<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
Current Report
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 25, 1996
-----------------
REPUBLIC INDUSTRIES, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Delaware
--------
(State or other jurisdiction of incorporation)
0-9787 73-1105145
------ ----------
(Commission (IRS Employer
File Number) Identification No.)
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301
--------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 627-6000
--------------
N.A.
-------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On November 25, 1996, Republic Industries, Inc. (the "Registrant")
acquired from Michael S. Egan, certain trusts controlled by Mr. Egan, Norman D.
Tripp and William H. Kelly, Jr. (collectively, the "Alamo Shareholders") in
merger transactions, all of the outstanding capital stock of Alamo Rent-A-Car,
Inc. and certain related entities (collectively, "Alamo"). As a result of such
transactions, Alamo became a wholly-owned subsidiary of the Registrant.
Pursuant to an Agreement and Plan of Reorganization (the "Agreement"), dated
November 6, 1996 among the Registrant, certain subsidiaries thereof, Alamo, and
the Alamo Shareholders, the Registrant acquired Alamo in exchange for an
aggregate of 22,123,893 shares of the common stock, par value $.01 per share, of
the Registrant, valued at approximately $625 million. The transaction will be
accounted for under the pooling of interests method of accounting.
The descriptions contained herein of the Agreement and the transactions
contemplated thereunder are qualified in their entirety by reference to the
Agreement and the Press Release, dated November 25, 1996, attached hereto as
Exhibits 2 and 99.3, respectively, which are incorporated herein by reference.
ITEM 5. OTHER EVENTS
REPORTING OF CERTAIN FINANCIAL INFORMATION FOR REGISTRATION AND OTHER PURPOSES.
In connection with the consummation of the acquisition of Alamo and
certain acquisitions of insignificant businesses which, in the aggregate, are
significant, as well as the proposed acquisitions by the Registrant of
AutoNation Incorporated ("AutoNation"), Addington Resources, Inc. ("Addington")
and Continental Waste Industries, Inc. ("Continental"), and in accordance with
Rule 3-05 of Regulation S-X, the Registrant is filing herewith certain
historical and pro forma financial information relating to such consummated
acquisitions, AutoNation, Addington and Continental. In addition, the
Registrant is filing herewith audited consolidated financial statements which
have been restated to reflect the acquisition of CarChoice, Inc. and
subsidiary, which was accounted for under the pooling of interests method of
accounting and audited supplemental consolidated financial statements which
give retroactive effect to the acquisition of Alamo which will be accounted for
under the pooling of interests method of accounting. In addition, in connection
with the Alamo acquisition, attached hereto as Exhibit 99.2 and incorporated
herein by reference are the historical financial statements of DKBERT Assoc.
and Guy Salmon USA, Ltd. and subsidiaries, together with independent auditors'
reports of KPMG Peat Marwick LLP, which are referred to in the auditors' report
of Arthur Andersen LLP on the supplemental consolidated financial statements
referred to above. Such financial information is attached hereto as Exhibits
99.1 and 99.2, respectively, and incorporated herein by reference. Exhibits
99.1 and 99.2 are hereby incorporated by reference into the Registrant's
Registration Statements on Form S-3, file numbers 33-61649, 33-62489, 33-63735,
33-65289, 333-01757, 333-04269 and 333-08479, and on Form S-8, file numbers
33-93742 and 333-07623.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The historical combined financial statements of Alamo required by this
Item 7(a) are incorporated herein by reference to Exhibit 99.1 attached
hereto.
(b) The pro forma financial information of Alamo required by this Item 7(b)
are incorporated by reference to the audited supplemental consolidated
financial statements included in Exhibit 99.1 attached hereto.
(c) Exhibits.
The Exhibits to this Report are listed in the Exhibit Index set forth
elsewhere herein.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
REPUBLIC INDUSTRIES, INC.
By: /s/ Michael S. Karsner
----------------------------------
Michael S. Karsner
Senior Vice President
and Chief Financial Officer
Date: December 13, 1996
------------------
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
EXHIBIT INDEX
Number and
Description of Exhibit
- ----------------------
1. None
2. Agreement and Plan of Reorganization, dated November 6, 1996
among Republic Industries, Inc., the Republic Subsidiaries
named therein, the Shareholders named therein, Alamo
Rent-A-Car, Inc. and other Conveyed Entities named therein.
4. None
15. None
16. None
17. None
21. None
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Munson, Cronick & Associates
23.3 Consent of KPMG Peat Marwick LLP
24. None
27. Financial Data Schedule (for SEC use only)
99.1 Financial Information
99.2 Historical Financial Statements of DKBERT Assoc. and Guy Salmon
USA, Ltd. and Subsidiaries
99.3 Press Release, dated November 25, 1996.
<PAGE> 1
Exhibit 2
AGREEMENT AND PLAN OF REORGANIZATION
among
(i) Republic Industries, Inc.
AS REPUBLIC
(ii) Alamo Acquisition Corp., Alamo (Canada) Acquisition Corp.,
Alamo (Belgium) Acquisition Corp., Territory Blue Acquisition Corp.,
Tower Advertising Group Acquisition Corp., Green Corn Acquisition Corp.,
Guy Salmon Acquisition Corp., Alasys Acquisition Corp., Tripperoo Wings
Acquisition Corp., Rising Moon Acquisition Corp., Alamo (Puerto Rico)
Acquisition Corp., Alamo Sales Acquisition Corp., AFL Fleet Acquisition
Corp., Alamo Leasing Acquisition Corp., Alamo Automobile Acquisition Corp.,
Alamo Shuttle Acquisition Corp., Tower Restaurants Acquisition Corp.,
Tower Food Acquisition Corp. and Corporate Planners
Acquisition Corp.,
AS THE REPUBLIC SUBSIDIARIES
and
(iii) Michael S. Egan, The Michael S. Egan Living Trust, The Michael S. Egan
Grantor Retained Annuity Trust for Sarah Egan Mooney, The Michael S. Egan
Grantor Retained Annuity Trust for Eliza Shenners Egan, The Michael S. Egan
Grantor Retained Annuity Trust for Catherine Lewis Egan, The Michael S. Egan
Grantor Retained Annuity Trust for Teague Michael Thomas Egan, The Michael S.
Egan Grantor Retained Annuity Trust for Riley Martin Michael Egan, The 110
Group Trust, Norman D. Tripp and William H. Kelly,Jr.
AS THE SHAREHOLDERS
and
(iv) Alamo Rent-A-Car, Inc., Alamo Rent-A-Car (Canada), Inc. Alamo Rent-A-Car
(Belgium), Inc., Territory Blue, Inc., Tower Advertising Group, Inc., Green
Corn, Inc., Guy Salmon USA, Inc., Alasys, Inc., Tripperoo Wings, Inc., Rising
Moon Inc., Alamo Rent-A-Car (Puerto Rico) Inc., Alamo International Sales,
Inc., Risk Management Reengineering Assurance Group, AFL Fleet Funding, Inc.,
Alamo Leasing Corp., Alamo Automobile Sales, Inc., Alamo Shuttle, Inc., 110
Tower Restaurants, Inc., Tower Food & Beverage, Inc., Corporate Planners &
Developers, Inc., Alasys, Ltd., Guy Salmon USA, Ltd.,
DKBERT Assoc. and RKCTR
AS THE CONVEYED ENTITIES
DATED NOVEMBER 6, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
PAGE
ARTICLE I
<S> <C> <C>
DEFINITIONS AND TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
Section 1.1 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 6 -
Section 1.2 Other Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
Section 1.3 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 12 -
ARTICLE II
PLAN OF REORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
Section 2.1 The Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 13 -
Section 2.2 Conversion of Alamo Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Section 2.3 Conversion of Alamo Canada Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 18 -
Section 2.4 Conversion of Alamo Belgium Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 19 -
Section 2.5 Conversion of Territory Blue Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 20 -
Section 2.6 Conversion of Tower Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 21 -
Section 2.7 Conversion of Green Corn Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 22 -
Section 2.8 Conversion of Guy Salmon Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Section 2.9 Conversion of Alasys Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 23 -
Section 2.10 Conversion of Tripperoo Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 24 -
Section 2.11 Conversion of Rising Moon Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 25 -
Section 2.12 Conversion of Alamo (Puerto Rico) Securities . . . . . . . . . . . . . . . . . . . . . . . . . . - 26 -
Section 2.13 Conversion of Alamo Sales Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Section 2.14 [Intentionally Deleted]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Section 2.15 Conversion of Fleet Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 27 -
Section 2.16 Conversion of Alamo Leasing Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 28 -
Section 2.17 Conversion of Alamo Automobile Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . - 29 -
Section 2.18 Conversion of Alamo Shuttle Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 30 -
Section 2.19 Conversion of Tower Restaurants Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . - 31 -
Section 2.20 Conversion of Tower Food Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
Section 2.21 Conversion of Corporate Planners Securities . . . . . . . . . . . . . . . . . . . . . . . . . . - 32 -
Section 2.22 Risk Management; Conveyed Partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 33 -
Section 2.23 Aggregate Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
Section 2.24 Exchange of Certificates and Other Consideration . . . . . . . . . . . . . . . . . . . . . . . . - 34 -
ARTICLE III
CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
</TABLE>
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ARTICLE IV
<S> <C> <C>
REPRESENTATIONS AND WARRANTIES
OF THE CONVEYED ENTITIES AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 35 -
Section 4.1 Authority; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
Section 4.2 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 36 -
Section 4.3 Ownership of Company Common Stock and Partnership Interests . . . . . . . . . . . . . . . . . . - 36 -
Section 4.4 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
Section 4.5 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
Section 4.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 37 -
Section 4.7 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 4.8 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 4.9 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 4.10 Property; Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 38 -
Section 4.11 Litigation and Claims; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . - 39 -
Section 4.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Section 4.13 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 40 -
Section 4.14 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 41 -
Section 4.15 Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 43 -
Section 4.16 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 45 -
Section 4.17 Employee Benefits; ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 47 -
Section 4.18 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 50 -
Section 4.19 Franchisees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 4.20 Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 4.21 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 51 -
Section 4.22 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 4.23 Information in Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 4.24 Certain Accounting Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
REPUBLIC AND THE REPUBLIC SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 5.1 Authority; Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 5.2 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 52 -
Section 5.3 Non-Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Section 5.5 SEC Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 53 -
Section 5.6 Information in Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
Section 5.7 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
Section 5.8 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
Section 5.9 Republic Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
Section 5.10 Litigation and Claims; Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . - 54 -
</TABLE>
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<TABLE>
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Section 5.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 55 -
Section 5.12 Financial Projections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
Section 5.13 Intention Concerning Reorganizations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
Section 5.14 Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
ARTICLE VI
COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
Section 6.1 Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56 -
Section 6.2 Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 57 -
Section 6.3 Commercially Reasonable Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 59 -
Section 6.4 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 59 -
Section 6.5 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 6.6 SEC Documents; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 6.7 Certain Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 60 -
Section 6.8 Intercompany Obligations; Affiliate Agreements . . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
Section 6.9 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
Section 6.10 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
Section 6.11 HSR Act Filings; Other Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 63 -
Section 6.12 Non-Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 64 -
Section 6.13 Public Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 64 -
Section 6.14 Affected Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 65 -
Section 6.15 [Intentionally Deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 65 -
Section 6.16 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 65 -
Section 6.17 Distribution of Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 66 -
Section 6.18 Pooling Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 67 -
Section 6.19 Sale of Republic Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 67 -
Section 6.20 Certified . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 68 -
ARTICLE VII
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 68 -
Section 7.1 Conditions to the Obligations of Republic, the Republic
Subsidiaries and the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 68 -
Section 7.2 Conditions to the Obligations of Republic and the
Republic Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 68 -
Section 7.3 Conditions to the Obligations of the Shareholders . . . . . . . . . . . . . . . . . . . . . . . - 70 -
ARTICLE VIII
SURVIVAL AND INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71 -
Section 8.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71 -
Section 8.2 Indemnification by the Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 71 -
</TABLE>
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Section 8.3 Indemnification by Republic and the Republic Subsidiaries . . . . . . . . . . . . . . . . . . . - 72 -
Section 8.4 Indemnification Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 72 -
ARTICLE IX
TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 73 -
Section 9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 73 -
Section 9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 74 -
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 75 -
Section 10.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 75 -
Section 10.2 Amendment: Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.3 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.5 Fulfillment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.6 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.7 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 77 -
Section 10.8 Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 78 -
Section 10.9 Governing Law: Jurisdiction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 78 -
Section 10.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 78 -
Section 10.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 78 -
Section 10.12 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 78 -
SCHEDULES
Schedule 2 Purchase Price Allocation
Schedule 4.2 Conveyed Entities
