EXHIBIT 10.4
SONIC AGREEMENT
THIS SONIC AGREEMENT (this "AGREEMENT") is made and entered into as of
June 30, 1999, by and among (i) SONIC AUTOMOTIVE, INC., a Delaware corporation
(the "GUARANTOR"), (ii) the signatories listed on Schedule A attached hereto
(the "TENANTS"), and (iii) CAR MMR L.L.C., a Delaware limited liability company
(the "ACQUIRER"), in connection with that certain Acquisition Agreement dated of
even date herewith (the "ACQUISITION AGREEMENT") by and among (a) O. Bruton
Smith, an individual, Sonic Financial Corporation, a North Carolina corporation
(collectively, the "SELLERS"), MMR Holdings, L.L.C., a North Carolina limited
liability company ("MMR HOLDINGS"), MMR Viking Investment Associates, L.P., a
Texas limited partnership ("MMR VIKING"), and MMR Tennessee, L.L.C., a North
Carolina limited liability company ("MMR TENNESSEE"), and (b) the Acquirer.
RECITALS
Pursuant to the Acquisition Agreement, the Sellers are selling,
transferring, conveying and assigning their membership interests and partnership
interests, as the case may be, and the Acquirer is acquiring such membership
interests and partnership interests, in MMR Holdings, MMR Viking, and MMR
Tennessee (collectively, the "LANDLORDS", and each, a "LANDLORD"), in exchange
for cash.
Upon consummation of the transaction contemplated by the Acquisition
Agreement, the Acquirer will own, directly or indirectly, one hundred percent
(100%) of the ownership interests in the Landlords.
Pursuant to certain leases (the "PRE-ACQUISITION LEASES"), the Landlords
have leased to the Tenants the Properties.
Pursuant to certain guaranties (the "PRE-ACQUISITION GUARANTIES") in favor
of the Landlords, Guarantor has guaranteed the obligations of the Tenants under
each of the Pre- Acquisition Leases.
In order to induce the Acquirer to consummate the transaction in
accordance with the Acquisition Agreement and in connection with the obligations
of the parties thereto which include, INTER ALIA, that: (i) the Landlords and
the Tenants of the Properties shall terminate the Pre-Acquisition Leases and
enter into the Sonic Lease (as defined herein); (ii) the Pre- Acquisition
Guaranties shall be terminated and the Guarantor shall execute the Sonic
Guaranties (as defined herein); and (iii) the Acquirer shall commit to purchase
additional automobile dealership properties from Guarantor, the parties have
agreed to set forth certain of their rights and obligations, all as more
particularly set forth hereinbelow.
Unless otherwise provided herein, all terms used in this Agreement that
are defined in the Acquisition Agreement shall have the meanings provided in the
Acquisition Agreement.
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NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby mutually
acknowledged, the parties hereto agree as follows:
1. Tenants.
(a) Representations and Warranties. The Tenants hereby represent and
warrant jointly and severally to the Acquirer that the representations and
warranties set forth below are true and correct as of the date first above
written and shall be true and correct in all material respects on and as of the
Closing:
(i) Litigation. Except as shown on Schedule 1(a)(i) attached
hereto, there is no action, suit, litigation or proceeding pending or, to the
Tenants' knowledge, threatened against any of the Tenants or the Properties that
could reasonably be expected to have a material adverse effect on any of the
Properties or on the ability of any Tenant to execute or deliver, or perform its
obligations under, this Agreement or any of the Sonic Leases (as hereinafter
defined).
(ii) Environmental. The Tenants have no knowledge of any
violation of Environmental Laws related to the Properties or the presence or
release of Hazardous Materials on or from such Properties, except as reflected
in the environmental reports listed on Schedule 1(a)(ii). Schedule 1(a)(ii) is a
list of all written environmental reports and results of environmental
inspections and tests in the possession of the Tenants, which list is complete
in all material respects. The Tenants have not used the Properties for the
generation, treatment, storage, handling or disposal of any Hazardous Materials
in violation of any Environmental Laws.
(b) Termination Agreements. Each of the Tenants agrees that it will
at Closing enter into a Pre-Acquisition Lease Termination Agreement and Estoppel
Certificate in the form attached hereto as Exhibit 1(b).
