Supplemental Terms and Conditions
This Agreement is made this 19th day of September, 1997 by and between
Ford Motor Company, a Delaware corporation with its principal place of business
at The American Road, Dearborn, Michigan (hereinafter called "Ford"), and Sonic
Automotive, Inc., a Delaware corporation with its principal place of business at
0000 X. Xxxxxxxxxxxx Xxxx., Xxxxxxxxx, XX 00000 (hereinafter called "Sonic
Automotive").
AGREEMENT
1. Definitions. For purposes hereof, the following definitions shall apply:
a. "Agreement" shall mean the Ford, Lincoln or Mercury Sales and Service
Agreement.
b. "General Manager" shall mean the person designated by Sonic Automotive
pursuant to paragraph F (ii) of the Agreement with full day to day management
authority and approved by Ford in writing.
c. "Securities Act" shall mean the Securities Act of 1933, as amended.
d. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
e. "SEC" shall mean the Securities and Exchange Commission.
f. "Dealership" shall mean each Ford, Mercury or Lincoln authorized
dealership owned or controlled directly or indirectly by Sonic Automotive.
g. "Delegation Certificate" shall be the instrument executed by an
authorized officer of Sonic Automotive granting full day to day operational and
management control of the Dealership to the General Manager.
h. "CSI" shall mean the Customer Satisfaction Index used by Ford to measure
customer satisfaction in terms of the selling process as well as after sales
service, as such may be modified from time to time by Ford.
i. "Supplemental Terms" shall mean these Supplemental Terms and Conditions.
2. Scope. Sonic Automotive has indicated that it will seek to acquire or to
apply for Ford, Mercury and Lincoln authorized dealerships. In order to simplify
future discussions and to avoid any misunderstanding, these Supplemental Terms
are intended to apply to those situations where Ford is willing to approve Sonic
Automotive (or its designated wholly-owned or controlled direct or indirect
subsidiary) as the purchaser of the capital stock or assets of a Ford, Mercury
or Lincoln authorized dealership or where it is willing to enter into an
Agreement with Sonic Automotive with respect to a new dealership location.
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In each situation where Ford is willing to enter into an Agreement, Sonic
Automotive will cause the Dealership to execute an Agreement and will cause such
Dealership to be bound by these Supplemental Terms.
3. Sole Ownership. To maintain financial and operational autonomy and
accountability, each Dealership will be a separate corporation with the Ford,
Mercury and/or Lincoln dealership operation being its sole business unless
otherwise agreed in writing by Ford; provided, however, that if, at the time of
acquisition of any Dealership, such Dealership is not a separate corporation,
Sonic Automotive will use reasonable efforts to cause the Dealership to be held
as a separate corporation as soon as practicable. Sonic Automotive shall furnish
to Ford a copy of the certificate of incorporation and bylaws of each
Dealership. As is required of all Ford authorized dealerships, each Dealership
shall submit monthly financial and operating performance data to Ford.
4. Capitalization. Each Dealership will be separately and fully capitalized
to ensure the maintenance of net cash, working capital and operating investment
in accordance with Ford guidelines. Other than through dividends permitted by
the law of the state of incorporation of each Dealership, the effect of which
shall not impair the ability of the Dealership to meet the above mentioned Ford
capitalization guidelines, or through arms-length transactions, all cash and
other assets generated by each Dealership will remain within the Dealership and
none of the assets of any Dealership owned or controlled by Sonic Automotive
shall be used directly or indirectly to secure the debt or liability of Sonic
Automotive or any other Dealership or other business owned or controlled by
Sonic Automotive; provided, however, that nothing herein shall prevent the cross
collateralization of capital stock or assets among the Dealerships owned by
Sonic Automotive.