Schedule 4.3 Ownership of Shares and Partnership Interests
Schedule 4.4 Non-Contravention
Schedule 4.5 Consents and Approvals
Schedule 4.6 Subsidiaries
Schedule 4.8 Certain Changes or Events
Schedule 4.10 Property
Schedule 4.11 Litigation and Claims
Schedule 4.12 Insurance
Schedule 4.13(a) Environmental Matters - Compliance
Schedule 4.13(b) Environmental Claims
Schedule 4.13(c) Basis for Environmental Claims
Schedule 4.13(d) Environmental Matters - Storage Sites
</TABLE>
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<TABLE>
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Schedule 4.13(f) Environmental Matters - Presence on Real Property
Schedule 4.14 Material Contracts
Schedule 4.15(a) Intellectual Property - Rights to Use or License
Schedule 4.15(b) Intellectual Property - Cancellations
Schedule 4.15(c) Intellectual Property - Material Agreements
Schedule 4.15(d) Intellectual Property - Computer Programs
Schedule 4.15(f) Intellectual Property - Claims Against Conveyed Entities
Schedule 4.15(g) Intellectual Property - Claims Against Third Parties
Schedule 4.16 Taxes
Schedule 4.17 Employee Benefits - Liabilities and Proceedings
Schedule 4.18 Labor Matters
Schedule 4.19 Franchisees
Schedule 4.20 Records
Schedule 4.21 Affiliate Transactions
Schedule 5.3 Noncontravention
Schedule 5.4 Consents and Approvals
Schedule 5.10 Litigation and Claims; Compliance with Laws
Schedule 5.12 Financial Projections
Schedule 6.7(f) Personnel
Schedule 6.8(a) Certain Accounts
Schedule 6.8(b) Certain Agreements
Schedule 6.14 Unaccrued Compensation
Schedule 6.16 Insurance
ANNEXES
Annex I. Alamo Articles of Merger
Annex II. Alamo Canada Articles of Merger
Annex III. Alamo Belgium Articles of Merger
Annex IV. Territory Blue Articles of Merger
Annex V. Tower Articles of Merger
Annex VI. Green Corn Articles of Merger
Annex VII. Guy Salmon Articles of Merger
Annex VIII. Alasys Articles of Merger
Annex IX. Tripperoo Articles of Merger
Annex X. Rising Moon Articles of Merger
Annex XI. Alamo (Puerto Rico) Articles of Merger
Annex XII. Alamo Sales Articles of Merger
Annex XIII. [Intentionally Deleted]
Annex XIV. Fleet Articles of Merger
Annex XV. Alamo Leasing Articles of Merger
Annex XVI. Alamo Automobile Articles of Merger
Annex XVII. Alamo Shuttle Articles of Merger
</TABLE>
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<TABLE>
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Annex XVIII. Tower Restaurants Articles of Merger
Annex XIX. Tower Food Articles of Merger
Annex XX. Corporate Planners Articles of Merger
EXHIBITS
Exhibit "A" - Registration Rights Agreement
Exhibit "B" - Greenberg Traurig Legal Opinion
Exhibit "C" - Tripp Scott Legal Opinion
Exhibit "D" - Akerman Senterfitt Legal Opinion
</TABLE>
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THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made
and entered into as of the 6th day of November, 1996, by and among (i) ALAMO
ACQUISITION CORP., a Florida corporation ("AAC"), ALAMO (CANADA) ACQUISITION
CORP., a Florida corporation ("ACA"), ALAMO (BELGIUM) ACQUISITION CORP., a
Florida corporation ("ABA"), TERRITORY BLUE ACQUISITION CORP., a Florida
corporation ("TBA"), TOWER ADVERTISING GROUP ACQUISITION CORP., a Florida
corporation ("TAG"), GREEN CORN ACQUISITION CORP., a Florida corporation
("GCA"), GUY SALMON ACQUISITION CORP., a Florida corporation ("GSA"), and
ALASYS ACQUISITION CORP., a Florida corporation ("AC"), TRIPPEROO WINGS
ACQUISITION CORP., a Florida corporation ("TWA"), RISING MOON ACQUISITION
CORP., a Florida corporation ("RMA"), ALAMO (PUERTO RICO) ACQUISITION CORP., a
Delaware corporation ("APR"), ALAMO SALES ACQUISITION CORP., a Florida
corporation ("AIS"), AFL FLEET ACQUISITION CORP., a New York corporation
("AFL"), ALAMO LEASING ACQUISITION CORP., a Florida corporation ("ALC"), ALAMO
AUTOMOBILE ACQUISITION CORP., a Florida corporation ("AASC"), ALAMO SHUTTLE
ACQUISITION CORP., a Florida corporation ("ASC"), TOWER RESTAURANTS ACQUISITION
CORP., a Florida corporation ("TRC"), TOWER FOOD ACQUISITION CORP., a Florida
corporation ("TFB"), and CORPORATE PLANNERS ACQUISITION CORP., a Florida
corporation ("CPA") (each, a "Republic Subsidiary" and collectively, the
"Republic Subsidiaries"); (ii) ALAMO RENT-A-CAR, INC., a Florida corporation
("Alamo"), ALAMO RENT-A-CAR (CANADA), INC., a Florida corporation ("Alamo
Canada"), ALAMO RENT-A-CAR (BELGIUM), INC., a Florida corporation ("Alamo
Belgium"), TERRITORY BLUE, INC., a Florida corporation ("Territory Blue"),
TOWER ADVERTISING GROUP, INC., a Florida corporation ("Tower"), GREEN CORN,
INC., a Florida corporation ("Green Corn"), GUY SALMON USA, INC., a Florida
corporation ("Guy Salmon"), ALASYS, INC., a Florida corporation ("Alasys"),
TRIPPEROO WINGS, INC., a Florida corporation ("Tripperoo"), RISING MOON INC., a
Florida corporation ("Rising Moon"), ALAMO RENT-A-CAR (PUERTO RICO) INC., a
Delaware corporation ("Alamo (Puerto Rico)"), ALAMO INTERNATIONAL SALES, INC.,
a Florida corporation ("Alamo Sales"), RISK MANAGEMENT REENGINEERING ASSURANCE
GROUP, a Cayman Islands company ("Risk Management"), AFL FLEET FUNDING, INC., a
New York corporation ("Fleet"), ALAMO LEASING CORP., a Florida corporation
("Alamo Leasing"), ALAMO AUTOMOBILE SALES, INC., a Florida corporation ("Alamo
Automobile"), ALAMO SHUTTLE, INC., a Florida corporation ("Alamo Shuttle"), 110
TOWER RESTAURANTS, INC., a Florida corporation ("Tower Restaurants"), TOWER
FOOD & BEVERAGE, INC., a Florida corporation ("Tower Food"), CORPORATE PLANNERS
& DEVELOPERS, INC., a Florida corporation ("Corporate Planners"), ALASYS, LTD.,
a Florida limited partnership, GUY SALMON USA, LTD., a Florida limited
partnership ("Guy Salmon, Ltd"), DKBERT ASSOC., a Florida general partnership,
and RKCTR, a Florida general partnership (each, a "Conveyed Entity" and,
collectively, the "Conveyed Entities"); (iii) REPUBLIC INDUSTRIES, INC., a
Delaware corporation ("Republic"); and (iv) MICHAEL S. EGAN, THE MICHAEL S.
EGAN LIVING TRUST, THE MICHAEL S. EGAN GRANTOR RETAINED ANNUITY TRUST FOR SARAH
EGAN MOONEY, THE MICHAEL S. EGAN GRANTOR RETAINED ANNUITY TRUST FOR ELIZA
SHENNERS EGAN, THE MICHAEL S. EGAN GRANTOR RETAINED ANNUITY TRUST FOR
<PAGE> 9
CATHERINE LEWIS EGAN, THE MICHAEL S. EGAN GRANTOR RETAINED ANNUITY TRUST FOR
TEAGUE MICHAEL THOMAS EGAN, THE MICHAEL S. EGAN GRANTOR RETAINED ANNUITY TRUST
FOR RILEY MARTIN MICHAEL EGAN, THE 110 GROUP TRUST, NORMAN D. TRIPP AND WILLIAM
H. KELLY, JR. (each a "Shareholder" and, collectively, the "Shareholders").
BACKGROUND
A. The respective Boards of Directors of AAC and Alamo (which
together are sometimes referred to as the "Alamo Constituent Corporations")
deem it advisable and in the best interest of the Alamo Constituent
Corporations and their respective shareholders that AAC merge with and into
Alamo (the "Alamo Merger") pursuant to this Agreement, the Articles of Merger
substantially in the form attached as Annex I (the "Alamo Articles of Merger")
and the applicable provisions of the laws of the State of Florida.
B. The respective Boards of Directors of ACA and Alamo Canada
(which together are sometimes referred to as the "Alamo Canada Constituent
Corporations") deem it advisable and in the best interest of the Alamo Canada
Constituent Corporations and their respective shareholders that ACA merge with
and into Alamo Canada (the "Alamo Canada Merger") pursuant to this Agreement,
the Articles of Merger substantially in the form attached as Annex II (the
"Alamo Canada Articles of Merger") and the applicable provisions of the laws of
the State of Florida.
C. The respective Boards of Directors of ABA and Alamo Belgium
(which together are sometimes referred to as the "Alamo Belgium Constituent
Corporations") deem it advisable and in the best interest of the Alamo Belgium
Constituent Corporations and their respective shareholders that ABA merge with
and into Alamo Belgium (the "Alamo Belgium Merger") pursuant to this Agreement,
the Articles of Merger substantially in the form attached as Annex III (the
"Alamo Belgium Articles of Merger") and the applicable provisions of the laws
of the State of Florida.
D. The respective Boards of Directors of TBA and Territory Blue
(which together are sometimes referred to as the "Territory Blue Constituent
Corporations") deem it advisable and in the best interest of the Territory Blue
Constituent Corporations and their respective shareholders that TBA merge with
and into Territory Blue (the "Territory Blue Merger") pursuant to this
Agreement, the Articles of Merger substantially in the form attached as Annex
IV (the "Territory Blue Articles of Merger") and the applicable provisions of
the laws of the State of Florida.
E. The respective Boards of Directors of TAG and Tower (which
together are sometimes referred to as the "Tower Constituent Corporations")
deem it advisable and in the best interest of the Tower Constituent
Corporations and their respective shareholders that TAG merge with and into
Tower (the "Tower Merger") pursuant to this Agreement, the Articles of Merger
substantially in the form attached as Annex V (the "Tower Articles of Merger")
and the applicable provisions of the laws of the State of Florida.
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F. The respective Boards of Directors of GCA and Green Corn
(which together are sometimes referred to as the "Green Corn Constituent
Corporations") deem it advisable and in the best interest of the Green Corn
Constituent Corporations and their respective shareholders that GCA merge with
and into Green Corn (the "Green Corn Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached as Annex VI (the "Green
Corn Articles of Merger") and the applicable provisions of the laws of the
State of Florida.
G. The respective Boards of Directors of GSA and Guy Salmon
(which together are sometimes referred to as the "Guy Salmon Constituent
Corporations") deem it advisable and in the best interest of the Guy Salmon
Constituent Corporations and their respective shareholders that GSA merge with
and into Guy Salmon (the "Guy Salmon Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached as Annex VII (the "Guy
Salmon Articles of Merger") and the applicable provisions of the laws of the
State of Florida.
H. The respective Boards of Directors of AC and Alasys (which
together are sometimes referred to as the "Alasys Constituent Corporations")
deem it advisable and in the best interest of the Alasys Constituent
Corporations and their respective shareholders that AC merge with and into
Alasys (the "Alasys Merger") pursuant to this Agreement, the Articles of Merger
substantially in the form attached as Annex VIII (the "Alasys Articles of
Merger") and the applicable provisions of the laws of the State of Florida.
I. The respective Boards of Directors of TWA and Tripperoo (which
together are sometimes referred to as the "Tripperoo Constituent Corporations")
deem it advisable and in the best interest of the Tripperoo Constituent
Corporations and their respective shareholders that TWA merge with and into
Tripperoo (the "Tripperoo Merger") pursuant to this Agreement, the Articles of
Merger substantially in the form attached as Annex IX (the "Tripperoo Articles
of Merger") and the applicable provisions of the laws of the State of Florida.
J. The respective Boards of Directors of RMA and Rising Moon
(which together are sometimes referred to as the "Rising Moon Constituent
Corporations") deem it advisable and in the best interest of the Rising Moon
Constituent Corporations and their respective shareholders that RMA merge with
and into Rising Moon (the "Rising Moon Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached as Annex X (the "Rising
Moon Articles of Merger") and the applicable provisions of the laws of the
State of Florida.
K. The respective Boards of Directors of APR and Alamo (Puerto
Rico) (which together are sometimes referred to as the "Alamo (Puerto Rico)
Constituent Corporations") deem it advisable and in the best interest of the
Alamo (Puerto Rico) Constituent Corporations and their respective shareholders
that APR merge with and into Alamo (Puerto Rico) (the "Alamo (Puerto Rico)
Merger") pursuant to this Agreement, the Articles of Merger substantially in
the form attached as Annex XI (the "Alamo (Puerto Rico) Articles of Merger")
and the applicable provisions of the laws of the State of Delaware.
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L. The respective Boards of Directors of AIS and Alamo Sales
(which together are sometimes referred to as the "Alamo Sales Constituent
Corporations") deem it advisable and in the best interest of the Alamo Sales
Constituent Corporations and their respective shareholders that AIS merge with
and into Alamo Sales (the "Alamo Sales Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached as Annex XII (the "Alamo
Sales Articles of Merger") and the applicable provisions of the laws of the
State of Florida.
M. [Intentionally Deleted].
N. The respective Boards of Directors of AFL and Fleet (which
together are sometimes referred to as the "Fleet Constituent Corporations")
deem it advisable and in the best interest of the Fleet Constituent
Corporations and their respective shareholders that AFL merge with and into
Fleet (the "Fleet Merger") pursuant to this Agreement, the Articles of Merger
substantially in the form attached as Annex XIV (the "Fleet Articles of
Merger") and the applicable provisions of the laws of the State of New York.
O. The respective Boards of Directors of ALC and Alamo Leasing
(which together are sometimes referred to as the "Alamo Leasing Constituent
Corporations") deem it advisable and in the best interest of the Alamo Leasing
Constituent Corporations and their respective shareholders that ALC merge with
and into Alamo Leasing (the "Alamo Leasing Merger") pursuant to this Agreement,
the Articles of Merger substantially in the form attached as Annex XV (the
"Alamo Leasing Articles of Merger") and the applicable provisions of the laws
of the State of Florida.
P. The respective Boards of Directors of AASC and Alamo
Automobile (which together are sometimes referred to as the "Alamo Automobile
Constituent Corporations") deem it advisable and in the best interest of the
Alamo Automobile Constituent Corporations and their respective shareholders
that AASC merge with and into Alamo Automobile (the "Alamo Automobile Merger")
pursuant to this Agreement, the Articles of Merger substantially in the form
attached as Annex XVI (the "Alamo Automobile Articles of Merger") and the
applicable provisions of the laws of the State of Florida.
Q. The respective Boards of Directors of ASC and Alamo Shuttle
(which together are sometimes referred to as the "Alamo Shuttle Constituent
Corporations") deem it advisable and in the best interest of the Alamo Shuttle
Constituent Corporations and their respective shareholders that ASC merge with
and into Alamo Shuttle (the "Alamo Shuttle Merger") pursuant to this Agreement,
the Articles of Merger substantially in the form attached as Annex XVII (the
"Alamo Shuttle Articles of Merger") and the applicable provisions of the laws
of the State of Florida.
R. The respective Boards of Directors of TRC and Tower
Restaurants (which together are sometimes referred to as the "Tower Restaurants
Constituent Corporations") deem it advisable and in the best interest of the
Tower Restaurants Constituent Corporations and their respective shareholders
that TRC merge with and into Tower Restaurants (the "Tower Restaurants Merger")
pursuant to this Agreement, the Articles of Merger substantially in the form
attached as Annex XVIII
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(the "Tower Restaurants Articles of Merger") and the applicable provisions of
the laws of the State of Florida.
S. The respective Boards of Directors of TFB and Tower Food
(which together are sometimes referred to as the "Tower Food Constituent
Corporations") deem it advisable and in the best interest of the Tower Food
Constituent Corporations and their respective shareholders that TFB merge with
and into Tower Food (the "Tower Food Merger") pursuant to this Agreement, the
Articles of Merger substantially in the form attached as Annex XIX (the "Tower
Food Articles of Merger") and the applicable provisions of the laws of the
State of Florida.
T. The respective Boards of Directors of CPA and Corporate
Planners (which together are sometimes referred to as the "Corporate Planners
Constituent Corporations") deem it advisable and in the best interest of the
Corporate Planners Constituent Corporations and their respective shareholders
that CPA merge with and into Corporate Planners (the "Corporate Planners
Merger") pursuant to this Agreement, the Articles of Merger substantially in
the form attached as Annex XX (the "Corporate Planners Articles of Merger") and
the applicable provisions of the laws of the State of Florida.
