent on our ability to
finance our 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. We must obtain new floor plan financing or obtain
consents to assume such financing in connection with our acquisition of
dealerships.
Substantially all the assets of our dealerships are pledged to secure this
floor plan indebtedness. In addition, substantially all the real property and
assets of our subsidiaries that are constructing new dealerships are pledged
under our Mortgage Facility with Ford Motor Credit. These pledges may impede our
ability to borrow from other sources.
Finally, because Ford Motor Credit is associated with Ford, any
deterioration of our relationship with one could adversely affect our
relationship with the other. The same is true of our relationships with Chrysler
and Chrysler Financial, GM and GMAC, and Toyota and Toyota Credit.
Although our officers and directors have previously facilitated our acquisition
financing, we cannot assure you that these individuals will be willing or able
to assist in our financing needs in the future.
O. Bruton Smith, our Chief Executive Officer and Chairman of the Board,
previously guaranteed our credit facilities and other financing arrangements to
facilitate our acquisitions. Mr. Smith may be unwilling to make any such
commitments in the future if such commitments are needed.
Mr. Smith initially guaranteed obligations under the Revolving Facility.
Such obligations were further secured with a pledge of shares of common stock of
Speedway Motorsports, Inc. ("SMI") owned by Sonic Financial Corporation, a
corporation controlled by Mr. Smith ("SFC"), 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 our capitalization because the net proceeds from our
November 1997 initial public offering were significantly less than expected. In
August 1998, Ford Motor Credit released the Revolving Pledge. In November 1999,
Ford Motor Credit further increased the borrowing limit under the Revolving
Facility to $350.0 million subject to a borrowing base calculated on the basis
of our receivables, inventory and equipment and a continuing pledge by SFC of
five million shares of SMI common stock. Presently, the borrowing limit of the
Revolving Facility is $600.0 million, subject to a similar borrowing base,
including SFC's continuing pledge of SMI stock. See "Recent Developments."
Before our acquisition of FirstAmerica Automotive, Inc., Mr. Smith
guaranteed the obligations of FirstAmerica under FirstAmerica's new acquisition
line of credit with Ford Motor Credit. FirstAmerica obtained this new financing
to enable it to complete its then pending acquisitions. The borrowing limit on
this credit facility was approximately $138 million. Mr. Smith had guaranteed
approximately $107 million of this amount, which guarantee was secured by a
pledge of 5.0 million shares of SMI common stock owned by SFC. We assumed
FirstAmerica's obligations to Ford Motor Credit under our Revolving Facility
when we acquired FirstAmerica. Mr. Smith's secured guarantee in favor of Ford
Motor Credit guaranteed a portion of our obligations under the Revolving
Facility until August 2000. After August 2000, Mr. Smith did not provide a
guarantee in favor of the Revolving Facility lenders, but SFC continues to
pledge SMI stock as collateral. We cannot assure you that Mr. Smith will be
willing or able to provide similar guarantees or credit support in the future to
facilitate Sonic's future acquisitions.
Automobile retailing is a mature industry with limited growth potential in new
vehicle sales, and our acquisition strategy will affect our 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
12
significantly affected by our success in acquiring and integrating dealerships
and the pace and size of such acquisitions.
High competition in automobile retailing reduces our profit margins on vehicle
sales. Further, the use of the Internet in the car purchasing process could
materially adversely affect us.
Automobile retailing is a highly competitive business with approximately
21,600 franchised automobile dealerships in the United States at the end of
2000. Our competition includes:
. Franchised automobile dealerships selling the same or similar makes of
new and used vehicles that we offer in our markets and sometimes at
lower prices than we offer. Some of these dealer competitors may be
larger and have greater financial and marketing resources than we do;
. Other franchised dealers;
. Private market buyers and sellers of used vehicles;
. Used vehicle dealers;
. Internet-based vehicle brokers that sell vehicles obtained from
franchised dealers directly to consumers;
. Service center chain stores; and
. Independent service and repair shops.
Our financing and insurance ("F&I") business and other related businesses,
which provide higher contributions to our earnings than sales of new and used
vehicles, are subject to strong competition from various financial institutions
and other third parties. This competition is increasing as these products are
now being marketed and sold over the Internet.