5. General Manager. Sonic Automotive shall delegate in writing the complete
day to day management control of each Dealership to the General Manager of such
Dealership whose appointment shall be subject to Ford's prior written approval
which shall not be unreasonably withheld. The General Manager shall be
designated in paragraph F (ii) of the Agreement and shall have full managerial
authority and accountability for operating the Dealership in accordance with the
terms of the Agreement and the Supplemental Terms. Each person nominated by
Sonic Automotive as a General Manager must have substantial, successful retail
automotive experience and must meet Ford's high standards for moral and ethical
behavior. Upon the appointment of a General Manager, a copy of the Delegation
Certificate shall be submitted to Ford. All proposed changes to the Delegation
Certificate shall be in writing, submitted to Ford and subject to Ford's prior
written approval. Sonic Automotive will notify Ford and obtain Ford's prior
written approval of any proposed change to the General Manager, such approval
not to be unreasonably withheld. Sonic Automotive shall have the right to
appoint an interim General Manager as a temporary replacement for any General
Manager who is terminated for cause or who voluntarily resigns, in each case
without the prior written approval of Ford. In the event that an interim General
Manager is appointed, Sonic Automotive shall work with Ford to appoint a
permanent General Manager within 90 days after the appointment of the interim
General Manager. In addition to meeting the criteria Ford customarily applies to
new dealer candidates, the General Manager will be assigned to the Dealership
for a sufficient time (being a minimum of 3 years unless otherwise agreed by
Ford in writing) to allow the
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General Manager to develop and maintain ties to the local community evidenced by
involvement in community civic and charitable organizations. The General Manager
must reside in the Dealer Locality as required by the Agreement.
6. Compensation Plans. Sonic Automotive will cause each Dealership to
provide to its General Manager and other key employees of the Dealership, as
deemed appropriate, as part of their compensation, incentive programs that will
provide specific financial rewards to the General Manager and such other
employees that are payable to them at least annually and are based upon the
achievement and maintenance by the Dealership of the long term and short term
operating performance objectives described in paragraph 7 hereof.
7. Performance Criteria. Should any Dealership fail to meet reasonable
performance criteria established by Ford relating to such matters as sales
performance, CSI and such other performance criteria that Ford may reasonably
apply to all its authorized dealers, Ford will have the right to implement the
following procedure. Ford shall notify Sonic Automotive and the General Manager
in writing of such failure and shall grant Sonic Automotive and the General
Manager 90 days to either cure the failure in total or, with respect to sales
performance and CSI only, to present to Ford evidence of progress to cure the
failure indicating in Ford's reasonable judgment that the failure will be cured
within one year of Ford's notice. Should the failure not be cured within the
above period, persons delegated with authority from Sonic Automotive immediately
shall meet with authorized personnel from Ford to arrange for the orderly and
expeditious replacement of the General Manager. Should agreement not be reached
upon the identity of an appropriate replacement General Manager within 90 days
of the end of the cure period, Ford may terminate the Agreement with immediate
effect. Requirements that each Dealership consistently meet or exceed Ford's
regional average retail car and truck market share and comparable dealer group
average customer satisfaction ratings, as measured by CSI or other criteria
established by Ford, shall be considered reasonable performance requirements.
Ford will not unreasonably withhold its consent to the appointment of an
appropriate replacement General Manager.
8. Additional Appointments. Should any Dealership fail to maintain for any
12 month period the level of CSI at substantially the same level that was
reported for such Dealership as of the date of its acquisition by Sonic
Automotive, Sonic Automotive shall not seek or apply for another Ford authorized
dealership until such time as such level of CSI is restored to Ford's reasonable
satisfaction. Ford will provide each Dealership a report monthly, summarizing
its CSI performance for the preceding month and for the calendar year to date.
Sonic Automotive may not acquire more than two Ford and two Lincoln Mercury
dealerships within any single twelve-month period. Further, unless otherwise
agreed by Ford in writing, Sonic Automotive shall not seek or apply for a Ford
authorized dealership if, once owning such dealership, Sonic Automotive would
own or control, directly or indirectly, the lesser of (a) 15 Ford and 15 Lincoln
Mercury Dealerships or (b) that number of Ford authorized dealerships with total
retail sales of new vehicles in the immediately preceding calendar year of more
than 2% of the total Ford and Lincoln Mercury branded vehicles sold at retail in
the United States; provided, however, that in no event shall Sonic Automotive
seek or apply for a Ford authorized dealership in any market area, as defined
from time to time by Ford for its dealership network, that would result in
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Sonic Automotive owning or controlling, directly or indirectly, more than one
Ford authorized dealership in those market areas having 3 or less Ford
authorized dealerships in them, or in Sonic Automotive owning or controlling,
directly or indirectly, more than 25% of the Ford authorized dealerships in
market areas, as defined from time to time by Ford for its dealership network,
having 4 or more authorized Ford dealerships in them, it being understood that
this proviso is intended to apply separately to Ford and to Lincoln Mercury
dealerships. Should the above limitations be reached, Ford will give
consideration to extending the limitations, other than the limitation relating
to individual market areas, should circumstances warrant it. However, Ford's
refusal to extend any limitation shall be deemed to be a reasonable action by
Ford.