(c) Sonic Leases. Each of the Tenants agrees that, with respect to
each Property subject to a Pre-Acquisition Lease, it will at Closing (or with
respect to a Substitute Property or Contingent Property, Sonic or its Affiliate
will, at the closing of the transaction consummating the acquisition of such
Substitute Property or Contingent Property), enter into a lease in the form
attached hereto as Exhibit 1(c) (each, a "SONIC LEASE"); provided, however, (i)
that the term of each Sonic Lease shall be the unexpired term of the
Pre-Acquisition Lease it is replacing (and the initial term of each Sonic Lease
with respect to the Contingent Property or the Substitute Property shall be for
a period of ten (10) years), and (ii) the base rent and escalation thereof under
each Sonic Lease shall be as set forth in Section 4 of the lease attached hereto
as Exhibit 1(c).
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2. Guarantor.
(a) Representations and Warranties. Guarantor hereby represents and
warrants to the Acquirer that the representations and warranties set forth below
are true and correct as of the date first above written and shall be true and
correct in all material respects on and as of the Closing:
(i) Due Authorization. The execution and delivery of, and
performance under, this Agreement and the Sonic Guaranties (as hereinafter
defined) has been duly and validly approved by all necessary applicable
corporate action and constitutes (or, with respect to the Sonic Guaranties, upon
execution will constitute) the valid, legally binding, and enforceable agreement
of Guarantor, subject to applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and transfer and other similar laws of general
application heretofore or hereafter enacted or in effect, affecting the rights
and remedies of creditors generally.
(ii) Litigation. Except as shown on Schedule 2(a)(ii) attached
hereto, there is no action, suit, litigation or proceeding pending or, to
Guarantor's knowledge, threatened against the Tenants, Guarantor, or the
Properties that could reasonably be expected to have a material adverse effect
on the financial condition of Guarantor or its ability to execute or deliver, or
perform its obligations under, this Agreement or any of the Sonic Guaranties.
(iii) Financial Statements. The financial statements of
Guarantor, and the notes related thereto, included in the Form 10K for the
fiscal year ended December 31, 1998, and 10Q for the quarter ended March 31,
1999, present fairly the consolidated financial condition of Guarantor as of the
dates indicated and the results of the operations and changes in consolidated
cash flows for the periods specified; such financial statements have been
prepared in conformity with generally accepted accounting principles applied on
a consistent basis; and there has occurred no material adverse change in the
financial condition or prospects of Guarantor since the date of such financial
statements.
(b) Sonic Guaranties. Guarantor agrees that, with respect to each
Sonic Lease, it will at Closing execute a guaranty in the form attached hereto
as Exhibit 2(b) (each, a "SONIC GUARANTY").
(c) Legal Opinion. Guarantor shall cause its counsel to deliver a
legal opinion which may be relied upon by the Acquirer, opining as to the
enforceability of this Agreement, the Sonic Leases and the Sonic Guaranties.
3. Repurchase Option. Subject to the terms and conditions provided in
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this Section 3, Guarantor shall have the right (the "OPTION TO SUBSTITUTE") from
time to time to purchase one or more of the Properties and to substitute
therefor one or more properties (each, a "REPLACEMENT PROPERTY").
(a) Guarantor may exercise the Option to Substitute only by
delivering written notice (each, a "SUBSTITUTION OPTION NOTICE") of the exercise
of such right to the Acquirer during the period commencing on the day after the
Closing Date and expiring, with respect to each Property, on the date on which
the initial term of the Sonic Lease for such Property expires or is sooner
terminated (each, a "SUBSTITUTION WINDOW EXPIRATION DATE").
(b) In the event that Guarantor elects to purchase a Property,
Guarantor shall simultaneously sell to the Acquirer a Replacement Property that
has previously been approved in writing by the financial institution (the
"LENDER") that has made to the Acquirer or an Affiliate thereof a loan (the
"LOAN") secured by the Property in accordance with the qualifications for a
Replacement Property under such Lender's requirements. Each date on which the
transactions contemplated by this Section 3 are consummated with respect to a
Property and a Replacement Property shall be known as a "SUBSTITUTION DATE",
which Substitution Date in all events shall not be later than ninety (90) days
after the date of the applicable Substitution Option Notice. The parties shall
reasonably cooperate to consummate the substitution contemplated by this Section
3 within the aforesaid ninety (90) day period. The value of the Replacement
Property shall be approximately equal to the Purchase Price allocated to the
Property being replaced but in no event less than the Purchase Price allocated
to such Property, and the aggregate value of all Replacement Properties shall
not exceed the aggregate value of such replaced Properties by more than Three
Million Dollars ($3,000,000.00).