Gross profit margins on sales of new vehicles have been generally declining
since 1986. We do not have any cost advantage in purchasing new vehicles from
manufacturers, due to economies of scale or otherwise. We typically rely on
advertising, merchandising, sales expertise, service reputation and dealership
location to sell new vehicles. The following factors could have a significant
impact on our business:
. The Internet has become a significant part of the sales process in our
industry. Customers are using the Internet to compare pricing for cars
and related F&I services, which may further reduce margins for new and
used cars and profits for related F&I services. In addition,
CarsDirect.com and others are selling vehicles over the Internet
without the benefit of having a dealership franchise, although they
must currently source their vehicles from a franchised dealer.
CarsDirect.com is in an alliance with United Auto Group to facilitate
their sourcing of vehicles. Also, AutoNation is selling vehicles for
its new car dealerships through its AutoNationDirect.com web site. If
Internet new vehicle sales are allowed to be conducted without the
involvement of franchised dealers, our business could be materially
adversely affected. In addition, other franchise groups have aligned
themselves with Internet car sellers or are spending significant sums
on developing their own Internet capabilities, which could materially
adversely affect our business.
. Our revenues and profitability could be materially adversely affected
should manufacturers decide to enter the retail market directly.
. 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 and used vehicle margins.
. Some of our competitors may be capable of operating on smaller gross
margins than we are, and the on-line auto brokers have been operating
at a loss.
13
. As we seek to acquire dealerships in new markets, we may face
increasingly significant competition as we strive 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 effect 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 our results of
operations.
The cyclical and local nature of automobile sales may adversely affect our
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 example, recent interest rate increases and other
factors have impacted the market and have reduced the seasonally adjusted
annualized selling rate of new cars since the beginning of the year.
Future recessions may have a material adverse effect on our business. In
addition, significant changes in interest rates may significantly impact our car
sales since many car buyers finance their purchases. Furthermore, higher
gasoline prices may lead to a reduction in automobile purchases or a shift in
buying patterns from luxury/SUV models (which typically provide high profit
margins to retailers) to smaller, more economical vehicles (which typically have
lower margins).
Local economic, competitive and other conditions also affect the
performance of dealerships. Our dealerships currently are located in the
Atlanta, Baltimore, Birmingham, Charleston, Charlotte, Chattanooga, Columbia,
Columbus, Dallas, Daytona Beach, Fort Myers, Greenville/Spartanburg, Houston,
Las Vegas, Los Angeles, Mobile/Pensacola, Montgomery, Nashville, San Diego, San
Francisco, San Jose/Silicon Valley, Tampa/Clearwater, Tulsa and Washington, D.C.
markets. We intend to pursue acquisitions outside of these markets, but our
operational focus is on our current markets. As a result, our results of
operations depend substantially on general economic conditions and consumer
spending habits in the Southeast and Northern California and, to a lesser
extent, the Houston and Columbus markets. Sales in our Northern California
market represented 16.3% of our sales for the three months ended March 31, 2001.
Our results of operations also depend on other factors, such as tax rates and
state and local regulations specific to the states in which we currently
operate. 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.
We can offer you no assurances that we will be able to continue executing our
acquisition strategy without the costs of future acquisitions escalating.
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,
pricing and nature of future acquisitions will depend upon various factors,
including:
. the availability of suitable acquisition candidates;
. competition with other dealer groups for suitable acquisitions;
. the negotiation of acceptable terms;
. our financial capabilities;
. our stock price;
. the availability of skilled employees to manage the acquired
companies; and
14
. general economic and business conditions.
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 we assume control.
Although we conduct 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, an unavoidable level of risk remains
regarding the actual operating condition of these businesses. Until we actually
assume operating control of such business assets, we may not be able to
ascertain the actual value of the acquired entity.
Additional shares eligible for future sale could have an adverse effect on the
market price of our Class A common stock.
The market price of our Class A common stock could be adversely affected by
the availability for public sale of up to 20,612,616 shares held or issuable on
July 26, 2001, including:
Number of Shares of
Class A Common Stock Manner of Holding and/or Issuance
-------------------- ----------------------------------
12,029,375 (1) Issuable on conversion of 12,029,375
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
4,000 (1) Issuable on exercise of warrants issued in
our business acquisitions.