U. The respective Boards of Directors of each of the Alamo
Constituent Corporations, the Alamo Canada Constituent Corporations, the Alamo
Belgium Constituent Corporations, the Territory Blue Constituent Corporations,
the Tower Constituent Corporations, the Green Corn Constituent Corporations,
the Guy Salmon Constituent Corporations, the Alasys Constituent Corporations,
the Tripperoo Constituent Corporations, the Rising Moon Constituent
Corporations, the Alamo (Puerto Rico) Constituent Corporations, the Alamo Sales
Constituent Corporations, the Fleet Constituent Corporations, the Alamo Leasing
Constituent Corporations, the Alamo Automobile Constituent Corporations, the
Alamo Shuttle Constituent Corporations, the Tower Restaurants Constituent
Corporations, the Tower Food Constituent Corporations and the Corporate
Planners Constituent Corporations have approved and adopted this Agreement as a
plan of reorganization within the relevant provisions of Section 368 of the
Code.
V. The Shareholders of Risk Management deem it advisable to
transfer all of their respective interests in Risk Management to Republic in
exchange for certain shares of Republic Common Stock (as hereinafter defined),
on the terms and subject to the conditions set forth in this Agreement.
W. The partners of DKBERT Assoc. and RKCTR and the limited
partners of Alasys, Ltd. and Guy Salmon, Ltd. (collectively, the "Conveyed
Partnerships") deem it advisable to transfer all of their respective
Partnership Interests in the Conveyed Partnerships to entities directly or
indirectly owned by Republic in exchange for certain shares of Republic Common
Stock (as hereinafter defined), on the terms and subject to the conditions set
forth in this Agreement.
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NOW, THEREFORE, in consideration of the mutual covenants and
undertakings contained herein, and subject to and on the terms and conditions
herein set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS AND TERMS
Section 1.1 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth or as referenced below:
"Affiliate" shall mean, as to any person, any other person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such person. The term "control" (including, with correlative
meanings, the terms "controlled by" and "under common control with"), as
applied to any person, means the possession, direct or indirect, of the power
to direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or other ownership interest,
by contract or otherwise.
"Agreement" shall mean this Agreement, as the same may be amended or
supplemented from time to time in accordance with the terms hereof.
"Alamo" shall have the meaning set forth in the recitals hereto.
"Balance Sheet" shall have the meaning set forth in Section 4.7
hereof.
"Business Day" shall mean any day other than a Saturday, a Sunday or a
day on which banks in New York City are authorized or obligated by law or
executive order to close.
"Car Rental Business" shall mean the daily general use automobile
rental business as conducted by the Conveyed Entities and their Subsidiaries as
of the date hereof.
"Claim" shall have the meaning set forth in Section 8.4 hereof.
"Claim Notice" shall have the meaning set forth in Section 8.4 hereof.
"Clean-up" shall mean all actions required to: (a) clean-up, remove,
treat or remediate Hazardous Materials; (b) prevent the Release of Hazardous
Materials so that they do not migrate, endanger or threaten to endanger public
health or welfare; (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care; or (d) respond to any government requests
for information or documents in any way relating to clean-up, removal,
treatment or remediation or potential clean-up, removal, treatment or
remediation of Hazardous Materials.
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"Closing" shall mean the closing of the transactions contemplated by
this Agreement.
"Closing Date" shall have the meaning set forth in Article III hereof.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Common Stock" shall have the meaning set forth in Section
2.24(b) hereof.
"Competition Laws" shall mean statutes, rules, regulations, orders,
decrees, and other laws that prohibit, restrict or regulate actions having the
purpose or effect of monopolization, lessening of competition or restraint of
trade.
"Computer Programs" shall mean (a) any and all computer software
programs, (b) databases and compilations, including any and all data and
collections of data, whether machine readable or otherwise, (c) all
descriptions, flow-charts and other work product used to design, plan, organize
and develop any of the foregoing, and (d) all documentation, including user
manuals and training materials, relating to any of the foregoing.
"Confidentiality Agreement" shall mean the Confidentiality Agreement,
dated June 21, 1996 between Republic and Alamo.
"Conveyed Corporations" shall have the meaning set forth in the
recitals hereto.
"Conveyed Entities" shall have the meaning set forth in the first
paragraph of this Agreement.
"Conveyed Partnerships" shall have the meaning set forth in the
recitals hereto.
"Effective Time" shall have the meaning set forth in Article III.
"Environmental Claim" shall mean any claim, action, cause of action,
investigation or written notice by any person or entity alleging potential
liability (including potential liability for investigatory costs, Clean-up
costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) directly arising out of, based on or
resulting from (a) the presence, or Release, of any Hazardous Material at any
Real Property owned, leased or operated by the Conveyed Entities or any of
their Subsidiaries, or (b) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Law.
"Environmental Costs" shall mean, without limitation, any actual
clean-up costs, remediation, removal, or other response costs (which without
limitation shall include costs to cause the Company to come into compliance
with Environmental Laws), investigation costs (including without limitation
fees of consultants, counsel, and other experts in connection with any
environmental investigation, testing, audits or studies), losses, liabilities
or obligations (including without limitation liabilities or obligations under
any lease or other contract), payments, damages (including without limitation
any
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<PAGE> 15
actual, punitive or consequential damages under any statutory laws, common law
cause of action or contractual obligations or otherwise, including without
limitation damages (a) of third parties for personal injury or property damage,
or (b) to natural resources), civil or criminal fines or penalties, judgments,
and amounts paid in settlement arising out of, relating to or resulting from
any Environmental Matter or Environmental Law.
"Environmental Laws" shall mean all applicable federal, state, local
and foreign laws and regulations in effect as of the date hereof relating to
pollution or protection of human health or the environment, including laws
relating to Releases or threatened Releases of Hazardous Materials or otherwise
relating to the manufacture, use, treatment, storage, disposal, transport or
handling of Hazardous Materials and all laws and regulations with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Materials.
"Environmental Liability" shall mean any liability resulting from,
relating to or arising out of any Environmental Matter.
"Environmental Matter" shall mean any matter arising out of, relating
to, or resulting from pollution, contamination, protection of the environment,
human health or safety, health or safety of employees, sanitation, and any
matters relating to emissions, discharges, disseminations, Releases or
threatened Releases of Hazardous Substances into the air (indoor and outdoor),
surface water, groundwater, soil, land surface or subsurface, buildings,
facilities, real or personal property or fixtures or otherwise arising out of,
relating to, or resulting from the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, handling, Release or threatened
Release of Hazardous Materials.
"Environmental Permits" shall mean all material permits, licenses,
certificates, approvals and other governmental authorizations required under
any applicable Environmental Law.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"ERISA Affiliate" shall have the meaning set forth in Section 4.17(a)
hereof.
"ERISA Plans" shall have the meaning set forth in Section 4.17(a)
hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
"Financing Lease" shall mean any lease of property, real or personal,
the obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"Franchisee" shall mean any person who owns or possesses the right to
operate an "Alamo Rent-A-Car" business under a franchise or license agreement
entered into with Alamo or any of its Affiliates or any Subfranchisor.
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"FTC Act" shall mean the Federal Trade Commission Act, as amended, and
the rules and regulations of the Federal Trade Commission promulgated
thereunder, including Disclosure Requirements and Prohibitions Concerning
Franchising and Business Opportunity Ventures, all as the same shall be in
effect from time to time.
"GAAP" shall mean United States generally accepted accounting
principles and practices in effect as of the date of this Agreement and as
applied by the Conveyed Entities and their Subsidiaries, on a basis consistent
with past practice.
"Governmental Authority" shall mean any supranational, national,
federal, state or local judicial, legislative, executive or regulatory
authority of any government.
"Hazardous Materials" shall mean all substances defined as Hazardous
Substances, Oils, Pollutants or Contaminants in the National Oil and Hazardous
Substances Pollution Contingency Plan, 40 C.F.R. Section 300.5, or defined as
such by, or regulated as such under, any Environmental Law.
"Hazardous Substances" shall mean any hazardous substances within the
meaning of 101(14) of CERCLA, 42 U.S.C. Section 9601(14).
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Income Tax" or "Income Taxes" shall mean any federal, state, local or
foreign tax based upon or measured by net income and any interest and/or
penalties thereon.
"Indebtedness" of any person at any date shall mean (a) any
indebtedness of such person for borrowed money which is evidenced by a note,
bond, debenture or similar instrument and (b) any obligation of such person
under Financing Leases, in each case other than any such indebtedness or
obligation with respect to which each obligor and each obligee is either a
Conveyed Entity or a Subsidiary thereof.
"Indemnified Party" and "Indemnified Parties" shall have the meanings
set forth in Section 8.4 hereof.
"Intellectual Property" shall mean all industrial and intellectual
property rights used in the business of the Conveyed Entities or any of their
Subsidiaries as currently conducted, including all patents and patent
applications; trademarks, trademark registrations and applications; trade
names; service marks, service mark registrations and applications; copyrights,
copyright registrations and applications; Computer Programs; technology, trade
secrets, proprietary processes and formulae.
"IRS" shall mean the Internal Revenue Service of the United States.
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"Knowledge" and "Known" shall mean, where any representation or
warranty of any party to this Agreement is qualified to such party's
"knowledge" (or words of similar import), the actual knowledge (without
independent investigation or inquiry) of (a) each Shareholder, as to itself or
himself, in the case of the Shareholders, (b) Michael S. Egan, D. Keith Cobb,
Roger Ballou and/or N. Maria Menendez, in the case of the Conveyed Entities,
and (c) H. Wayne Huizenga, Steven R. Berrard and/or Michael S. Karsner, in the
case of Republic and the Republic Subsidiaries.
"Laws" shall mean any federal, state, local or foreign law, statute,
ordinance, rule, regulation, order, judgment or decree, administrative order,
decree, administrative and judicial decision and any other executive or
legislative proclamation, in each case other than Environmental Laws.
"Licenses" shall have the meaning set forth in Section 4.15(c) hereof.
"Liens" shall mean any lien, security interest, mortgage, charge or
similar encumbrance.
"Litigation" shall mean any litigation, suit, claim, action or
proceeding before any arbitrator or Governmental Authority.
"Local Business" shall mean the vehicle rental or sale business not
serviced by a rental location on the property of an airport.
"Losses" shall have the meaning set forth in Section 8.2 hereof.
"Material Adverse Effect" shall mean a material adverse effect on the
business, results of operations or financial condition of the Conveyed Entities
and their Subsidiaries, when taken as a combined and/or consolidated whole.
"Material Contracts" shall have the meaning set forth in Section
4.14(a) hereof.
"Notice Period" shall have the meaning set forth in Section 8.4
hereof.
"Partnership Interests" shall mean (a) all of the partnership
interests of DKBERT Assoc. and RKCTR and (b) all of the limited partnership
interests of Guy Salmon, Ltd. and Alasys, Ltd.
"PBGC" shall have the meaning set forth in Section 4.17(c) hereof.
"Permits" shall mean as to any person, all material licenses, permits,
franchises, orders, approvals, concessions, registrations, authorizations and
qualifications with and under all federal, state, local or foreign laws and
Governmental Authorities, in each case other than Environmental Permits.
"Person" shall mean an individual, a corporation, a partnership, an
association, a trust or other entity or organization.
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"Plans" shall have the meaning set forth in Section 4.17(a) hereof.
"Real Property" shall have the meaning set forth in Section 4.10(a)
hereof.
"Registration Statement" shall have the meaning set forth in Section
4.23 hereof.
"Release" shall mean any spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the indoor
or outdoor environment (including ambient air, surface water, groundwater and
surface or subsurface strata), or into or out of any Real Property, including
the movement of Hazardous Materials through or in the air, soil, surface water,
groundwater or property.
"Replacement Business" shall mean the replacement vehicle business
consisting of (a) the provision of daily rental vehicles to customers of
service stations, car dealerships and similar businesses when such customers'
vehicles are being serviced and (b) the provision of daily rental vehicles to
insureds when such vehicle rental is provided by or approved by an insurance
company under a policy with such insured or another Person.
"Republic" shall have the meaning set forth in the first paragraph of
this Agreement.
"Republic Subsidiary" and "Republic Subsidiaries" shall have the
meaning set forth in the first paragraph of this Agreement.
"Republic Subsidiary's Indemnified Parties" shall have the meaning set
forth in Section 8.2 hereof.
"Requirement of Law" shall mean as to any person, the Articles of
Incorporation and Bylaws or other organizational or governing documents of such
person, and any law, treaty, rule or regulation or order of an arbitrator or a
court or other Governmental Authority, in each case applicable to or binding
upon such person or any of its properties or assets or to which such person or
any of its properties or assets is subject.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Shareholders" shall have the meaning set forth in the first paragraph
of this Agreement.
"Shareholders' Indemnified Parties" shall have the meaning set forth
in Section 8.3(a) hereto.
"Shareholder Representative" shall mean Michael S. Egan.
"SPD" shall have the meaning set forth in Section 4.17(b)(iv) hereof.
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"Subfranchisor" shall mean any person (including an Affiliate of
Alamo) to whom Alamo or any of its Affiliates has granted the right to sell or
grant a franchise of the Car Rental Business to a third party.
"Subsidiary" shall mean, with respect to any Person, any corporation
or other organization, whether incorporated or unincorporated, of which such
Person or any other subsidiary of such Person beneficially owns a majority of
the voting or equity interests.
"Tax Claim" shall have the meaning set forth in Section 6.7(e)(iv)
hereof.
"Tax Return" shall mean any return, report, information return or
other document required to be filed with any taxing authority (including any
related or supporting information) with respect to Taxes.
"Taxes" shall mean all taxes and other like charges, fees, duties,
levies or other assessments imposed by any federal, state, local or foreign
taxing authority, including, but not limited to, income, gross receipts,
excise, property, sales, gain, use, license, capital stock, transfer,
franchise, payroll, withholding, social security or other taxes, including any
interest, penalties or additions attributable thereto.
"Tax Law" shall mean any Law relating to Taxes.
"Transfer Taxes" shall have the meaning set forth in Section 6.7(d)
hereof.
"Treasury Regulations" shall mean the United States Income Tax
Regulations, including Temporary Regulations, promulgated under the Code, as
the same may be amended hereafter from time to time.
Section 1.2 Other Terms. Other terms may be defined elsewhere in
the text of this Agreement and, unless otherwise indicated, shall have such
meaning throughout this Agreement.
Section 1.3 Other Definitional Provisions. a. The words
"hereof", "herein", "hereto" and "hereunder" and words of similar import, when
used in this Agreement, shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(b) Terms defined in the singular shall have a comparable
meaning when used in the plural, and vice versa.
