Item 1.01. Entry into a Material Definitive Agreement.
Agreement and Plan of Merger
On July 23, 2019, Speedway Motorsports, Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Sonic Financial Corporation, a North Carolina corporation (“Parent”), and Speedco, Inc., a Delaware corporation and a wholly owned subsidiary of Parent (“Merger Sub”). Parent is owned and controlled by O. Bruton Smith and his family (collectively, the “Smith Family”), and the Smith Family holds approximately 71.1% of the Company’s outstanding shares of common stock.
Subject to the terms and conditions of the Merger Agreement, Merger Sub will begin a tender offer (the “Offer”) no later than August 13, 2019, unless otherwise agreed by the parties, to purchase all of the outstanding shares of common stock of the Company, $0.01 par value per share (the “Shares”), at an offer price of $19.75 per Share in cash (the “Offer Price”), net to the holder without interest thereon and subject to any withholding of taxes. The Offer will initially remain open for 20 business days after the Offer begins, subject to extension under certain circumstances specified in the Merger Agreement.
The obligation of Merger Sub to purchase Shares tendered in the Offer is subject to a non-waivable condition that there will have been validly tendered (and not validly withdrawn) a number of Shares greater than 50% of the outstanding Shares not owned by Parent, its affiliates and certain individuals specified in the Merger Agreement (the “Public Stockholders”) immediately before the expiration of the Offer (the “Minimum Offer Condition”) and is subject to the satisfaction or waiver of other conditions set forth in the Merger Agreement, including, (a) the absence of any law, injunction, judgment or other legal restraint that prohibits the consummation of the Offer or the Merger (as defined below); (b) the accuracy of the representations and warranties of the Company and compliance by the Company with the covenants contained in the Merger Agreement, subject to a Company Material Adverse Effect (as defined in the Merger Agreement) and other materiality qualifiers; (c) there not having been a Company Material Adverse Effect since the date of the Merger Agreement; and (d) the completion of a specified marketing period for the debt financing being obtained by Parent to fund the payment of the aggregate Offer Price and Merger Consideration (as defined below) (collectively, the “Offer Conditions”). Subject to the satisfaction of the Minimum Offer Condition and the satisfaction or waiver by Merger Sub or Parent of the other Offer Conditions, Merger Sub will promptly after the expiration date of the Offer accept for payment all Shares tendered (and not validly withdrawn) under the Offer and promptly thereafter pay for such Shares.
The Merger Agreement also provides that, following the consummation of the Offer, Merger Sub will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. The Merger will be governed by Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”), under which no stockholder vote is required to consummate the Merger. At the effective time of the Merger (the “Effective Time”), (i) each Share owned by the Company as treasury stock or owned by Parent, Merger Sub or any other direct or indirect wholly owned subsidiary of Parent will be cancelled for no consideration and (ii) each other Share outstanding immediately before the Effective Time (other than Shares for which appraisal rights have been properly demanded and not withdrawn or lost) will be cancelled and converted into the right to receive, upon their surrender, an amount equal to the Offer Price, without interest thereon and subject to any withholding of taxes (the “Merger Consideration”).
At the Effective Time, each vested or unvested option to purchase Shares that is unexpired, unexercised and outstanding immediately before the Effective Time will be deemed fully vested and will be cancelled and converted into the right to receive an amount equal to the product of (a) the excess, if any, of (i) the Offer Price over (ii) the per share exercise price of such option, and (b) the total number of Shares subject to such option, without interest and subject to reduction for any applicable withholding taxes. Also at the Effective Time, each vested and unvested restricted stock unit, share of restricted stock and share of performance-based restricted stock of the Company that is unexpired and outstanding immediately before the Effective Time will be deemed to be fully vested, and any performance vesting conditions for which the level of performance vesting has not been determined will be deemed achieved at target performance levels, and will be cancelled and converted into the right to receive an amount in cash equal to the product of the Offer Price and the total number of Shares subject to such restricted stock unit, or the total number of shares of restricted stock or performance-based restricted stock, as applicable, immediately before the Effective Time, without interest and subject to reduction for any applicable withholding tax.