3,231,918 Issued in our business acquisitions and
currently registered for sale under the
Securities Act pursuant to a shelf
registration.
4,681,243 Issuable on exercise of options granted
under our 1997 Stock Option Plan. All such
shares are registered for sale under the
Securities Act.
310,306 Issuable on exercise of options granted
under our employee stock purchase plans.
All such shares are registered for sale
under the Securities Act.
205,774 Issuable on exercise of options granted
under our Amended and Restated
FirstAmerica Automotive 1997 Stock Option
Plan. All such shares are registered for
sale under the Securities Act.
150,000 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.
We intend in our 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 our ability
to raise equity capital in the future.
15
Potential conflicts of interest between Sonic and its officers could adversely
affect our future performance.
O. Bruton Smith serves as the chairman and chief executive officer of
Speedway Motorsports, Inc. ("SMI"). Accordingly, Sonic competes with SMI 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 SMI.
Sonic has in the past and will likely in the future enter into transactions
with Mr. Smith, entities controlled by Mr. Smith or other affiliates of Sonic.
We believe that all of our existing arrangements with affiliates are as
favorable to us as if the arrangements were negotiated between unaffiliated
parties, although the majority of such transactions have neither been
independently verified in that regard nor are likely to be so verified in the
future. Potential conflicts of interest could arise in the future between Sonic
and its officers or directors in the enforcement, amendment or termination of
arrangements existing between them.
Under Delaware law generally, a corporate insider is precluded from acting
on a business opportunity in his individual capacity if that opportunity is
(1) one which the corporation is financially able to undertake,
(2) is in the line of the corporation's business,
(3) is of practical advantage to the corporation, and
(4) is one in which the corporation has an interest or reasonable
expectancy.
Accordingly, our corporate insiders are generally prohibited from engaging
in new dealership-related business opportunities outside of Sonic unless a
majority of Sonic's 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 Sonic's directors and a majority of Sonic's independent
directors. If not so approved, 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
Sonic's existing senior subordinated notes restrict transactions with affiliates
in a manner similar to Sonic's charter restrictions.
Lack of majority of independent directors could result in conflicts between us
and our management and majority stockholders that may reduce our future
performance.
Independent directors do not constitute a majority of our board, and our
board may not have a majority of independent directors in the future. Without a
majority of independent directors, Sonic's 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 limited management and personnel resources could
adversely affect our operations and growth.
Our success depends to a significant degree upon the continued
contributions of Sonic's management team, particularly its senior management,
and service and sales personnel. additionally, manufacturer franchise agreements
may require the prior approval of the applicable manufacturer before any change
is made in franchise general managers. We do not have employment agreements with
most 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. The
market for qualified employees in the industry and in the regions in which we
operate, particularly for general managers and sales and service personnel, is
highly competitive and may subject us 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 potential acquisition candidates may limit our ability to
consummate future acquisitions.
16
Seasonality of the automotive retail business adversely affects first quarter
revenues.
Our business is seasonal, with a disproportionate amount of revenues
received generally in the second, third and fourth fiscal quarters.
Import product restrictions and foreign trade risks may impair our 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 our 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, recycling and disposal of solid and
hazardous materials and wastes and the cleanup 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 disposal of the materials 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, transported, disposed of or arranged for the transportation or
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, recycling 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 relating to underground
storage tanks that exist or used to exist at many of our properties. Like many
of our competitors, we have 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 potentially material new or unforeseen environmental costs or liabilities
because of our acquisitions.
Environmental laws and regulations, including those governing air
emissions and underground storage tanks, could require compliance with new or
more stringent standards that are imposed in the future. We cannot predict what
other environmental legislation or regulations will be enacted in the future,
how existing or future laws or regulations will be administered or interpreted
or what environmental conditions may be found to exist in the future.
Consequently, we may be required to make substantial expenditures in the future.
Concentration of voting power and antitakeover provisions of our charter,
Delaware law and our dealer agreements may reduce the likelihood of any
potential change of control of Sonic.
Sonic's 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 10 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 stockholder
or otherwise benefiting the Class B common stockholders constituting a:
(1) "going private" transaction;
17
(2) disposition of substantially all of our assets;
(3) transfer resulting in a change in the nature of our business;
or
(4) 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.