(c) On the Substitution Date:
(i) Guarantor shall (A) execute, or cause the Designated
Grantee (as hereinafter defined) to execute, a lease in the form attached hereto
as Exhibit 1(c) for the Replacement Property (provided, however, (I) that the
initial term of such lease shall be the unexpired initial term of the lease of
the Property being repurchased, plus two five (5) year renewal periods, and (II)
during each year of the term of the lease for the Replacement Property, the base
rent and escalation thereunder shall be not less than the base rent and
escalation under the lease for the applicable Property being repurchased, (B)
execute a guaranty in the form attached hereto as Exhibit 2(b), (C) execute,
acknowledge, and deliver to the Acquirer a special warranty deed for the
Replacement Property, (D) pay the Allocated Property Cost (as hereinafter
defined) for such Property in cash or readily available funds (E) execute,
acknowledge and deliver to the Acquirer such other documents as may reasonably
be requested by the Acquirer or the Lender, and (F) pay to the Acquirer all
out-of-pocket costs
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incurred by the Acquirer in connection with such purchase of the Replacement
Property and sale of the Property (including, without limitation, costs incurred
in connection with title insurance policies, surveys, zoning reports,
appraisals, building condition surveys, attorneys' fees, deed, mortgage and
other recordation, transfer, document and stamp taxes, and any fees imposed by
the Lender in connection with such substitution); and
(ii) the Acquirer shall (A) execute, acknowledge and deliver
to Guarantor or the Designated Grantee a special warranty deed for the Property,
(B) execute and deliver the lease for the Replacement Property set forth in
Section 3(c)(i)(A) and (C) pay the Replacement Property Purchase Price (as
hereinafter defined) in cash or readily available funds. The Property shall be
conveyed to Guarantor or the Designated Grantee in its "as is" condition as of
the Substitution Date, subject to all restrictions, covenants, declarations, and
easements of record as of such date and subject to the tenancy of the applicable
entity under the applicable Sonic Lease. The Guarantor shall provide to the
Acquirer representations and warranties customary in a sale transaction in
connection with the conveyance of the Replacement Property. The Substitution
Date shall occur, if at all, prior to the earlier of (X) the Substitution Window
Expiration Date, and (Y) the date on which the Loan (as hereinafter defined) is
discharged. "ALLOCATED PROPERTY COST" shall mean the Purchase Price allocated to
the Property being replaced, plus all allocated costs capitalized by the
Acquirer in connection with the Acquirer's acquisition and ownership of such
Property. "REPLACEMENT PROPERTY PURCHASE PRICE" shall mean the fair market value
of the Replacement Property as determined by an appraisal reasonably acceptable
to the Acquirer.
(d) Guarantor's rights under this Section 3 may only be exercised
with respect to Properties, the Allocated Property Cost of which, when
aggregated with the Allocated Property Cost of all Properties that are then
being or have previously been repurchased, does not exceed an amount equal to
Fifty-One Million Four Hundred Seventy- Six Thousand Nine Hundred Two and 75/100
Dollars ($51,476,902.75).
(e) Guarantor's rights under this Section 3 may be exercised by
Sonic Automotive, Inc. only, and may not be exercised by any other Person or
entity; provided, however, that by written notice to the Acquirer within five
(5) Business Days prior to the Substitution Date, Guarantor may elect to have
title to the applicable Property conveyed to any Affiliate of Guarantor (a
"DESIGNATED GRANTEE"). No such election, and no assignment of this Agreement or
Guarantor's rights hereunder, shall discharge Guarantor from its obligations
hereunder.
(f) If Guarantor is in default under this Agreement or there exists
an Event of Default under the applicable Sonic Lease on the date the
Substitution Option Notice is given or at any time thereafter prior to the
Substitution Date, then, at Landlord's option, the
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Substitution Option Notice shall be null, void, and of no force or effect.
(g) Notwithstanding anything to the contrary contained in this
Section 3, Guarantor shall have no option to purchase the Lone Star Nissan
Oldsmobile Property located in Stafford, Texas unless Guarantor simultaneously
purchases the Lute Riley Property located in Dallas, Texas in connection with an
Option to Substitute.