The consummation of the Merger is subject the consummation of the Offer and the absence of any law, injunction, judgment or other legal restraint that prohibits the consummation of the Merger.
A special committee (the “Special Committee”) consisting solely of independent and disinterested members of the Company’s Board of Directors (the “Board”) unanimously (a) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are advisable, fair to, and in the best interests of, the Company and the Public Stockholders; (b) recommended that the Public Stockholders accept the Offer and tender their Shares to Merger Sub pursuant to the Offer; and (c) recommended that the Board take the actions described below.
The Board, acting upon the recommendation of the Special Committee, (i) determined that the Merger Agreement and the transactions contemplated thereby, including the Offer and the Merger, are advisable, fair to, and in the best interests of, the Company and its stockholders, (ii) approved and adopted the Merger Agreement and declared it advisable for the Company to enter into the Merger Agreement and consummate the transactions contemplated thereby, including the Offer and the Merger, (iii) approved the execution, delivery and performance by the Company of the Merger Agreement and the consummation of the transactions contemplated thereby, including the Offer and the Merger, and (iv) recommended that the stockholders of the Company accept the Offer and tender their Shares to Merger Sub pursuant to the Offer, in each case, on the terms and subject to the conditions set forth in the Merger Agreement.
The Merger Agreement contains representations and warranties and covenants of the parties customary for a transaction of this nature, including covenants regarding the operation of the Company’s business before the Effective Time.
The Company is restricted by the Merger Agreement from soliciting third-party proposals relating to alternative transactions and, subject to certain exceptions to permit the Board to comply with its fiduciary duties, from providing information and entering into discussions in connection with alternative transactions. Prior to the acceptance time of the Offer, under specified circumstances, the Board (upon recommendation of the Special Committee) may change its recommendation to the Company’s stockholders regarding the Offer in response to a Superior Proposal or an Intervening Event (each as defined in the Merger Agreement).
The Merger Agreement may be terminated by the Company or Parent under certain circumstances set forth in the Merger Agreement, including subject to certain limitations, if the Offer has not concluded by December 31, 2019. If the Merger Agreement is terminated by Parent under circumstances in which the Board, upon the recommendation of the Special Committee, changes its recommendation to the Company’s stockholders regarding the Offer, then the Company will be required to pay a termination fee of $24,000,000 to Parent. Alternatively, if the Merger Agreement is terminated by the Company under circumstances in which all of the conditions to the closing of the Offer have occurred but Merger Sub has failed to purchase all of the tendered Shares, then Parent will be required to pay a termination fee of $40,000,000 to the Company.
Parent obtained a debt financing commitment from Bank of America, N.A. to provide a $250,000,000 term loan and a $100,000,000 revolving credit facility which, together with cash on hand, available lines of credit and other sources of immediately available funds available to Parent, will be sufficient to pay all of Parent’s and Merger Sub’s obligations under the Merger Agreement, including the aggregate Offer Price and Merger Consideration.
The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the Merger Agreement, which is attached as Exhibit 2.1 to this report and incorporated herein by reference.
The Merger Agreement and the foregoing description of the Merger Agreement have been included to provide investors with information regarding the terms of the Merger Agreement. It is not intended to provide any other factual information about the Company. The representations, warranties and covenants contained in the Merger Agreement were made only as of specified dates for the purposes of such agreement, were solely for the benefit of the parties to such agreement, may be subject to qualifications and limitations agreed upon by such parties and were negotiated with the principal purpose of allocating risk between the parties, rather than establishing matters as facts. Such representations, warranties and covenants may also be subject to a contractual standard of materiality different from those generally applicable to investors. Accordingly, investors should not rely on such representations, warranties and covenants as characterizations of the actual state of facts or circumstances described therein. Information concerning the subject matter of such representations, warranties and covenants may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures.