Sonic's charter and bylaws make it more difficult for its stockholders
to take corporate actions at stockholders' meetings. In addition, options under
our 1997 Stock Option Plan become immediately exercisable on a change in
control. Also, Delaware law makes it difficult for stockholders who have
recently acquired a large interest in a company to consummate a business
transaction with the company against its directors' wishes. Finally,
restrictions imposed by our dealer agreements may impede or prevent any
potential takeover bid. Generally, our franchise agreements allow the
manufacturers the right to terminate the agreements upon a change of control of
our company and impose restrictions upon the transferability of any significant
percentage of our stock to any one person or entity who may be unqualified, as
defined by the manufacturer, to own one of its dealerships. The inability of a
person or entity to qualify with one or more of our manufacturers may prevent or
seriously impede a potential takeover bid. These agreements, corporate documents
and laws, as well as 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 or preventing stockholders from realizing a premium on the
sale of their shares upon an acquisition of Sonic.
Amortization of goodwill from acquisitions could change, resulting in
significant reduction in earnings for future periods.
Goodwill, net of accumulated amortization, represented approximately
37.4% of our total assets and 148.3% of our stockholders' equity as of December
31, 2000, and represented approximately 38.6% of our total assets and 151.8% of
our stockholders' equity as of March 31, 2001. Goodwill arises when an acquiror
pays more for a business than the fair value of the tangible and separately
measurable intangible net assets. Accounting principles generally accepted in
the United States of America 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 we 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 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. We will incur additional goodwill in our future acquisitions.
The Financial Accounting Standards Board recently finalized new rules
relating to the accounting for business combinations and intangible assets. One
aspect of the new rules does not permit amortization of goodwill, but requires
the carrying amount of goodwill to be reduced only if it was found to be
impaired or was associated with assets to be sold or otherwise disposed. When
the new rules become effective goodwill arising from acquisitions completed
prior to the date of adoption would no longer be amortized, though reversal of
goodwill amortization recognized in prior periods would not be permitted. These
new rules are effective for all acquisitions we make after June 30, 2001. For
any acquisitions made prior to June 30, 2001, the new rules will become
effective on January 1, 2002.
18
USE OF PROCEEDS
We will not receive any proceeds from the sale of shares by the Selling
Security Holders. The proceeds from all such sales will be retained by the
Selling Security Holders.
SELLING SECURITY HOLDERS
The following persons are currently our directors and/or executive
officers, each of whom is eligible to sell pursuant to this Prospectus the
number of shares of Class A common stock set forth opposite his name in the
table below.
Number of Shares Number of Shares of Class A
of Common Stock Beneficially
Class A Common Owned After Offering:
Stock Beneficially Number of --------------------
Owned Prior to Shares
Selling Security Holders Title Offering Offered(1) Number Percent
------------------------- ----- -------- -------- ------ -------
O. Bruton Smith(2) Chief Executive Officer and
Chairman 11,607,900(3)(4) 550,000 11,057,900(4) 28.1%
Thomas A. Price(2) Vice Chairman and Director 1,954,393(5) 350,300 1,804,393 6.4%
B. Scott Smith President, Chief Operating 1,414,167(6)(7) 529,750 977,750(7) 3.3%
Officer and Director
Theodore M. Wright Chief Financial Officer, Vice
President and Treasurer and
Director 399,851(8) 457,651 2,500 *
Jeffrey C. Rachor Executive Vice President of
Retail Operations and Director 180,470(9) 279,770 1,000 *
Mark J. Iuppenlatz Vice President of Corporate
Development 50,300(10) 60,600 10,000 *
William R. Brooks Director 58,333(11) 75,000 0 -
William P. Benton Director 52,500(12) 50,000 2,500 *
William I. Belk, Director 46,000(13) 35,000 11,000 *
H. Robert Heller Director 39,437(14) 26,447 16,000 *
*Less than one percent.
(1) The Number of Shares Offered includes shares issuable under all options
granted pursuant to any Plan covered by this Prospectus, whether or not
they are currently vested.
(2) The address for this stockholder is 5401 East Independence Boulevard,
P.O. Box 18747, Charlotte, North Carolina 28212.
(3) Includes 550,000 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus.