(c) The terms "dollars" and "$" shall mean United States
dollars.
(d) The word "including" shall mean "including without
limitation" and the words "include" and "includes" shall have corresponding
meanings.
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ARTICLE II
PLAN OF REORGANIZATION
Section 2.1 The Mergers.
(a) The Alamo Merger. At the Effective Time (as defined
in Section 3 below), AAC shall be merged with and into Alamo pursuant to this
Agreement and the Alamo Articles of Merger, and the separate corporate
existence of AAC shall cease. Alamo, as it exists from and after the Effective
Time, is sometimes referred to herein as the "Alamo Surviving Corporation."
(b) The Alamo Canada Merger. At the Effective Time, ACA
shall be merged with and into Alamo Canada pursuant to this Agreement and the
Alamo Canada Articles of Merger, and the separate corporate existence of ACA
shall cease. Alamo Canada, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Alamo Canada Surviving Corporation."
(c) The Alamo Belgium Merger. At the Effective Time, ABA
shall be merged with and into Alamo Belgium pursuant to this Agreement and the
Alamo Belgium Articles of Merger, and the separate corporate existence of ABA
shall cease. Alamo Belgium, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Alamo Belgium Surviving Corporation."
(d) The Territory Blue Merger. At the Effective Time,
TBA shall be merged with and into Territory Blue pursuant to this Agreement and
the Territory Blue Articles of Merger, and the separate corporate existence of
TBA shall cease. Territory Blue, as it exists from and after the Effective
Time, is sometimes referred to herein as the "Territory Blue Surviving
Corporation."
(e) The Tower Merger. At the Effective Time, TAG shall
be merged with and into Tower pursuant to this Agreement and the Tower Articles
of Merger, and the separate corporate existence of TAG shall cease. Tower, as
it exists from and after the Effective Time, is sometimes referred to herein as
the "Tower Surviving Corporation."
(f) The Green Corn Merger. At the Effective Time, GCA
shall be merged with and into Green Corn pursuant to this Agreement and the
Green Corn Articles of Merger, and the separate corporate existence of GCA
shall cease. Green Corn, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Green Corn Surviving Corporation."
(g) The Guy Salmon Merger. At the Effective Time, GSA
shall be merged with and into Guy Salmon pursuant to this Agreement and the Guy
Salmon Articles of Merger, and the separate corporate existence of GSA shall
cease. Guy Salmon, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Guy Salmon Surviving Corporation."
(h) The Alasys Merger. At the Effective Time, AC shall
be merged with and into Alasys pursuant to this Agreement and the Alasys
Articles of Merger, and the separate corporate
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existence of AC shall cease. Alasys, as it exists from and after the Effective
Time, is sometimes referred to herein as the "Alasys Surviving Corporation."
(i) The Tripperoo Merger. At the Effective Time, TWA
shall be merged with and into Tripperoo pursuant to this Agreement and the
Tripperoo Articles of Merger, and the separate corporate existence of TWA shall
cease. Tripperoo, as it exists from and after the Effective Time, is sometimes
referred to herein as the "Tripperoo Surviving Corporation."
(j) The Rising Moon Merger. At the Effective Time, RMA
shall be merged with and into Rising Moon pursuant to this Agreement and the
Rising Moon Articles of Merger, and the separate corporate existence of RMA
shall cease. Rising Moon, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Rising Moon Surviving Corporation."
(k) The Alamo (Puerto Rico) Merger. At the Effective
Time, APR shall be merged with and into Alamo (Puerto Rico) pursuant to this
Agreement and the Alamo (Puerto Rico) Articles of Merger, and the separate
corporate existence of APR shall cease. Alamo (Puerto Rico), as it exists from
and after the Effective Time, is sometimes referred to herein as the "Alamo
(Puerto Rico) Surviving Corporation."
(l) The Alamo Sales Merger. At the Effective Time, AIS
shall be merged with and into Alamo Sales pursuant to this Agreement and the
Alamo Sales Articles of Merger, and the separate corporate existence of AIS
shall cease. Alamo Sales, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Alamo Sales Surviving Corporation."
(m) [Intentionally Deleted].
(n) The Fleet Merger. At the Effective Time, AFL shall
be merged with and into Fleet pursuant to this Agreement and the Fleet Articles
of Merger, and the separate corporate existence of AFL shall cease. Fleet, as
it exists from and after the Effective Time, is sometimes referred to herein as
the "Fleet Surviving Corporation."
(o) The Alamo Leasing Merger. At the Effective Time, ALC
shall be merged with and into Alamo Leasing pursuant to this Agreement and the
Alamo Leasing Articles of Merger, and the separate corporate existence of ALC
shall cease. Alamo Leasing, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Alamo Leasing Surviving Corporation."
(p) The Alamo Automobile Merger. At the Effective Time,
AASC shall be merged with and into Alamo Automobile pursuant to this Agreement
and the Alamo Automobile Articles of Merger, and the separate corporate
existence of AASC shall cease. Alamo Automobile, as it exists from and after
the Effective Time, is sometimes referred to herein as the "Alamo Automobile
Surviving Corporation."
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<PAGE> 22
(q) The Alamo Shuttle Merger. At the Effective Time, ASC
shall be merged with and into Alamo Shuttle pursuant to this Agreement and the
Alamo Shuttle Articles of Merger, and the separate corporate existence of ASC
shall cease. Alamo Shuttle, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Alamo Shuttle Surviving Corporation."
(r) The Tower Restaurants Merger. At the Effective Time,
TRC shall be merged with and into Tower Restaurants pursuant to this Agreement
and the Tower Restaurants Articles of Merger, and the separate corporate
existence of TRC shall cease. Tower Restaurants, as it exists from and after
the Effective Time, is sometimes referred to herein as the "Tower Restaurants
Surviving Corporation."
(s) The Tower Food Merger. At the Effective Time, TFB
shall be merged with and into Tower Food pursuant to this Agreement and the
Tower Food Articles of Merger, and the separate corporate existence of TFB
shall cease. Tower Food, as it exists from and after the Effective Time, is
sometimes referred to herein as the "Tower Food Surviving Corporation."
(t) The Corporate Planners Merger. At the Effective
Time, CPA shall be merged with and into Corporate Planners pursuant to this
Agreement and the Corporate Planners Articles of Merger, and the separate
corporate existence of CPA shall cease. Corporate Planners, as it exists from
and after the Effective Time, is sometimes referred to herein as the "Corporate
Planners Surviving Corporation."
(u) Effects of the Mergers. The Alamo Merger, the Alamo
Canada Merger, the Alamo Belgium Merger, the Territory Blue Merger, the Tower
Merger, the Green Corn Merger, the Guy Salmon Merger, the Alasys Merger, the
Tripperoo Merger, the Rising Moon Merger, the Alamo (Puerto Rico) Merger, the
Alamo Sales Merger, the Fleet Merger, the Alamo Leasing Merger, the Alamo
Automobile Merger, the Alamo Shuttle Merger, the Tower Restaurants Merger, the
Tower Food Merger and the Corporate Planners Merger (collectively, the
"Mergers") shall each have the effects provided therefor by the Florida
Business Corporation Act (the "Florida Statute") and, in the case of the Fleet
Merger, and the Alamo (Puerto Rico) Merger, the applicable laws of the State of
New York and the State of Delaware, respectively. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time (i) all
the rights, privileges, powers and franchises, of a public as well as of a
private nature, and all property, real, personal and mixed, and all and every
other interest belonging to or due to the Alamo Constituent Corporations, the
Alamo Canada Constituent Corporations, the Alamo Belgium Constituent
Corporations, the Territory Blue Constituent Corporations, the Tower
Constituent Corporations, the Green Corn Constituent Corporations, the Guy
Salmon Constituent Corporations, the Alasys Constituent Corporations, the
Tripperoo Constituent Corporations, the Rising Moon Constituent Corporations,
the Alamo (Puerto Rico) Constituent Corporations, the Alamo Sales Constituent
Corporations, the Fleet Constituent Corporations, the Alamo Leasing Constituent
Corporations, the Alamo Automobile Constituent Corporations, the Alamo Shuttle
Constituent Corporations, the Tower Restaurants Constituent Corporations, the
Tower Food Constituent Corporations and the Corporate Planners Constituent
Corporations (collectively, the "Constituent Corporations") shall continue to
be held by or shall be
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<PAGE> 23
taken and deemed to be transferred to, and vested in, the Alamo Surviving
Corporation, the Alamo Canada Surviving Corporation, the Alamo Belgium
Surviving Corporation, the Territory Blue Surviving Corporation, the Tower
Surviving Corporation, the Green Corn Surviving Corporation, the Guy Salmon
Surviving Corporation, the Alasys Surviving Corporation, the Tripperoo
Surviving Corporation, the Rising Moon Surviving Corporation, the Alamo (Puerto
Rico) Surviving Corporation, the Alamo Sales Surviving Corporation, the Fleet
Surviving Corporation, the Alamo Leasing Surviving Corporation, the Alamo
Automobile Surviving Corporation, the Alamo Shuttle Surviving Corporation, the
Tower Restaurants Surviving Corporation, the Tower Food Surviving Corporation
and the Corporate Planners Surviving Corporation (collectively, the "Surviving
Corporations"), respectively, without further act or deed, and (ii) all debts,
liabilities, duties and obligations of the Alamo Constituent Corporations, the
Alamo Canada Constituent Corporations, the Alamo Belgium Constituent
Corporations, the Territory Blue Constituent Corporations, the Tower
Constituent Corporations, the Green Corn Constituent Corporations, the Guy
Salmon Constituent Corporations, the Alasys Constituent Corporations, the
Tripperoo Constituent Corporations, the Rising Moon Constituent Corporations,
the Alamo (Puerto Rico) Constituent Corporations, the Alamo Sales Constituent
Corporations, the Fleet Constituent Corporations, the Alamo Leasing Constituent
Corporations, the Alamo Automobile Constituent Corporations, the Alamo Shuttle
Constituent Corporations, the Tower Restaurants Constituent Corporations, the
Tower Food Constituent Corporations and the Corporate Planners Constituent
Corporations shall continue to be or shall become the debts, liabilities duties
and obligations of the Alamo Surviving Corporation, the Alamo Canada Surviving
Corporation, the Alamo Belgium Surviving Corporation, the Territory Blue
Surviving Corporation, the Tower Surviving Corporation, the Green Corn
Surviving Corporation, the Guy Salmon Surviving Corporation, the Alasys
Surviving Corporation, the Tripperoo Surviving Corporation, the Rising Moon
Surviving Corporation, the Alamo (Puerto Rico) Surviving Corporation, the Alamo
Sales Surviving Corporation, the Fleet Surviving Corporation, the Alamo Leasing
Surviving Corporation, the Alamo Automobile Surviving Corporation, the Alamo
Shuttle Surviving Corporation, the Tower Restaurants Surviving Corporation, the
Tower Food Surviving Corporation and the Corporate Planners Surviving
Corporation, respectively, without further act or deed, and neither the rights
of creditors nor any liens upon the property of the Constituent Corporations
shall be impaired by the Mergers.
(v) Articles of Incorporation; Bylaws; Directors and
Officers. The Articles of Incorporation of the Alamo Surviving Corporation,
the Alamo Canada Surviving Corporation, the Alamo Belgium Surviving
Corporation, the Territory Blue Surviving Corporation, the Tower Surviving
Corporation, the Green Corn Surviving Corporation, the Guy Salmon Surviving
Corporation, the Alasys Surviving Corporation, the Tripperoo Surviving
Corporation, the Rising Moon Surviving Corporation, the Alamo (Puerto Rico)
Surviving Corporation, the Alamo Sales Surviving Corporation, the Fleet
Surviving Corporation, the Alamo Leasing Surviving Corporation, the Alamo
Automobile Surviving Corporation, the Alamo Shuttle Surviving Corporation, the
Tower Restaurants Surviving Corporation, the Tower Food Surviving Corporation
and the Corporate Planners Surviving Corporation from and after the Effective
Time shall be the Articles of Incorporation of Alamo, Alamo Canada, Alamo
Belgium, Territory Blue, Tower, Green Corn, Guy Salmon, Alasys, Tripperoo,
Rising Moon, Alamo (Puerto Rico), Alamo Sales, Fleet, Alamo Leasing,
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<PAGE> 24
Alamo Automobile, Alamo Shuttle, Tower Restaurants, Tower Food and Corporate
Planners, respectively, as in effect immediately prior to the Effective Time,
except as otherwise amended by the Alamo Articles of Merger, the Alamo Canada
Articles of Merger, the Alamo Belgium Articles of Merger, the Territory Blue
Articles of Merger, the Tower Articles of Merger, the Green Corn Articles of
Merger, the Guy Salmon Articles of Merger, the Alasys Articles of Merger, the
Tripperoo Articles of Merger, the Rising Moon Articles of Merger, the Alamo
(Puerto Rico) Articles of Merger, the Alamo Sales Articles of Merger, the Fleet
Articles of Merger, the Alamo Leasing Articles of Merger, the Alamo Automobile
Articles of Merger, the Alamo Shuttle Articles of Merger, the Tower Restaurants
Articles of Merger, the Tower Food Articles of Merger and the Corporate
Planners Articles of Merger, respectively, continuing until thereafter amended
in accordance with the provisions therein and as provided by the Florida
Statute and, in the case of the Fleet Surviving Corporation and the Alamo
(Puerto Rico) Surviving Corporation, the applicable laws of the State of New
York and the State of Delaware, respectively. The Bylaws of the Alamo
Surviving Corporation, the Alamo Canada Surviving Corporation, the Alamo
Belgium Surviving Corporation, the Territory Blue Surviving Corporation, the
Tower Surviving Corporation, the Green Corn Surviving Corporation, the Guy
Salmon Surviving Corporation, the Alasys Surviving Corporation, the Tripperoo
Surviving Corporation, the Rising Moon Surviving Corporation, the Alamo (Puerto
Rico) Surviving Corporation, the Alamo Sales Surviving Corporation, the Fleet
Surviving Corporation, the Alamo Leasing Surviving Corporation, the Alamo
Automobile Surviving Corporation, the Alamo Shuttle Surviving Corporation, the
Tower Restaurants Surviving Corporation, the Tower Food Surviving Corporation
and the Corporate Planners Surviving Corporation from and after the Effective
Time shall be the Bylaws of Alamo, Alamo Canada, Alamo Belgium, Territory Blue,
Tower, Green Corn, Guy Salmon, Alasys, Tripperoo, Rising Moon, Alamo (Puerto
Rico), Alamo Sales, Fleet, Alamo Leasing, Alamo Automobile, Alamo Shuttle,
Tower Restaurants, Tower Food and Corporate Planners, respectively, as in
effect immediately prior to the Effective Time, continuing until thereafter
amended in accordance with the provisions therein and the Articles of
Incorporation of the Surviving Corporations and as provided by the Florida
Statute and, in the case of the Fleet Surviving Corporation, and the Alamo
(Puerto Rico) Surviving Corporation, the applicable laws of the State of New
York, and the State of Delaware, respectively. The initial directors of each
Surviving Corporation (other than the Fleet Surviving Corporation) shall be the
directors of the Republic Subsidiaries in each case until their successors are
elected and qualified; the initial directors of the Fleet Surviving Corporation
shall be the directors of Fleet, until their successors are duly elected and
qualified; and the initial officers of each Surviving Corporation shall be the
officers of the Conveyed Entities, respectively, in each case until their
successors are duly elected and qualified.