9. Major Changes. Sonic Automotive shall submit to Ford copies of all
effective registration statements and final reports, proxies and information
statements it files with the SEC pursuant to the Securities Act or the Exchange
Act within five (5) business days of filing with the SEC. Sonic Automotive,
shall submit to Ford all filings submitted to the SEC by third parties that are
required to disclose significant holdings or substantial acquisitions of, or
changes in, the ownership of the voting securities (or other securities
convertible into voting securities) of Sonic Automotive including, without
limitation, Schedules 13D or 13G. Should any SEC filing disclose that (a) a
person, entity or group has a binding agreement to acquire, or has acquired,
voting securities (or other securities convertible into voting securities) of
Sonic Automotive that would place 15% or more of the voting securities (or other
securities convertible into voting securities) of Sonic Automotive into the
hands of such person, entity or group, or (b) a person or entity that owns or
controls fifteen percent (15%) of the voting securities (or other securities
convertible into voting securities) of Sonic Automotive intends or may intend to
acquire additional voting securities (or other securities convertible into
voting securities) of Sonic Automotive, or (c) an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving Sonic
Automotive or any of its subsidiaries is planned or anticipated or (d) a sale or
transfer of a material amount of assets of Sonic Automotive, or any of its
subsidiaries, is planned or anticipated, or (e) a change has been made or is
planned to be made in the Board of Directors or management of Sonic Automotive
or (f) any other material change in Sonic Automotive's business or corporate
structure or (g) any action similar to those noted above, Sonic Automotive shall
provide 30 days prior written notice to Ford describing the matter disclosed in
such filing in detail. If any such action is believed by Ford in its reasonable
judgment to have a material and adverse effect on its reputation in the market
place with respect to an action described in (e), (f), or (g) or with respect to
the other actions should Ford reasonably conclude that such action will not be
compatible with the interests of Ford, Sonic Automotive agrees that within 90
days of Ford's notice thereof, Sonic Automotive shall sell or cause to be sold
one or more of the Dealerships, as specified in the notice, to Ford or its
designee at fair market value, determined in accordance with Attachment A or
resign the Agreements, or provide evidence to Ford that the proposed action
which gave rise to the issuance of Ford's notice will not take place. Should
Sonic Automotive enter into an agreement to transfer the assets or capital stock
of any Dealership to a third party, Ford's right of first refusal provided in
paragraph 24(b) of the Agreement shall apply.
10. Exclusive Dealership Facilities. Each Dealership shall operate as an
exclusive fully-dedicated Ford and/or Mercury and/or Lincoln dealership, as the
case may be, and
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Sonic Automotive will not accept a sales and service agreement with any other
automobile manufacturer or importer or allow the merchandising, display, sale or
service of new vehicles other than Ford, Mercury or Lincoln vehicles at the
facilities and locations approved by Ford and used by any Dealership for the
conduct of its business ("Ford Approved Facilities"). Unless otherwise agreed in
writing, should Sonic Automotive acquire a Dealership having a sales and service
agreement with a competitive automobile manufacturer or importer and related
sales and service operations at the Ford Approved Facilities, it shall cause the
Dealership to relocate such competitive sales and service operations from the
Ford Approved Facilities within one year of acquisition; provided, however, that
Ford shall grant Sonic Automotive additional time to effect such relocation if
Ford believes Sonic Automotive is making reasonable progress in so doing. No
Dealership will merchandise, display or sell new Ford, Mercury or Lincoln
vehicles at any unauthorized location including those owned or controlled by
Sonic Automotive. In conducting its advertising programs each Dealership shall
portray the products it is authorized to sell and service under the Agreement in
a distinctive manner taking care not to mingle such advertising with advertising
of competitive make new vehicles or used vehicles.