(4) Includes 11,052,500 shares of Class A common stock issuable upon the
conversion of 11,052, 500 shares of Class B common stock owned directly
or indirectly.
(5) Includes 150,000 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 200,300 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
(6) Includes 396,417 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 93,333 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
(7) Includes 956,250 shares of Class A common stock issuable upon the
conversion of 956, 250 shares of Class B common stock owned directly or
indirectly.
(8) Includes 356,376 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 60,300 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
(9) Includes 138,168 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 100,300 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
(10) Includes 40,000 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 20,300 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
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(11) Includes 58,333 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 16,667 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
(12) Includes 50,000 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus.
(13) Includes 30,000 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus.
(14) Includes 23,437 shares issuable upon the exercise of options currently
exercisable or exercisable within the 60 days after the date of this
Prospectus but does not include 3,010 shares issuable under options
that will not be exercisable within 60 days of the date of this
Prospectus.
PLAN OF DISTRIBUTION
The selling stockholders may sell or distribute some or all of the
shares being offered 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:
. 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;
. privately negotiated transactions (including sales pursuant
to pledges);
. in the over-the-counter market;
. in brokerage transactions; or
. 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 our 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, we 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 we nor
the selling stockholders can presently estimate the amount of such compensation.
We know 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 currently being offered.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of any of the shares being offered 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 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.
We 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. We 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.
20
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.
RECENT DEVELOPMENTS
Revolving Facility. On June 20, 2001, we entered into a new revolving
credit facility (the "2001 Revolving Facility") with Ford Motor Credit, Chrysler
Financial and Toyota Motor Credit Corporation, as lenders, with a borrowing
limit of $600 million, subject to a borrowing base calculated on the basis of
our receivables, inventory and equipment and a pledge of five million shares of
SMI common stock by SFC, an affiliate of ours controlled by Bruton Smith. The
2001 Revolving Facility replaced our existing revolving credit facility (the
"2000 Revolving Facility") with Ford Motor Credit and Chrysler Financial, as
lenders, with a borrowing limit of $500 million, subject to a similar borrowing
base. The 2001 Revolving Facility bears interest at 2.50% above LIBOR as quoted
in The Wall Street Journal and will mature on October 1, 2004 (but may be
extended for a number of additional one year terms to be negotiated with Ford
Motor Credit, Chrysler Financial and Toyota Credit). The other material terms of
the 2001 Revolving Facility, including the collateral provided as security, our
covenants and the default provisions are substantially similar to the 2000
Revolving Facility.
Accounting Pronouncements. The Financial Accounting Standards Board
recently finalized new rules relating to the accounting for business
combinations and intangible assets. One aspect of the new rules does not permit
amortization of goodwill but requires the carrying amount of goodwill to be
reduced only if it is found to be impaired or is associated with assets to be
sold or otherwise disposed. Under the new rules, goodwill arising from
acquisitions completed prior to the date of adoption will no longer be amortized
though reversal of goodwill amortized in prior periods will not be permitted.
The new rules will be effective for all acquisitions we make after June 30,
2001. For any acquisitions made prior to June 30, 2001, the new rules will
become effective January 1, 2002.
DESCRIPTION OF CAPITAL STOCK
Sonic's authorized capital stock consists of (a) 100,000,000 shares of Class
A common stock, $.01 par value, (b) 30,000,000 shares of Class B common stock,
$.01 par value and (c) 3,000,000 shares of preferred stock, $.10 par value (of
which 300,000 shares have been designated as Class A convertible preferred
stock). As of July 26, 2001, Sonic had 28,450,155 outstanding shares of Class A
common stock, 12,029,375 outstanding shares of Class B common stock and no
outstanding shares of Class A convertible preferred 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 (File No. 333-
82615)), Sonic's Certificate of Designations relating to the Class A convertible
preferred stock (which was filed as an exhibit to Sonic's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998) and to Delaware law. Reference
is made to such exhibits and to Delaware law for a detailed description of the
provisions thereof summarized below.
Preferred Stock
Class A Convertible 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 that 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
21
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 that 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 that 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 20 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 10
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.