Section 2.2 Conversion of Alamo Securities. At the Effective
Time, by virtue of the Alamo Merger and without any action on the part of any
party hereto, the shares of capital stock of each of the Alamo Constituent
Corporations shall be converted as follows:
(a) Capital Stock of AAC. Each issued and outstanding
share of capital stock of AAC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Surviving
Corporation.
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(b) Cancellation of Certain Shares of Capital Stock of
Alamo. All shares of capital stock of Alamo that are owned directly or
indirectly by Alamo shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo. Each issued
and outstanding share of common stock of Alamo, $1.00 par value per share
("Alamo Common Stock") (other than shares to be canceled pursuant to Section
2.2(b)), owned legally and beneficially by the Shareholders immediately prior
to the Effective Time and constituting all of the issued and outstanding shares
of Alamo Common Stock shall automatically be canceled and extinguished and
converted at the Effective Time, without any action on the part of the
Shareholders, into that number of shares of Republic common stock, $.01 par
value per share ("Republic Common Stock"), that is equal to the Alamo
Consideration (as defined in Section 2.2(d) below) divided by 980 (or such
other number determined pursuant to the ultimate paragraph of Section 6.2
hereof). Promptly after the Closing, Republic shall deliver to the
Shareholders that number of shares of Republic Common Stock that the
Shareholders are entitled to receive based upon the foregoing calculation. All
such shares of Alamo Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Republic Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.24 hereof.
(d) Alamo Consideration. The aggregate consideration to
be paid for the Alamo Common Stock shall be that percentage of the Aggregate
Consideration determined by the Shareholders prior to the Closing and set forth
on Schedule 2, subject in all instances to the prior consent of Republic (which
consent shall not be withheld unreasonably) (the "Alamo Consideration").
Section 2.3 Conversion of Alamo Canada Securities. At the
Effective Time, by virtue of the Alamo Canada Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Alamo
Canada Constituent Corporations shall be converted as follows:
(a) Capital Stock of ACA. Each issued and outstanding
share of capital stock of ACA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Canada
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Canada. All shares of capital stock of Alamo Canada that are owned
directly or indirectly by Alamo Canada shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Canada. Each
issued and outstanding share of common stock of Alamo Canada, $1.00 par value
per share ("Alamo Canada Common Stock") (other than shares to be canceled
pursuant to Section 2.3(b)), owned legally and beneficially by the Shareholders
immediately prior to the Effective Time and constituting all of the issued and
outstanding shares of Alamo Canada Common Stock shall automatically be canceled
and extinguished
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and converted at the Effective Time, without any action on the part of the
Shareholders, into that number of shares of Republic Common Stock that is equal
to the Alamo Canada Consideration (as defined in Section 2.3(d) below) divided
by 980. Promptly after the Closing, Republic shall deliver to the Shareholders
that number of shares of Republic Common Stock that the Shareholders are
entitled to receive based upon the foregoing calculation. All such shares of
Alamo Canada Common Stock, when so converted, shall no longer be outstanding
and shall automatically be canceled and retired and shall cease to exist, and
each holder of a certificate representing any such shares shall cease to have
any rights with respect thereto, except the right to receive the shares of
Republic Common Stock to be issued in consideration therefor upon the surrender
of such certificate in accordance with Section 2.24 hereof.
(d) Alamo Canada Consideration. The aggregate
consideration to be paid for the Alamo Canada Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Canada Consideration").
Section 2.4 Conversion of Alamo Belgium Securities. At the
Effective Time, by virtue of the Alamo Belgium Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Alamo
Belgium Constituent Corporations shall be converted as follows:
(a) Capital Stock of ABA. Each issued and outstanding
share of capital stock of ABA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Belgium
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Belgium. All shares of capital stock of Alamo Belgium that are owned
directly or indirectly by Alamo Belgium shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Belgium. Each
issued and outstanding share of common stock of Alamo Belgium, $1.00 par value
per share ("Alamo Belgium Common Stock") (other than shares to be canceled
pursuant to Section 2.4(b)), owned legally and beneficially by the Shareholders
immediately prior to the Effective Time and constituting all of the issued and
outstanding shares of Alamo Belgium Common Stock shall automatically be
canceled and extinguished and converted at the Effective Time, without any
action on the part of the Shareholders, into that number of shares of Republic
Common Stock that is equal to the Alamo Belgium Consideration (as defined in
Section 2.4(d) below) divided by 980. Promptly after the Closing, Republic
shall deliver to the Shareholders that number of shares of Republic Common
Stock that the Shareholders are entitled to receive based upon the foregoing
calculation. All such shares of Alamo Belgium Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of
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Republic Common Stock to be issued in consideration therefor upon the surrender
of such certificate in accordance with Section 2.24 hereof.
(d) Alamo Belgium Consideration. The aggregate
consideration to be paid for the Alamo Belgium Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Belgium Consideration").
Section 2.5 Conversion of Territory Blue Securities. At the
Effective Time, by virtue of the Territory Blue Merger and without any action
on the part of any party hereto, the shares of capital stock of each of the
Territory Blue Constituent Corporations shall be converted as follows:
(a) Capital Stock of TBA. Each issued and outstanding
share of capital stock of TBA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Territory Blue
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Territory Blue. All shares of capital stock of Territory Blue that are owned
directly or indirectly by Territory Blue shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Territory Blue. Each
issued and outstanding share of common stock of Territory Blue, $1.00 par value
per share ("Territory Blue Common Stock") (other than shares to be canceled
pursuant to Section 2.5(b)), owned legally and beneficially by the Shareholders
immediately prior to the Effective Time and constituting all of the issued and
outstanding shares of Territory Blue Common Stock shall automatically be
canceled and extinguished and converted at the Effective Time, without any
action on the part of the Shareholders, into that number of shares of Republic
Common Stock that is equal to the Territory Blue Consideration (as defined in
Section 2.5(d) below) divided by 980. Promptly after the Closing, Republic
shall deliver to the Shareholders that number of shares of Republic Common
Stock that the Shareholders are entitled to receive based upon the foregoing
calculation. All such shares of Territory Blue Common Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Republic Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.24 hereof.
(d) Territory Blue Consideration. The aggregate
consideration to be paid for the Territory Blue Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Territory Blue Consideration").
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Section 2.6 Conversion of Tower Securities. At the Effective
Time, by virtue of the Tower Merger and without any action on the part of any
party hereto, the shares of capital stock of each of the Tower Constituent
Corporations shall be converted as follows:
(a) Capital Stock of TAG. Each issued and outstanding
share of capital stock of TAG shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Tower Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Tower. All shares of capital stock of Tower that are owned directly or
indirectly by Tower shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Tower. Each issued
and outstanding share of common stock of Tower, $1.00 par value per share
("Tower Common Stock") (other than shares to be canceled pursuant to Section
2.6(b)), owned legally and beneficially by the Shareholders immediately prior
to the Effective Time and constituting all of the issued and outstanding shares
of Tower Common Stock shall automatically be canceled and extinguished and
converted at the Effective Time, without any action on the part of the
Shareholders, into that number of shares of Republic Common Stock that is equal
to the Tower Consideration (as defined in Section 2.6(d) below) divided by 980.
Promptly after the Closing, Republic shall deliver to the Shareholders that
number of shares of Republic Common Stock that the Shareholders are entitled to
receive based upon the foregoing calculation. All such shares of Tower Common
Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Republic Common
Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with Section 2.24 hereof.
(d) Tower Consideration. The aggregate consideration to
be paid for the Tower Common Stock shall be that percentage of the Aggregate
Consideration determined by the Shareholders prior to the Closing and set forth
on Schedule 2, subject in all instances to the prior consent of Republic (which
consent shall not be withheld unreasonably) (the "Tower Consideration").
Section 2.7 Conversion of Green Corn Securities. At the
Effective Time, by virtue of the Green Corn Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Green
Corn Constituent Corporations shall be converted as follows:
(a) Capital Stock of GCA. Each issued and outstanding
share of capital stock of GCA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Green Corn Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Green Corn. All shares of capital stock of Green Corn that are owned directly
or indirectly by Green Corn shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
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(c) Conversion of Capital Stock of Green Corn. Each
issued and outstanding share of common stock of Green Corn, $.10 par value per
share ("Green Corn Common Stock") (other than shares to be canceled pursuant to
Section 2.7(b)), owned legally and beneficially by the Shareholders immediately
prior to the Effective Time and constituting all of the issued and outstanding
shares of Green Corn Common Stock shall automatically be canceled and
extinguished and converted at the Effective Time, without any action on the
part of the Shareholders, into that number of shares of Republic Common Stock
that is equal to the Green Corn Consideration (as defined in Section 2.7(d)
below) divided by 326.67. Promptly after the Closing, Republic shall deliver
to the Shareholders that number of shares of Republic Common Stock that the
Shareholders are entitled to receive based upon the foregoing calculation. All
such shares of Green Corn Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Republic Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.24 hereof.
(d) Green Corn Consideration. The aggregate
consideration to be paid for the Green Corn Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld
unreasonably)(the "Green Corn Consideration").
Section 2.8 Conversion of Guy Salmon Securities. At the
Effective Time, by virtue of the Guy Salmon Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Guy
Salmon Constituent Corporations shall be converted as follows:
(a) Capital Stock of GSA. Each issued and outstanding
share of capital stock of GSA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Guy Salmon Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Guy Salmon. All shares of capital stock of Guy Salmon that are owned directly
or indirectly by Guy Salmon shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Guy Salmon. Each
issued and outstanding share of common stock of Guy Salmon, $1.00 par value per
share ("Guy Salmon Common Stock") (other than shares to be canceled pursuant to
Section 2.8(b)), owned legally and beneficially by the Shareholders immediately
prior to the Effective Time and constituting all of the issued and outstanding
shares of Guy Salmon Common Stock shall automatically be canceled and
extinguished and converted at the Effective Time, without any action on the
part of the Shareholders, into that number of shares of Republic Common Stock
that is equal to the Guy Salmon Consideration (as defined in Section 2.8(d)
below) divided by 980. Promptly after the Closing, Republic shall deliver to
the Shareholders that number of shares of Republic Common Stock that the
Shareholders are
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entitled to receive based upon the foregoing calculation. All such shares of
Guy Salmon Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Republic
Common Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with Section 2.24 hereof.
(d) Guy Salmon Consideration. The aggregate
consideration to be paid for the Guy Salmon Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Guy Salmon Consideration").
Section 2.9 Conversion of Alasys Securities. At the Effective
Time, by virtue of the Alasys Merger and without any action on the part of any
party hereto, the shares of capital stock of each of the Alasys Constituent
Corporations shall be converted as follows:
(a) Capital Stock of AC. Each issued and outstanding
share of capital stock of AC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alasys Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alasys. All shares of capital stock of Alasys that are owned directly or
indirectly by Alasys shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alasys. Each issued
and outstanding share of common stock of Alasys, $1.00 par value per share
("Alasys Common Stock") (other than shares to be canceled pursuant to Section
2.9(b)), owned legally and beneficially by the Shareholders immediately prior
to the Effective Time and constituting all of the issued and outstanding shares
of Alasys Common Stock shall automatically be canceled and extinguished and
converted at the Effective Time, without any action on the part of the
Shareholders, into that number of shares of Republic Common Stock that is equal
to the Alasys Consideration (as defined in Section 2.9(d) below) divided by
980. Promptly after the Closing, Republic shall deliver to the Shareholders
that number of shares of Republic Common Stock that the Shareholders are
entitled to receive based upon the foregoing calculation. All such shares of
Alasys Common Stock, when so converted, shall no longer be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
holder of a certificate representing any such shares shall cease to have any
rights with respect thereto, except the right to receive the shares of Republic
Common Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with Section 2.24 hereof.
(d) Alasys Consideration. The aggregate consideration to
be paid for the Alasys Common Stock shall be that percentage of the Aggregate
Consideration determined by the
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<PAGE> 31
Shareholders prior to the Closing and set forth on Schedule 2, subject in all
instances to the prior consent of Republic (which consent shall not be withheld
unreasonably) (the "Alasys Consideration").
Section 2.10 Conversion of Tripperoo Securities. At the Effective
Time, by virtue of the Tripperoo Merger and without any action on the part of
any party hereto, the shares of capital stock of each of the Tripperoo
Constituent Corporations shall be converted as follows:
(a) Capital Stock of TWA. Each issued and outstanding
share of capital stock of TWA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Tripperoo Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Tripperoo. All shares of capital stock of Tripperoo that are owned directly or
indirectly by Tripperoo shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Tripperoo. Each
issued and outstanding share of common stock of Tripperoo, no par value per
share ("Tripperoo Common Stock") (other than shares to be canceled pursuant to
Section 2.10(b)), owned legally and beneficially by the Shareholders
immediately prior to the Effective Time and constituting all of the issued and
outstanding shares of Tripperoo Common Stock shall automatically be canceled
and extinguished and converted at the Effective Time, without any action on the
part of the Shareholders, into that number of shares of Republic Common Stock
that is equal to the Tripperoo Consideration (as defined in Section 2.10(d)
below) divided by 980. Promptly after the Closing, Republic shall deliver to
the Shareholders that number of shares of Republic Common Stock that the
Shareholders are entitled to receive based upon the foregoing calculation. All
such shares of Tripperoo Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Republic Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.24 hereof.
(d) Tripperoo Consideration. The aggregate consideration
to be paid for the Tripperoo Common Stock shall be that percentage of the
Aggregate Consideration determined by the Shareholders prior to the Closing and
set forth on Schedule 2, subject in all instances to the prior consent of
Republic (which consent shall not be withheld unreasonably) (the "Tripperoo
Consideration").
Section 2.11 Conversion of Rising Moon Securities. At the
Effective Time, by virtue of the Rising Moon Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Rising
Moon Constituent Corporations shall be converted as follows:
(a) Capital Stock of RMA. Each issued and outstanding
share of capital stock of RMA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Rising Moon Surviving
Corporation.