4. Future Acquisition Commitment. The parties hereto acknowledge that
Guarantor will be acquiring additional automobile dealership properties (the
"ADDITIONAL PROPERTIES") from third parties. During the period (the "FUTURE
ACQUISITION PERIOD") commencing one (1) day after the Closing Date, and ending
on December 31, 1999 (the "FUTURE ACQUISITION PERIOD EXPIRATION DATE"), the
Guarantor may agree to sell and the Acquirer agrees, if requested by the
Guarantor, to purchase, from time to time during the Future Acquisition Period,
such Additional Properties, the purchase price of which shall not exceed
Seventy-Five Million Dollars ($75,000,000) in the aggregate, on the terms and
conditions set forth herein. From time to time during the Future Acquisition
Period, the Guarantor may provide written notice (the "ACQUISITION NOTICE") to
the Acquirer of its desire to sell one or more Additional Properties. Within ten
(10) days after the Acquirer's receipt of the Acquisition Notice, the Guarantor
and the Acquirer shall enter into a mutually acceptable purchase agreement (or
mutually acceptable assignment of an existing purchase agreement between the
Guarantor and the seller of the Additional Property) providing, among other
things, (a) that the purchase price for such Additional Property shall be based
on a capitalization rate (the "CAP RATE") equal to the lesser of (i) *, and (ii)
a rate equal to two hundred fifty (250) basis points over the Acquirer's "all-in
cost of long-term fixed-rate debt financing" for the acquisition of the
Additional Properties; (b) that such acquisition shall be subject to customary
due diligence by Acquirer (the results of which due diligence shall be made
available to the Guarantor), including, without limitation, review of (i) the
environmental and structural condition of such Additional Property, (ii) title
and survey, and (iii) appraisals/valuation; (c) that the Guarantor pay, except
as otherwise mutually agreed by the parties, all reasonable costs and expenses
of such closing, including, without limitation, the cost of recording and
transfer fees, title insurance, surveys, environmental studies, structural
reports and appraisals and legal and accounting fees, and (d) that the Acquirer
shall enter into a lease with or guaranteed by Guarantor, using a lease in the
form attached hereto as Exhibit 1(c), provided that the annual rent under such
lease shall be equal to the product of (i) the purchase price, multiplied by
(ii) the Cap Rate.
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*Text deleted pursuant to application for Confidential Treatment under Rule
24b-2 of the Securities and Exchange Act of 1934 and filed separately with the
Securities and Exchange Commission.
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5. Postponed Conveyance or Substituting of Properties. Pursuant to the
Acquisition Agreement, in certain instances in which Owners do not convey all of
the Properties, then until such time as such Property or Substitute Property is
conveyed to the Acquirer or its Affiliate as more particularly set forth in the
Acquisition Agreement, Guarantor shall use best efforts to convey to the
Acquirer or its Affiliate, such Property or such Substitute Property, as
applicable, in accordance with and subject to the terms and conditions of
transferring a Property or Substitute Property under the Acquisition Agreement.
6. Obligation to Renew. During each calendar year in which the Initial
Term of any Sonic Lease expires, Guarantor shall cause the Tenants of Sonic
Leases expiring in such calendar year not to, and the Tenants of the Sonic
Leases expiring in such calendar year shall not, give notices effecting the
termination of any combination of Sonic Leases during such calendar year, the
aggregate annual Base Rent of which during the last year of the Initial Term
exceeds twenty-five percent (25%) of the aggregate annual Base Rent during the
last year of the Initial Term of all Sonic Leases expiring in such calendar
year.
7. Miscellaneous.
(a) Survival. The representations and warranties contained in this
Agreement shall survive the Closing for a period of five (5) years from the
Closing Date (except that representations and warranties relating to any of the
Properties shall survive Closing for a period of one (1) year from the Closing
Date) and shall not be deemed to be merged into or waived by the instruments of
the Closing.
(b) Additional Actions and Documents. Each of the parties hereto
hereby agrees to use its commercially reasonable efforts to take or cause to be
taken such further actions, to execute, deliver and file or cause to be
executed, delivered and filed such further documents, and to obtain such
consents, as may be necessary or as may be reasonably requested in order to
fully effectuate the purposes, terms and conditions of this Agreement. The
obligations of the parties set forth in this Section 7(b) shall survive the
Closing and shall not be deemed to be merged into or waived by any instrument of
conveyance delivered at Closing.
(c) Entire Agreement; Amendment. This Agreement, including the
exhibits, schedules and other documents referred to herein or therein or
furnished pursuant hereto or thereto, constitutes the entire agreement among the
parties hereto with respect to the transactions contemplated herein, and
supersedes all prior oral or written agreements, commitments or understandings
with respect to the matters provided for herein. No amendment, modification or
discharge of this Agreement shall be valid or binding unless set
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forth in writing and duly executed and delivered by the party against whom
enforcement of the amendment, modification or discharge is sought.
(d) Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Faxed signatures shall have the same
binding effect as original signatures.