Undesignated Preferred Stock
As of the date of this prospectus, no shares of preferred stock are
outstanding. Our board of directors may authorize the issuance of preferred
stock in one or more series from our undesignated preferred stock or our Class A
convertible preferred stock and, with respect to presently undesignated
preferred stock, may determine, with respect to any series, the designations,
powers, preferences and rights of that series, and the qualifications,
limitations and restrictions of that series, including:
. the designation of the series;
. the number of shares of the series, which number may thereafter be
increased or decreased by our board of directors (but not below the number
of shares of that series then outstanding);
. whether dividends, if any, will be cumulative or noncumulative and the
dividend rate of the series;
. the conditions under which and the dates upon which dividends will be
payable, and the relation which those dividends will bear to the dividends
payable on any other class or classes of stock;
. the redemption rights and price or prices, if any, for shares of the
series;
. the terms and amounts of any sinking fund provided for the purchase or
redemption of shares of the series;
. the amounts payable on and the preferences of shares of the series, in the
event of any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of our company;
. whether the shares of the series will be convertible into shares of any
other class or series, or any other security, of our company or any other
corporation, and, if so, the specification of that other class or series
or that other security, the conversion price or prices or rate or rates,
that adjustments to that price or those prices or that rate or those
rates, the date or dates as of which those shares will be convertible and
all other terms and conditions upon which the conversion may be made;
22
. restrictions on the issuance of shares of the same series or of any other
class or series; and
. the voting rights, if any, of the holders of shares of that series.
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 10 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 (as defined below) 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 our 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
. "going private" transaction,
. sale or other disposition of all or substantially all of Sonic's assets,
. sale or transfer that would cause the nature of Sonic's business to be no
longer primarily oriented toward automobile dealership operations and
related activities, or 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:
. Mr. Smith and his guardian, conservator, committee, or attorney-in-fact;
23
. William S. Egan and his guardian, conservator, committee, or attorney-in-
fact;
. each lineal descendant of Messrs. Smith and Egan (a "Descendant") and
their respective guardians, conservators, committees or
. attorneys-in-fact; and
. 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.
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.
Delaware Law, Certain Charter and Bylaw 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
24
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 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. Our 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.
Limitation of Liability of Officers and Directors
Delaware law authorizes corporations to limit or eliminate the personal
liability of officers and directors to corporations and their stockholders for
monetary damages for breach of officers' and directors' fiduciary duty of care.
The duty of care requires that, when acting on behalf of the corporation,
officers and directors must exercise an informed business judgment based on all
material information reasonably available to them. Absent the limitations
authorized by Delaware law, officers and directors are accountable to
corporations and their stockholders for monetary damages for conduct
constituting gross negligence in the exercise of their duty of care. Delaware
law enables corporations to limit available relief to equitable remedies such as
injunction or rescission.
Our certificate of incorporation limits the liability of our officers and
directors to us and our stockholders to the fullest extent permitted by Delaware
law. Specifically, our officers and directors will not be personally liable for
monetary damages for breach of an officer's or director's fiduciary duty in such
capacity, except for liability
. for any breach of the officer's or director's duty of loyalty to us or our
stockholders,
. for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law,
. for unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the Delaware General Corporation
law, or
. for any transaction from which the officer or director derived an improper
personal benefit.
25
The inclusion of this provision in our certificate of incorporation may
reduce the likelihood of derivative litigation against our officers and
directors, and may discourage or deter stockholders or management from bringing
a lawsuit against our officers and directors for breach of their duty of care,
even though such an action, if successful, might have otherwise benefited us and
our stockholders.
Both our certificate of incorporation and bylaws provide indemnification to
our officers and directors and certain other persons with respect to certain
matters to the maximum extent allowed by Delaware law as it exists now or may
hereafter be amended. These provisions do not alter the liability of officers
and directors under federal securities laws and do not affect the right to sue
(nor to recover monetary damages) under federal securities laws for violations
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling Sonic pursuant to
the foregoing provisions, Sonic has been informed that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
Transfer Agent and Registrar
Our transfer agent and registrar of our Class A common stock is First Union
National Bank.
CERTAIN MANUFACTURER RESTRICTIONS
Under agreements between Sonic and certain manufacturers, Sonic has agreed to
provide the statement provided below:
No automobile manufacturer or distributor has been involved, directly
or indirectly, in the preparation of this prospectus or in the offering
being made hereby. No automobile manufacturer or distributor has been
authorized to make any statements or representations in connection with the
offering, and no automobile manufacturer or distributor has any
responsibility for the accuracy or completeness of this prospectus or for
the offering.