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<PAGE> 32
(b) Cancellation of Certain Shares of Capital Stock of
Rising Moon. All shares of capital stock of Rising Moon that are owned
directly or indirectly by Rising Moon shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Rising Moon. Each
issued and outstanding share of common stock of Rising Moon, $1.00 par value
per share ("Rising Moon Common Stock") (other than shares to be canceled
pursuant to Section 2.11(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and outstanding shares of Rising Moon Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Rising Moon Consideration (as
defined in Section 2.11(d) below) divided by 980. Promptly after the Closing,
Republic shall deliver to the Shareholders that number of shares of Republic
Common Stock that the Shareholders are entitled to receive based upon the
foregoing calculation. All such shares of Rising Moon Common Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Republic Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.24 hereof.
(d) Rising Moon Consideration. The aggregate
consideration to be paid for the Rising Moon Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Rising Moon Consideration").
Section 2.12 Conversion of Alamo (Puerto Rico) Securities. At the
Effective Time, by virtue of the Alamo (Puerto Rico) Merger and without any
action on the part of any party hereto, the shares of capital stock of each of
the Alamo (Puerto Rico) Constituent Corporations shall be converted as follows:
(a) Capital Stock of APR. Each issued and outstanding
share of capital stock of APR shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo (Puerto Rico)
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo (Puerto Rico). All shares of capital stock of Alamo (Puerto Rico) that
are owned directly or indirectly by Alamo (Puerto Rico) shall be canceled and
no stock of Republic or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Capital Stock of Alamo (Puerto Rico).
Each issued and outstanding share of common stock of Alamo (Puerto Rico), $1.00
par value per share ("Alamo (Puerto Rico) Common Stock") (other than shares to
be canceled pursuant to Section 2.12(b)),
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<PAGE> 33
owned legally and beneficially by the Shareholders immediately prior to the
Effective Time and constituting all of the issued and outstanding shares of
Alamo (Puerto Rico) Common Stock shall automatically be canceled and
extinguished and converted at the Effective Time, without any action on the
part of the Shareholders, into that number of shares of Republic Common Stock
that is equal to the Alamo (Puerto Rico) Consideration (as defined in Section
2.12(d) below) divided by 980. Promptly after the Closing, Republic shall
deliver to the Shareholders that number of shares of Republic Common Stock that
the Shareholders are entitled to receive based upon the foregoing calculation.
All such shares of Alamo (Puerto Rico) Common Stock, when so converted, shall
no longer be outstanding and shall automatically be canceled and retired and
shall cease to exist, and each holder of a certificate representing any such
shares shall cease to have any rights with respect thereto, except the right to
receive the shares of Republic Common Stock to be issued in consideration
therefor upon the surrender of such certificate in accordance with Section 2.24
hereof.
(d) Alamo (Puerto Rico) Consideration. The aggregate
consideration to be paid for the Alamo (Puerto Rico) Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo (Puerto Rico) Consideration").
Section 2.13 Conversion of Alamo Sales Securities. At the
Effective Time, by virtue of the Alamo Sales Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Alamo
Sales Constituent Corporations shall be converted as follows:
(a) Capital Stock of AIS. Each issued and outstanding
share of capital stock of AIS shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Sales Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Sales. All shares of capital stock of Alamo Sales that are owned
directly or indirectly by Alamo Sales shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Sales. Each
issued and outstanding share of common stock of Alamo Sales, $1.00 par value
per share ("Alamo Sales Common Stock") (other than shares to be canceled
pursuant to Section 2.13(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and outstanding shares of Alamo Sales Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Alamo Sales Consideration (as
defined in Section 2.13(d) below) divided by 980. Promptly after the Closing,
Republic shall deliver to the Shareholders that number of shares of Republic
Common Stock that the Shareholders are entitled to receive based upon the
foregoing calculation. All such shares of Alamo Sales Common Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall
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<PAGE> 34
cease to have any rights with respect thereto, except the right to receive the
shares of Republic Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.24 hereof.
(d) Alamo Sales Consideration. The aggregate
consideration to be paid for the Alamo Sales Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Sales Consideration").
Section 2.14 [Intentionally Deleted].
Section 2.15 Conversion of Fleet Securities. At the Effective
Time, by virtue of the Fleet Merger and without any action on the part of any
party hereto, the shares of capital stock of each of the Fleet Constituent
Corporations shall be converted as follows:
(a) Capital Stock of AFL. Each issued and outstanding
share of capital stock of AFL shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Fleet Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Fleet. All shares of capital stock of Fleet that are owned directly or
indirectly by Fleet shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Fleet. Each issued
and outstanding share of common stock of Fleet, $1.00 par value per share
("Fleet Common Stock") (other than shares to be canceled pursuant to Section
2.15(b)), owned legally and beneficially by the Shareholders immediately prior
to the Effective Time and constituting all of the issued and outstanding shares
of Fleet Common Stock shall automatically be canceled and extinguished and
converted at the Effective Time, without any action on the part of the
Shareholders, into that number of shares of Republic Common Stock that is equal
to the Fleet Consideration (as defined in Section 2.15(d) below) divided by
980. Promptly after the Closing, Republic shall deliver to the Shareholders
that number of shares of Republic Common Stock that the Shareholders are
entitled to receive based upon the foregoing calculation. All such shares of
Fleet Common Stock, when so converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Republic Common
Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with Section 2.24 hereof.
(d) Fleet Consideration. The aggregate consideration to
be paid for the Fleet Common Stock shall be that percentage of the Aggregate
Consideration determined by the Shareholders prior to the Closing and set forth
on Schedule 2, subject in all instances to the prior consent of Republic (which
consent shall not be withheld unreasonably) (the "Fleet Consideration").
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<PAGE> 35
Section 2.16 Conversion of Alamo Leasing Securities. At the
Effective Time, by virtue of the Alamo Leasing Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Alamo
Leasing Constituent Corporations shall be converted as follows:
(a) Capital Stock of ALC. Each issued and outstanding
share of capital stock of ALC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Leasing
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Leasing. All shares of capital stock of Alamo Leasing that are owned
directly or indirectly by Alamo Leasing shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Leasing. Each
issued and outstanding share of common stock of Alamo Leasing, $1.00 par value
per share ("Alamo Leasing Common Stock") (other than shares to be canceled
pursuant to Section 2.16(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and outstanding shares of Alamo Leasing Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Alamo Leasing Consideration (as
defined in Section 2.16(d) below) divided by 980. Promptly after the Closing,
Republic shall deliver to the Shareholders that number of shares of Republic
Common Stock that the Shareholders are entitled to receive based upon the
foregoing calculation. All such shares of Alamo Leasing Common Stock, when so
converted, shall no longer be outstanding and shall automatically be canceled
and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Republic Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.24 hereof.
(d) Alamo Leasing Consideration. The aggregate
consideration to be paid for the Alamo Leasing Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Leasing Consideration").
Section 2.17 Conversion of Alamo Automobile Securities. At the
Effective Time, by virtue of the Alamo Automobile Merger and without any action
on the part of any party hereto, the shares of capital stock of each of the
Alamo Automobile Constituent Corporations shall be converted as follows:
(a) Capital Stock of AASC. Each issued and outstanding
share of capital stock of AASC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Automobile
Surviving Corporation.
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<PAGE> 36
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Automobile. All shares of capital stock of Alamo Automobile that are
owned directly or indirectly by Alamo Automobile shall be canceled and no stock
of Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Automobile.
Each issued and outstanding share of common stock of Alamo Automobile, $1.00
par value per share ("Alamo Automobile Common Stock") (other than shares to be
canceled pursuant to Section 2.17(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and outstanding shares of Alamo Automobile Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Alamo Automobile Consideration
(as defined in Section 2.17(d) below) divided by 980. Promptly after the
Closing, Republic shall deliver to the Shareholders that number of shares of
Republic Common Stock that the Shareholders are entitled to receive based upon
the foregoing calculation. All such shares of Alamo Automobile Common Stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Republic Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.24 hereof.
(d) Alamo Automobile Consideration. The aggregate
consideration to be paid for the Alamo Automobile Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Automobile Consideration").
Section 2.18 Conversion of Alamo Shuttle Securities. At the
Effective Time, by virtue of the Alamo Shuttle Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Alamo
Shuttle Constituent Corporations shall be converted as follows:
(a) Capital Stock of ASC. Each issued and outstanding
share of capital stock of ASC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Alamo Shuttle
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Alamo Shuttle. All shares of capital stock of Alamo Shuttle that are owned
directly or indirectly by Alamo Shuttle shall be canceled and no stock of
Republic or other consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Alamo Shuttle. Each
issued and outstanding share of common stock of Alamo Shuttle, $1.00 par value
per share ("Alamo Shuttle Common Stock") (other than shares to be canceled
pursuant to Section 2.18(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and
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<PAGE> 37
outstanding shares of Alamo Shuttle Common Stock shall automatically be
canceled and extinguished and converted at the Effective Time, without any
action on the part of the Shareholders, into that number of shares of Republic
Common Stock that is equal to the Alamo Shuttle Consideration (as defined in
Section 2.18(d) below) divided by 980. Promptly after the Closing, Republic
shall deliver to the Shareholders that number of shares of Republic Common
Stock that the Shareholders are entitled to receive based upon the foregoing
calculation. All such shares of Alamo Shuttle Common Stock, when so converted,
shall no longer be outstanding and shall automatically be canceled and retired
and shall cease to exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect thereto, except the
right to receive the shares of Republic Common Stock to be issued in
consideration therefor upon the surrender of such certificate in accordance
with Section 2.24 hereof.
(d) Alamo Shuttle Consideration. The aggregate
consideration to be paid for the Alamo Shuttle Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Alamo Shuttle Consideration").
Section 2.19 Conversion of Tower Restaurants Securities. At the
Effective Time, by virtue of the Tower Restaurants Merger and without any
action on the part of any party hereto, the shares of capital stock of each of
the Tower Restaurants Constituent Corporations shall be converted as follows:
(a) Capital Stock of TRC. Each issued and outstanding
share of capital stock of TRC shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Tower Restaurants
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Tower Restaurants. All shares of capital stock of Tower Restaurants that are
owned directly or indirectly by Tower Restaurants shall be canceled and no
stock of Republic or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Capital Stock of Tower Restaurants.
Each issued and outstanding share of common stock of Tower Restaurants, $1.00
par value per share ("Tower Restaurants Common Stock") (other than shares to be
canceled pursuant to Section 2.19(b)), owned legally and beneficially by the
Shareholders immediately prior to the Effective Time and constituting all of
the issued and outstanding shares of Tower Restaurants Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Tower Restaurants Consideration
(as defined in Section 2.19(d) below) divided by 980. Promptly after the
Closing, Republic shall deliver to the Shareholders that number of shares of
Republic Common Stock that the Shareholders are entitled to receive based upon
the foregoing calculation. All such shares of Tower Restaurants Common Stock,
when so converted, shall no longer be outstanding and shall
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<PAGE> 38
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the shares of Republic Common
Stock to be issued in consideration therefor upon the surrender of such
certificate in accordance with Section 2.24 hereof.
(d) Tower Restaurants Consideration. The aggregate
consideration to be paid for the Tower Restaurants Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Tower Restaurants Consideration").
Section 2.20 Conversion of Tower Food Securities. At the
Effective Time, by virtue of the Tower Food Merger and without any action on
the part of any party hereto, the shares of capital stock of each of the Tower
Food Constituent Corporations shall be converted as follows:
(a) Capital Stock of TFB. Each issued and outstanding
share of capital stock of TFB shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Tower Food Surviving
Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Tower Food. All shares of capital stock of Tower Food that are owned directly
or indirectly by Tower Food shall be canceled and no stock of Republic or other
consideration shall be delivered in exchange therefor.
(c) Conversion of Capital Stock of Tower Food. Each
issued and outstanding share of common stock of Tower Food, $1.00 par value per
share ("Tower Food Common Stock") (other than shares to be canceled pursuant to
Section 2.20(b)), owned legally and beneficially by the Shareholders
immediately prior to the Effective Time and constituting all of the issued and
outstanding shares of Tower Food Common Stock shall automatically be canceled
and extinguished and converted at the Effective Time, without any action on the
part of the Shareholders, into that number of shares of Republic Common Stock
that is equal to the Tower Food Consideration (as defined in Section 2.20(d)
below) divided by 980. Promptly after the Closing, Republic shall deliver to
the Shareholders that number of shares of Republic Common Stock that the
Shareholders are entitled to receive based upon the foregoing calculation. All
such shares of Tower Food Common Stock, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall
cease to have any rights with respect thereto, except the right to receive the
shares of Republic Common Stock to be issued in consideration therefor upon the
surrender of such certificate in accordance with Section 2.24 hereof.
(d) Tower Food Consideration. The aggregate
consideration to be paid for the Tower Food Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior
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consent of Republic (which consent shall not be withheld unreasonably) (the
"Tower Food Consideration").
Section 2.21 Conversion of Corporate Planners Securities. At the
Effective Time, by virtue of the Corporate Planners Merger and without any
action on the part of any party hereto, the shares of capital stock of each of
the Corporate Planners Constituent Corporations shall be converted as follows:
(a) Capital Stock of CPA. Each issued and outstanding
share of capital stock of CPA shall be converted into one share of validly
issued, fully paid and non-assessable common stock of the Corporate Planners
Surviving Corporation.
(b) Cancellation of Certain Shares of Capital Stock of
Corporate Planners. All shares of capital stock of Corporate Planners that are
owned directly or indirectly by Corporate Planners shall be canceled and no
stock of Republic or other consideration shall be delivered in exchange
therefor.
(c) Conversion of Capital Stock of Corporate Planners.
Each issued and outstanding share of common stock of Corporate Planners, $1.00
par value per share ("Corporate Planners Common Stock") (other than shares to
be canceled pursuant to Section 2.21(b)), owned legally and/or beneficially by
the Shareholders immediately prior to the Effective Time and constituting all
of the issued and outstanding shares of Corporate Planners Common Stock shall
automatically be canceled and extinguished and converted at the Effective Time,
without any action on the part of the Shareholders, into that number of shares
of Republic Common Stock that is equal to the Corporate Planners Consideration
(as defined in Section 2.21(d) below) divided by 98. Promptly after the
Closing, Republic shall deliver to the Shareholders that number of shares of
Republic Common Stock that the Shareholders are entitled to receive based upon
the foregoing calculation. All such shares of Corporate Planners Common Stock,
when so converted, shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each holder of a certificate
representing any such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Republic Common Stock to be
issued in consideration therefor upon the surrender of such certificate in
accordance with Section 2.24 hereof.
(d) Corporate Planners Consideration. The aggregate
consideration to be paid for the Corporate Planners Common Stock shall be that
percentage of the Aggregate Consideration determined by the Shareholders prior
to the Closing and set forth on Schedule 2, subject in all instances to the
prior consent of Republic (which consent shall not be withheld unreasonably)
(the "Corporate Planners Consideration").
Section 2.22 Risk Management; Conveyed Partnerships.