11. Advertising. Sonic Automotive recognizes the benefit of local
cooperative advertising and has indicated that it will cause each Dealership to
become a fully participating member of the local Ford, Lincoln or Mercury dealer
advertising group (FDAF/LMDA).
12. Auctions. Used vehicle purchases from Ford sponsored auctions will be
governed by a separate "Sponsored Auction Agreement" which will be executed by
each Dealership.
13. Dealership Name. The trade name and corporate name of each Dealership
will be subject to Ford's approval and will not include any reference to any
non-Ford, Mercury or Lincoln make vehicle.
14. Site Control. Any existing agreement covering a Dealership or its
assets relating to site control will be assumed by Sonic Automotive and shall
remain in full force and effect.
15. Dispute Settlement. Any dispute concerning the Agreement or the
Supplemental Terms shall be resolved using the arbitration plan described in
paragraph 18 of the Agreement; provided, however, that notwithstanding anything
in the Agreement to the contrary, the use of such Plan shall be mandatory and
not optional and; provided, further, that no dispute need be brought before the
Ford Dealer Policy Board.
16. Agreement and Supplemental Terms. Sonic Automotive confirms that the
provisions of these Supplemental Terms are material to its relationship with
Ford and that a failure by Sonic Automotive to fully comply with any material
term hereof, after having been given a reasonable opportunity to cure such
failure, will constitute good and just cause for Ford, in its discretion, to
terminate the Agreement and these Supplemental Terms with immediate effect.
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17. Binding Effect. These Supplemental Terms are intended to modify certain
provisions of the Agreement and to be incorporated as a part of the Agreement.
Should there be an inconsistency between the terms of these Supplemental Terms
and any provision of the Agreement, the terms of these Supplemental Terms shall
apply.
18. Parent-Subsidiary. Sonic Automotive shall cause each Dealership to
carry out the actions and to assume the responsibilities provided herein.
IN WITNESS WHEREOF, Sonic Automotive and Ford, through their authorized
officers, have set there hands on the day and year above written.
Ford Motor Company Sonic Automotive
By: /s/ ILLEGIBLE By: /s/ O. Xxxxxx Xxxxx
--------------------- -------------------------------------
Its: Assistant Secretary Its: Chairman and Chief Executive Officer
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ATTACHMENT A
The Fair Market Value shall be determined as follows:
(a) Within 10 days after Ford has given notice to Sonic Automotive of its
intention to cause Sonic Automotive to sell one or more Dealerships (herein
called the "Valuation Date"), Ford and Sonic Automotive each shall designate a
nationally recognized investment banking firm ("Investment Banker"). If either
Ford or Sonic Automotive shall fail to designate an Investment Banker within
such 10-day period, the Investment Banker designated by the other party shall
determine the Fair Market Value, and such determination shall be binding on the
parties.
(b) Within 30 days after the Valuation Date, each Investment Banker shall
submit to Ford and Sonic Automotive its written determination of the Fair Market
Value of the Dealership or group of Dealerships. If only one Investment Banker
submits a written determination within such 30-day period, the Fair Market Value
shall be deemed to be the value stated in such determination.
(c) If the two values established by the first two Investment Bankers are
within ten percent (10%) of one another (as measured from the lower value), the
average of the two values shall be deemed to be the Fair Market Value. If the
two values established by the Investment Bankers differ by more than ten percent
(10%) (measured from the lower value), the first two Investment Bankers shall,
within 10 days of the Valuation Date, jointly select a third Investment Banker
meeting the criteria specified in paragraph (a) who shall submit to Ford and
Sonic Automotive a written determination of the Fair Market Value of the
Dealership or group of Dealerships within 30 days of its appointment. If the
first two Investment Bankers fail to appoint the third Investment Banker within
the period specified, such appointment shall be made by the American Arbitration
Association. The average of the two valuations that are closer in value shall be
deemed to be the Fair Market Value of the Dealership or group of Dealerships.
(d) Ford and Sonic Automotive each shall bear the expense of the Investment
Banker hired by it and shall share equally in the expense of the third
Investment Banker.