(e) Governing Law. This Agreement, the rights and obligations of the
parties hereto, and any claim or disputes relating thereto, shall be governed by
and construed in accordance with the laws of the State of North Carolina
(excluding the choice of law rules thereof) except for actions affecting title
to real property, in which case the laws of the state in which the real property
is located shall apply.
(f) No Third Party Beneficiaries. This Agreement is solely for the
benefit of the parties hereto and the Acquirer, and no provision of this
Agreement shall be deemed to confer any benefit on any third party other than
the Acquirer.
(g) Severability. If any provision of this Agreement shall be held
invalid, illegal or unenforceable, the validity, legality or enforceability of
the other provisions hereof shall not be affected thereby, and there shall be
deemed substituted for the provision at issue a valid, legal and enforceable
provision as similar as possible to the provision at issue.
(h) Binding Effect. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and assigns.
(i) Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) Waiver of Jury Trial. TO THE EXTENT PERMITTED BY APPLICABLE LAW,
THE PARTIES HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY
LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE ACQUISITION
AGREEMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE PROVISIONS OF
THIS SECTION 7(j) SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
(k) Assignment. The Acquirer may assign its rights and/or
obligations under this Agreement to any Affiliate.
(l) Confidentiality. Guarantor and Tenants agree to keep
confidential the Cap Rate as defined in the Acquisition Agreement and in this
Agreement, and shall not
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disclose the Cap Rate to any Person.
(m) Wire Transfer. Guarantor agrees that it shall use best efforts
to cause the payment of all Rent under the Sonic Leases to be made by one wire
transfer on a monthly basis.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
GUARANTOR:
SONIC AUTOMOTIVE, INC.,
a Delaware corporation
By: /s/ Theodore M. Wright
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Name: Theodore M. Wright
Title:Vice President - Finance and Chief
Financial Officer
ACQUIRER:
CAR MMR L.L.C., a Delaware limited liability company
By: Capital Automotive L.P., a Delaware limited
partnership, its Managing Member
By: Capital Automotive REIT, a Maryland real
estate investment trust, its General Partner
By: /s/ David S. Kay
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Name: David S. Kay
Title: Vice President and Chief
Financial Officer
TENANTS:
[See Attached Schedule A]
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SCHEDULE A
SIGNATURE BLOCKS FOR TENANTS
Sonic - Williams Buick, Inc.
Sonic - Williams Cadillac, Inc.
Sonic Automotive - Bondesen, Inc.
Sonic Automotive - 1307 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - 1720 Mason Ave., NSB, Inc.
Sonic Automotive - 1919 N. Dixie Hwy., NSB, Inc.
Sonic Automotive - 3741 S. Nova Rd., PO, Inc.
Sonic - Shottenkirk, Inc.
Sonic Automotive, Inc.
Sonic - Global Imports, L.P.
Sonic - Rockville Imports, Inc.
Sonic - Manhattan Waldorf, Inc.
Frontier Oldsmobile-Cadillac, Inc.
Sonic Automotive - 9103 E. Independence, NC, LLC
Sonic Chrysler-Plymouth-Jeep, LLC
Sonic Dodge, LLC
Town & Country Ford, Incorporated
Marcus David Corporation
Sonic Automotive - 1400 Automall Drive, Columbus, Inc.
Sonic Automotive - 1495 Automall Drive, Columbus, Inc.
Sonic Automotive - 1500 Automall Drive, Columbus, Inc.
Sonic Automotive - 1455 Automall Drive, Columbus, Inc.
Sonic Automotive - 4000 West Broad Street, Columbus, Inc.
Sonic Automotive 2752 Laurens Rd., Greenville, Inc.
Sonic - North Charleston, Inc.
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Fort Mill Ford, Inc.
Sonic - Newsome of Florence, Inc.
Sonic - Newsome Chevrolet World, Inc.
Sonic Automotive of Chattanooga, LLC
Sonic Automotive - 2490 South Lee Highway, LLC
Town & Country Jaguar, LLC
Sonic Automotive - 6025 International Drive, LLC
Sonic - Superior Oldsmobile, LLC
Town & Country Ford of Cleveland, LLC
Sonic Automotive of Nashville, LLC
Sonic Automotive of Texas, L.P.
Sonic - Sam White Nissan, L.P.
Sonic - Lute Riley, L.P.
Sonic - Reading, L.P.
Sonic Automotive - 5221 I-10 East, TX, L.P.
Sonic - Manhattan Fairfax, Inc.
By: /s/ Theodore M. Wright
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Name: Theodore M. Wright
Authorized Signatory
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