(a) At the Effective Time, the Shareholders shall
transfer to Republic all of the issued and outstanding shares of capital stock
of Risk Management (the "Risk Management Common
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Stock") in exchange for that percentage of the Aggregate Consideration
determined by the Shareholders prior to the Closing and set forth on Schedule
2, subject in all instances to the prior consent of Republic (which consent
shall not be withheld unreasonably) (the "Risk Management Consideration"). The
Risk Management Consideration shall be allocated among the Shareholders in
accordance with their percentage ownership interests as set forth on Schedule
4.2.
(b) At the Effective Time, the Shareholders shall
transfer to entities controlled directly or indirectly by Republic, all of the
Partnership Interests (the "Partnership Interest Transfer") in exchange for
that percentage of the Aggregate Consideration determined by the Shareholders
prior to the Closing and set forth on Schedule 2, subject in all instances to
the prior consent of Republic (which consent shall not be withheld
unreasonably) (the "Partnership Consideration"). The Partnership Consideration
shall be allocated among the Shareholders in accordance with their percentage
ownership interests as set forth on Schedule 4.2.
Section 2.23 Aggregate Consideration. The sum of the Alamo
Consideration, the Alamo Canada Consideration, the Alamo Belgium Consideration,
the Territory Blue Consideration, the Tower Consideration, the Green Corn
Consideration, the Guy Salmon Consideration, the Alasys Consideration, the
Tripperoo Consideration, the Rising Moon Consideration, the Alamo (Puerto Rico)
Consideration, the Alamo Sales Consideration, the Fleet Consideration, the
Alamo Leasing Consideration, the Alamo Automobile Consideration, the Alamo
Shuttle Consideration, the Tower Restaurants Consideration, the Tower Food
Consideration, the Corporate Planners Consideration, the Risk Management
Consideration and the Partnership Consideration (the "Aggregate Consideration")
shall be 22,123,893 shares of Republic Common Stock.
Section 2.24 Exchange of Certificates and Other Consideration.
(a) Republic to Provide Common Stock. Promptly after the
Effective Time, Republic shall cause to be made available to the Shareholders
the shares of Republic Common Stock issuable pursuant to this Article II. At
the Closing, Republic shall deliver a copy of the countersigned, irrevocable
instructions which were delivered to its transfer agent regarding the issuance
of such Republic Common Stock.
(b) Certificate Delivery Requirements. At the Effective
Time, the Shareholders shall deliver to Republic the certificates
("Certificates") representing the Alamo Common Stock, the Alamo Canada Common
Stock, the Alamo Belgium Common Stock, the Territory Blue Common Stock, the
Tower Common Stock, the Green Corn Common Stock, the Guy Salmon Common Stock,
the Alasys Common Stock, the Tripperoo Common Stock, the Rising Moon Common
Stock, the Alamo (Puerto Rico) Common Stock, the Alamo Sales Common Stock, the
Risk Management Common Stock, the Fleet Common Stock, the Alamo Leasing Common
Stock, the Alamo Automobile Common Stock, the Alamo Shuttle Common Stock, the
Tower Restaurants Common Stock, the Tower Food Common Stock and the Corporate
Planners Common Stock (collectively, the "Company Common Stock"), duly endorsed
in blank by the Shareholders, or accompanied by blank stock powers, and with
all necessary transfer tax and other revenue stamps, acquired at the Republic
Subsidiaries' expense, affixed and canceled. The Certificates so delivered
shall forthwith be canceled. Until delivered as contemplated by this Section
2.24(b), each Certificate shall be deemed at any time after the Effective Time
to represent the right to receive upon such surrender the number of shares
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of Republic Common Stock as provided by this Article II and the provisions of
the Florida Statute and, in the case of Fleet and Alamo (Puerto Rico), the
applicable laws of the State of New York and the State of Delaware,
respectively.
(c) No Further Ownership Rights in Capital Stock of the
Companies. All Republic Common Stock delivered upon the surrender of the
Company Common Stock in accordance with the terms hereof shall be deemed to
have been delivered in full satisfaction of all rights pertaining to the
Company Common Stock, and the Certificates shall have no further rights to, or
ownership in, shares of capital stock of Alamo, Alamo Canada, Alamo Belgium,
Territory Blue, Tower, Green Corn, Guy Salmon, Alasys, Tripperoo, Rising Moon,
Alamo (Puerto Rico), Alamo Sales, Risk Management, Fleet, Alamo Leasing, Alamo
Automobile, Alamo Shuttle, Tower Restaurants, Tower Food and Corporate
Planners. If, after the Effective Time, Certificates are presented to the
Surviving Corporations for any reason, they shall be canceled and exchanged as
provided in this Article II.
(d) Lost, Stolen or Destroyed Certificates. In the event
any Certificates shall have been lost, stolen or destroyed, Republic shall
issue shares of Republic Common Stock in exchange for such lost, stolen or
destroyed Certificates, upon the making of an affidavit of that fact by the
holder thereof and the execution of a lost stock indemnity in favor of
Republic.
(e) Fractional Shares. No fractional shares of Republic
Common Stock shall be issued, but in lieu thereof each Shareholder who would
otherwise be entitled to receive a fraction of a share of Republic Common Stock
shall receive from Republic an amount of cash equal in value to such fractional
share.
ARTICLE III
CLOSING
The consummation of the Mergers and the Partnership Interest Transfer
(collectively, the "Transactions") and the other matters contemplated by this
Agreement (the "Closing") shall take place at the offices of Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., 515 East Las Olas Boulevard,
Fort Lauderdale, Florida 33301, on November 25, 1996 (or, if later, within
three (3) days of the date that all conditions to Closing set forth in Article
VII hereof have been satisfied or waived), or at such other time and date as
the parties hereto may mutually agree, which date shall be referred to as the
"Closing Date." On the Closing Date, the Articles of Merger, together with any
required officers' certificates, shall be filed with the Secretary of the State
of Florida, the Secretary of the State of New York and the Secretary of the
State of Delaware, as appropriate, in accordance with the provisions of the
Florida Statute and the applicable laws of the State of New York and the State
of Delaware. The Mergers shall become effective upon such filing or at such
later time on the Closing Date as may be specified in the filing with the
Secretary of the State of Florida, the Secretary of the State of New York and
the Secretary of the State of Delaware, as appropriate (the "Effective Time").
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE CONVEYED ENTITIES AND THE SHAREHOLDERS
Subject in all instances to, and except as otherwise provided in, the
Schedules attached hereto, (i) except for Section 4.3 (as to which each
Shareholder hereby severally, but not jointly, represents and warrants to
Republic and the Republic Subsidiaries, as to himself or itself only), each
Shareholder and each Conveyed Entity (other than Fleet) hereby jointly and
severally represents and warrants to Republic and the Republic Subsidiaries,
and (ii) Fleet hereby severally, but not jointly, represents and warrants to
Republic and the Republic Subsidiaries, as to itself only, as follows:
Section 4.1 Authority; Binding Effect. The Conveyed Entities and
the Shareholders have the requisite power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement by the Conveyed Entities
and the Shareholders and the consummation by the Conveyed Entities and the
Shareholders of the transactions contemplated hereby have been duly authorized
by all necessary action on the part of the Conveyed Entities and the
Shareholders and, except as otherwise provided in this Agreement, no other
action on the part of the Conveyed Entities and the Shareholders is necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Conveyed
Entities and the Shareholders and constitutes a valid and binding obligation of
the Conveyed Entities and the Shareholders enforceable against the Conveyed
Entities and the Shareholders in accordance with its terms, when executed and
delivered by the other parties thereto.
Section 4.2 Organization. Schedule 4.2 sets forth the name, form
or organization, jurisdiction of organization, capitalization and ownership of
each Conveyed Entity. Except as set forth on Schedule 4.2, as of the date
hereof, each Conveyed Entity and each of its Subsidiaries (a) is a duly
organized and validly existing corporation or partnership, as the case may be,
in good standing under the laws of its jurisdiction of organization, (b) has
full power and authority to own all of its properties and assets and to carry
on its business as it is now being conducted, and (c) is duly qualified and in
good standing to do business in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
necessary, except where the failure to satisfy clauses (a), (b) and/or (c)
would not have a Material Adverse Effect. The Conveyed Entities have delivered
to the Republic Subsidiaries a complete and correct copy of the articles of
incorporation and Bylaws or comparable organizational documents, each as
amended to date, of each Conveyed Entity and each of its Subsidiaries. Such
organizational documents are in full force and effect, as of the date hereof,
and none of the Conveyed Entities nor any of their Subsidiaries is, or will be,
in violation, in any material respect, of any provision of such organizational
documents as a result of the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
Section 4.3 Ownership of Company Common Stock and Partnership
Interests. The Shareholders own beneficially and of record, and upon the
Closing will have validly conveyed to the Republic Subsidiaries, marketable
title to the Company Common Stock and the Partnership Interests free and clear
of all Liens (except for Liens created by the Republic Subsidiaries),
preemptive rights
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(except as otherwise provided in the articles of incorporation and the other
organizational documents) and similar rights. Except as set forth on Schedule
4.3, as of the date hereof, the Shares constitute all of the issued and
outstanding shares of capital stock of the Conveyed Corporations and the
Partnership Interests constitute all of the interests in the Conveyed
Partnerships. Except as set forth on Schedule 4.3, as of the date hereof,
there are no outstanding or authorized options, rights, warrants, calls,
convertible securities, rights to subscribe, conversion rights or other
agreements or commitments providing for the issuance or transfer of shares of
capital stock of any Conveyed Corporation or partnership interests of any
Conveyed Partnership and there are no voting trusts or any other agreements
with respect to the Company Common Stock or the Partnership Interests.
Section 4.4 Non-Contravention. Except as set forth on Schedule
4.4, as of the date hereof, the execution and delivery of this Agreement by the
Conveyed Entities and the Shareholders do not, and the consummation by the
Conveyed Entities and the Shareholders of the transactions contemplated hereby
and the performance by the Conveyed Entities and the Shareholders of their
respective obligations hereunder will not, (a) subject to obtaining the
approvals required by the agreements set forth on Schedule 4.4, result in a
violation of any Requirement of Law applicable to the Shareholders or any
Conveyed Entity or any Subsidiary thereof or (b) (i) result in the creation of
any Lien on the Company Common Stock, the Partnership Interests or the
properties or assets of any Conveyed Entity or any of its Subsidiaries or (ii)
violate, or result in the violation of, or default (with or without notice or
lapse of time, or both) under, any provision of, or result in the termination
or acceleration of, or give rise to a right of termination or acceleration of
or the loss of a material benefit under, any loan agreement, note, contract,
lease, Plan, obligation, instrument, Lien or Permit applicable to the
Shareholders, the Conveyed Entities or any of their Subsidiaries or their
respective properties or assets, which in each case specified in clauses (a) or
(b) above would have a Material Adverse Effect.
Section 4.5 Consents and Approvals. Except as set forth on
Schedule 4.5 and except for filings under the HSR Act and other Competition
Laws, to the Knowledge of the Shareholders and the Conveyed Entities, no
consent, authorization, order or approval of, or filing or registration with,
any Governmental Authority is required, as of the date hereof, for or in
connection with the execution and delivery of this Agreement by the Conveyed
Entities and the Shareholders and the consummation by the Conveyed Entities and
the Shareholders of the transactions contemplated hereby and the performance by
the Conveyed Entities and the Shareholders of their respective obligations
hereunder, except for consents, authorizations, orders and/or approvals, the
failure to obtain which would not, individually or in the aggregate, have a
Material Adverse Effect.
Section 4.6 Subsidiaries. Schedule 4.6 sets forth the name, form
of organization, jurisdiction of organization, capitalization and ownership of
each Subsidiary of each Conveyed Entity. To the Knowledge of the Shareholders
and the Conveyed Entities, all of the outstanding shares of capital stock,
partnership interests and other ownership interests of each such Subsidiary are
validly issued, fully paid and nonassessable, and have not been issued in
violation of any preemptive or similar rights. Except as set forth on Schedule
4.6, as of the date hereof, all outstanding shares of capital stock,
partnership interests and other ownership interests of each such Subsidiary are
owned
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beneficially and of record by a Conveyed Entity or one of its other
wholly-owned Subsidiaries free and clear of any material Liens, preemptive
rights (except as otherwise provided in the articles of incorporation or other
organizational documents) and similar rights. Except as set forth on Schedule
4.6, as of the date hereof, there are no outstanding options, warrants, calls,
rights or commitments, or any other agreements of any character relating to the
sale, issuance or voting of, or the granting of rights to acquire, any shares
of capital stock of or other debt or equity interest in such Subsidiary or any
securities or other instruments convertible into, exchangeable for or
evidencing the right to purchase any shares of capital stock of or other debt
or equity interest in any such Subsidiary.
Section 4.7 SEC Documents. The Conveyed Entities have filed or
caused to be filed with the SEC all documents required to be filed with the SEC
by the Conveyed Entities and have provided to Republic and the Republic
Subsidiaries (a) a true and correct copy of Alamo's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995 and true and correct copies of its
Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1996 and
June 30, 1996 and (b) true and correct copies of all other reports, forms and
registration statements filed by any of the Conveyed Entities with the SEC
(other than preliminary registration statements in forms not declared
effective). As of their respective dates, all documents so filed with the SEC
complied in all material respects with the requirements of the Securities Act
or Exchange Act, as the case may be, and the applicable rules of the SEC
thereunder, and none of such documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The combined financial statements
of the Conveyed Entities included in such documents complied as to form, as of
their respective dates, in all material respects with applicable accounting
requirements and with the rules and regulations of the SEC with respect
thereto, have been prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto or, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) and fairly present, in all material respects, the combined
financial position of the Conveyed Entities and their consolidated subsidiaries
as at the dates thereof and the combined results of their operations and cash
flows for the periods then ended in accordance with GAAP. Reserves are
reflected on the combined balance sheet of the Conveyed Entities as of June 30,
1996, (the "Balance Sheet") in amounts that have been established on a basis
consistent with past practice and in accordance with GAAP.
Section 4.8 Absence of Certain Changes or Events. Except as
expressly contemplated or permitted by this Agreement and except as set forth
on Schedule 4.8, as of the date hereof, since June 30, 1996, (a) each Conveyed
Entity and each of its Subsidiaries has conducted its business only in the
ordinary course and consistent with past practice and (b) there has not been
any development or event which has had or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect.
Section 4.9 [Intentionally Deleted].
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Section 4.10 Property; Assets.
(a) Schedule 4.10 contains a list of all material real
property owned or leased by the Conveyed Entities and their Subsidiaries as of
the date hereof (the "Real Property"). Each of the Conveyed Entities and its
Subsidiaries has good and marketable title to all Real Property listed as
owned, and has valid leasehold interests in all Real Property listed as leased.