Under Sonic's dealer agreement with General Motors, 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 franchiser, 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
26
agreement with Sonic, 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.
EXPERTS
The consolidated financial statements incorporated in this Prospectus by
reference to Sonic's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report, which is incorporated herein by reference,
and have been so incorporated in reliance upon the report of such firm given
upon their authority as experts in accounting and auditing.
27
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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. (the "Company," 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"). All documents subsequently filed by the Registrant
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.
(i) Our Annual Report on Form 10-K for the fiscal year ended
December 31, 2000 (File No. 1-13395);
(ii) Our Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 2001;
(iii) Our Definitive Proxy Statement dated April 4, 2001; and
(iv) The description of the Company's Class A Common Stock
contained in the Company's Registration Statement on Form
8-A, as amended, filed with the Commission pursuant to
Section 12 of the Exchange Act.
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
-----------------------------------------
The Registrant's Bylaws effectively provide that the Registrant 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, the
Registrant'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 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
II-1
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.
The Company 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. Employee Stock Purchase Plan Amended and
Restated as of June 5, 2000 (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-8 filed
with the Commission on September 21, 2000 (File No. 333-
46274)(the "Registration Statement))
5.1* Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the
legality of securities registered (incorporated by reference to
Exhibit 5.1 to the Registration Statement)
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in
Exhibit 5.1 to the Registration Statement)
24* Power of Attorney (included on the signature page to the
Registration Statement).
______________________
* Filed Previously.
Item 9. Undertakings
------------
The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this 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), any deviation from the
high or low end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set
forth in the "Calculation of Registration Fee" table in the
effective registration statement; and
(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;
II-2
(b) That, for the purpose of determining any liability under the Securities Act
of 1933, 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;
(c) 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;
(d) That, for the purposes 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 and
(e) 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 Securities and Exchange 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.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-8 and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Charlotte, State of North Carolina, on this
30/th/ day of July, 2001.
SONIC AUTOMOTIVE, INC.
By: /s/ Theodore M. Wright
-----------------------------
Theodore M. Wright
Chief Financial Officer, Vice President
and Treasurer (principal financial and
accounting officer) and Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signature Title Date
* Chief Executive Officer July 30, 2001
_______________________
O. Bruton Smith (principal executive officer)
Chairman and Director
* Vice Chairman and Director July 30, 2001
_______________________
Thomas A. Price
* President, Chief Operating July 30, 2001
_______________________
B. Scott Smith Officer and Director
/s/ Theodore M. Wright Chief Financial Officer, July 30, 2001
--------------------
Theodore M. Wright Vice President and Treasurer
(principal financial and accounting
officer) and Director
* Executive Vice President of Retail July 30, 2001
_______________________
Jeffrey C. Rachor Operations and Director
* Director July 30, 2001
_______________________
William R. Brooks
* Director July 30, 2001
_______________________
William P. Benton
* Director July 30, 2001
_______________________
William I. Belk
II-4
* Director July 30, 2001
______________________________
H. Robert Heller
* By: /s/ Theodore M. Wright July 30, 2001
-------------------------
Theodore M. Wright
(Attorney-in-fact for
each of the persons indicated)
II-5
INDEX TO EXHIBITS
Exhibit No. Description
- ---------- -----------
4.1* Sonic Automotive, Inc. Employee Stock Purchase Plan Amended and
Restated as of June 5, 2000 (incorporated by reference to Exhibit
4.1 to the Company's Registration Statement on Form S-8 filed
with the Commission on September 21, 2000 (File No. 333-
46274)(the "Registration Statement))
5.1* Opinion of Parker, Poe, Adams & Bernstein L.L.P. regarding the
legality of securities registered (incorporated by reference to
Exhibit 5.1 to the Registration Statement)
23.1 Consent of Deloitte & Touche LLP
23.2* Consent of Parker, Poe, Adams & Bernstein L.L.P. (included in
Exhibit 5.1 to the Registration Statement)
24* Power of Attorney (included on the signature page to the
Registration Statement).
______________________
* Filed Previously.