The use of the Real Property by the Conveyed Entities and their Subsidiaries,
as of the date hereof, does not violate the certificate of occupancy thereof or
any local zoning or similar land use or other Laws that, in any such case,
would have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.10, as of the date
hereof, the Conveyed Entities and their Subsidiaries have marketable title to
all material assets reflected on the Balance Sheet or all material assets
acquired since the date of the Balance Sheet, other than (i) assets disposed of
since the date of the Balance Sheet in the ordinary course of business
consistent with past practice and (ii) assets leased by the Conveyed Entities
and their Subsidiaries. Neither the Conveyed Entities nor the Shareholders has
made, or shall make, any representation or warranty with respect to the
condition of any assets reflected on the Balance Sheet or acquired since the
date of the Balance Sheet, it being understood and agreed that the Republic
Subsidiaries shall take possession of all such assets in the condition that
such assets exist on the Closing Date.
Section 4.11 Litigation and Claims; Compliance with Laws. b.
Except as set forth on Schedule 4.11, as of the date hereof, there is no
material Litigation pending or, to the Knowledge of the Shareholders and the
Conveyed Entities, threatened by or against any Conveyed Entity or any of its
Subsidiaries or with respect to any of their respective properties or assets,
which is not fully covered by the insurance policies referenced in Section 4.12
(excluding any applicable deductibles) or which if adversely determined would
have a Material Adverse Effect. As of the date hereof, no Litigation before
any arbitrator or Governmental Authority has been commenced, is pending or, to
the Knowledge of the Shareholders and the Conveyed Entities, threatened by or
against the Conveyed Entities or any of their Subsidiaries or against any of
their respective properties or assets (including any items subject to the
exception above) which if adversely determined would have a Material Adverse
Effect. Except as set forth on Schedule 4.11, as of the date hereof, none of
the Conveyed Entities or their Subsidiaries is subject to any material order,
consent decree, settlement or similar agreement with any Governmental Authority
which would have a Material Adverse Effect and since June 30, 1996 through the
date hereof there has been no judgment, injunction, decree, order or other
determination of an arbitrator or Governmental Authority applicable to any
Conveyed Entity or any of its Subsidiaries which would have a Material Adverse
Effect.
(b) Each Conveyed Entity and its Subsidiaries is in
compliance in all material respects with all Requirements of Law, including the
FTC Act and all applicable state and foreign franchise Laws, holds all Permits
that are material to the conduct of its business or the ownership of its
properties, and is in compliance, in all material respects, with each such
Permit, except where the failure to so comply with Requirements of Law or hold
such Permits has not had and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect. From
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June 30, 1996 through the date hereof, no Conveyed Entity or any Subsidiary
thereof has received any written communication from any Governmental Authority
asserting that a Conveyed Entity or any of its Subsidiaries is not in material
compliance with any Requirement of Law or any material Permit which
non-compliance has had or would reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect.
(c) To the Knowledge of the Shareholders and the Conveyed
Entities, from December 31, 1995 through the date hereof, each (i) sale or
grant by a Conveyed Entity or any of its Subsidiaries of each franchise or
subfranchise of the Car Rental Business to any Franchisee, and (ii) acquisition
by a Conveyed Entity or any of its Subsidiaries of any franchise or
subfranchise of the Car Rental Business from a Franchisee or Subfranchisor, was
made in compliance in all material respects with all Requirements of Law,
including the FTC Act, if applicable, and all applicable state and foreign
franchise Laws.
Section 4.12 Insurance. Schedule 4.12 sets forth a complete and
accurate list as of the date hereof of all primary, excess and umbrella
policies, bonds and other forms of insurance currently owned or held by or on
behalf of and/or providing insurance coverage to any Conveyed Entity or
Subsidiary thereof and their respective businesses, properties and assets (or
its directors, officers, salespersons, agents or employees). To the Knowledge
of the Shareholders and the Conveyed Entities, all such policies are, in all
material respects, in full force and effect as of the date hereof. As of the
date hereof, none of the Conveyed Entities nor any of their Subsidiaries has
received written notice of any material default under any such policy, nor have
any of them received written notice of any pending or threatened termination or
cancellation, coverage limitation or reduction, or material premium increase
with respect to any such policy the failure of which to maintain has had or
would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
Section 4.13 Environmental Matters.
(a) With respect to the Real Property and except as set
forth on Schedule 4.13(a), as of the date hereof, and to the Knowledge of the
Shareholders and the Conveyed Entities, the Conveyed Entities and their
Subsidiaries are in compliance with all applicable Environmental Laws (which
compliance includes the possession by the Conveyed Entities and their
Subsidiaries of all Environmental Permits, and material compliance with the
terms and conditions thereof), except where failure to be in compliance would
not have a Material Adverse Effect.
(b) Except as set forth on Schedule 4.13(b), as of the
date hereof, subject to any reimbursement programs of any Governmental
Authority, there is no Environmental Claim pending or, to the Knowledge of the
Shareholders and the Conveyed Entities, threatened against any Conveyed Entity
or any Subsidiary thereof, which Environmental Claim would have a Material
Adverse Effect.
(c) Except as set forth on Schedule 4.13(c), as of the
date hereof, and to the Knowledge of the Shareholders and the Conveyed
Entities, there are no past or present actions,
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activities, circumstances, conditions, events or incidents, including the
Release or presence of any Hazardous Material, which would reasonably be
expected to form the basis of any Environmental Claim against a Conveyed Entity
or any Subsidiary thereof, which Environmental Claim would have a Material
Adverse Effect.
(d) Except as set forth on Schedule 4.13(d), as of the
date hereof, and to the Knowledge of the Shareholders and the Conveyed
Entities, the Conveyed Entities and their Subsidiaries have not, and, to the
Knowledge of the Shareholders and the Conveyed Entities, no other person has,
placed, stored, deposited, discharged, buried, dumped or disposed of Hazardous
Materials on, beneath or adjacent to any Real Property currently or formerly
owned, operated or leased by a Conveyed Entity or any of its Subsidiaries
except in material compliance with applicable Environmental Laws or which would
not have a Material Adverse Effect.
(e) To the Knowledge of the Shareholders and the Conveyed
Entities, the Conveyed Entities have delivered to Republic and the Republic
Subsidiaries or otherwise made available for inspection complete copies and
results of any reports, studies, analyses, tests or monitoring possessed, as of
the date hereof, by the Conveyed Entities and their Subsidiaries pertaining to
Hazardous Materials in, on or beneath any Real Property, or regarding a
Conveyed Entity's or any of its Subsidiaries' compliance with applicable
Environmental Laws.
(f) To the Knowledge of the Shareholders and the Conveyed
Entities, except as set forth on Schedule 4.13(f), as of the date hereof, the
Real Property does not contain any: underground storage tanks; friable
asbestos; polychlorinated biphenyls; underground injection wells; radioactive
materials; or septic tanks or waste disposal pits in which process wastewater
or any Hazardous Materials have been discharged or disposed, the existence of
which has had or would reasonably be expected to have a Material Adverse
Effect.
(g) Republic and the Republic Subsidiaries acknowledge
that (i) the representations and warranties contained in this Section 4.13 are
the only representations and warranties being made in this Agreement with
respect to Environmental Matters, (ii) no other representation or warranty
contained in this Agreement shall apply to any Environmental Matters and (iii)
no other representation or warranty, express or implied, is being made with
respect thereto.
Section 4.14 Material Contracts.
(a) Schedule 4.14 lists (without duplication) each of the
following contracts and other agreements to which a Conveyed Entity or any
Subsidiary thereof is a party or by or to which a Conveyed Entity or any
Subsidiary thereof or any of their respective assets or properties is bound or
subject as of the date hereof, except for (i) contracts and other agreements
the only parties to which are the Conveyed Entities and their Subsidiaries and
(ii) contracts and other agreements which are terminable on sixty (60) days
prior notice without material penalty (such contracts and agreements being
"Material Contracts"):
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(i) agreements between a Conveyed Entity or
Subsidiaries thereof and a Franchisee, or other agreements relating to the
franchise business operations providing for payments to or by the Conveyed
Entities and their Subsidiaries reasonably expected to exceed $1,500,000 per
agreement per calendar year;
(ii) advertising, market research and other
marketing agreements providing for payments by any Conveyed Entity or its
Subsidiaries of more than $1,500,000 per agreement per calendar year;
(iii) employment, severance, consulting or other
agreements with any current stockholder, director, officer or employee which
provide for the continuing obligation on the part of the Conveyed Entities
and/or their Subsidiaries to pay compensation in excess of $100,000 per
calendar year.
(iv) agreements outside the ordinary course of
business relating to (x) the sale or lease (as lessor) by a Conveyed Entity or
any Subsidiary thereof of any assets or properties in excess of $1,500,000 per
agreement per calendar year, (y) the acquisition or lease (as lessee) by the
Conveyed Entity or any Subsidiary thereof of any assets or properties in excess
of $1,500,000 per agreement per calendar year or (z) any airport concession;
(v) agreements restricting the ability of the
Conveyed Entities or the Subsidiaries thereof to incur Indebtedness;
(vi) agreements relating to any guarantee of
Indebtedness by the Conveyed Entities or the Subsidiaries thereof (other than
indemnities made in the ordinary course of business which are not material to
the Conveyed Entities and their Subsidiaries taken as a whole);
(vii) agreements relating to the making of any loan
or advance by a Conveyed Entity or any Subsidiary thereof, other than (x)
intercompany loans among the Conveyed Entities or Subsidiaries thereof and (y)
those made in the ordinary course of business consistent with past practice;
(viii) agreements relating to Indebtedness,
factoring arrangements, sale and leaseback transactions and other similar
financing transactions providing for payments of more than $1,500,000 per
agreement;
(ix) agreements providing for the indemnification
by a Conveyed Entity or Subsidiaries thereof of any person, except those
entered into in the ordinary course of business and those which are not
material to the Conveyed Entities and their Subsidiaries taken as a whole;
(x) agreements with any Governmental Authority
except those entered into in the ordinary course of business and those which
are not material to the Conveyed Entities and their Subsidiaries taken as a
whole;
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(xi) material joint venture, partnership or
similar documents or agreements;
(xii) agreements that limit or purport to limit the
ability of a Conveyed Entity or Subsidiary thereof to compete with any Person
in the Car Rental Business; and
(xiii) other agreements, contracts or commitments
not made in the ordinary course of business which are material to the Conveyed
Entities and their Subsidiaries taken as a whole.
(b) To the Knowledge of the Shareholders and the Conveyed
Entities, except as set forth on Schedule 4.14, as of the date hereof, each
Material Contract is legal, valid and binding on and enforceable against the
respective Conveyed Entities or Subsidiaries thereof that are parties thereto.
Except as set forth on Schedule 4.14, the consummation of the transactions
contemplated by this Agreement, will not result in a material breach of any
Material Contract. No Conveyed Entity or Subsidiary thereof is (or with the
giving of notice or lapse of time would be) in material breach of, or material
default under, any Material Contract. Neither the Shareholders nor any of the
Conveyed Entities or their Subsidiaries has received any written notice from
June 30, 1996 through the date hereof that any Material Contract is not
enforceable against any party thereto, that any Material Contract has been
terminated before the expiration of its term or that any party to a Material
Contract intends to terminate such Material Contract prior to the termination
date specified therein, or that any other party is in material breach of, or
material default under, any Material Contract. There have been delivered or
made available to Republic and the Republic Subsidiaries true and complete
copies of all Material Contracts.
Section 4.15 Intellectual Property. To the Knowledge of the
Shareholders and the Conveyed Entities:
(a) As of the date hereof, a Conveyed Entity or one of
its Subsidiaries owns or has the right to use or license the Intellectual
Property, free and clear of all Liens (except as permitted by Section 6.2
hereof). Schedule 4.15(a) sets forth a complete and accurate list of all
material U.S. and foreign patents and patent applications, trademark or service
mark registrations and applications, U.S. copyright registrations and
applications, and material unregistered copyrights, service marks, trademarks
and trade names, each as owned or used by a Conveyed Entity or one of its
Subsidiaries as of the date hereof (indicating which of the Conveyed Entities
or its Subsidiaries is the owner of record of such rights). Either a Conveyed
Entity or one of its Subsidiaries is listed, as of the date hereof, in the
records of the appropriate United States, state or foreign agency as the sole
owner of record for each application and registration listed on Schedule
4.15(a).
(b) As of the date hereof, the registrations listed on
Schedule 4.15(b) are in full force and effect, in all material respects, and
have not been canceled. As of the date hereof, there is no pending, existing
or threatened, opposition, interference, cancellation proceeding or other legal
or governmental proceeding before any court or registration authority in any
jurisdiction against the
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registrations listed on Schedule 4.15(b). The Conveyed Entities and/or their
Subsidiaries own or have the right to use all other material Intellectual
Property.
(c) Schedule 4.15(c) sets forth a complete and accurate
list of all agreements, as of the date hereof, pertaining to the use of or
granting any right to use or practice any rights under any Intellectual
Property, whether a Conveyed Entity or any of its Subsidiaries is the licensee
or licensor thereunder (collectively, the "Licenses") and any written
settlements or assignments relating to any Intellectual Property. As of the
date hereof, the Licenses are valid and binding obligations of the Conveyed
Entities or any of their Subsidiaries, enforceable in accordance with their
terms, and there are no breaches or defaults thereunder.
(d) Schedule 4.15(d) sets forth a list of all material
Computer Programs which are owned, licensed, leased or otherwise used by the
Conveyed Entities or any of their Subsidiaries, as of the date hereof, in
connection with the operation of their businesses as conducted as of the date
hereof and identifies which is owned, licensed, leased, or otherwise used, as
the case may be. As of the date hereof, each Computer Program listed on
Schedule 4.15(d) is either (i) owned by the Conveyed Entities or any of their
Subsidiaries, (ii) in the public domain or otherwise available to the Conveyed
Entities or any of their Subsidiaries without the license, lease or consent of
any third party, or (iii) used under rights granted to the Conveyed Entities or
any of their Subsidiaries under a written agreement, license or lease from a
third party. As of the date hereof, the Conveyed Entities and their
Subsidiaries use the Computer Programs set forth on Schedule 4.15(d) in
connection with the operation of their businesses as conducted as of the date
hereof and do not violate the Intellectual Property rights of any third party.
(e) As of the date hereof, no trade secret or
confidential know-how material to the business of the Conveyed Entities or any
of their Subsidiaries as currently operated has been disclosed or authorized to
be disclosed to any third party, other than pursuant to a non-disclosure
agreement intended to protect the Conveyed Entities' and their Subsidiaries'
proprietary interests in and to such trade secrets.
(f) Except as set forth on Schedule 4.15(f), as of the
date hereof, (1) the conduct of the businesses of the Conveyed Entities and
their Subsidiaries, as operated as of the date hereof, does not infringe upon
any intellectual property right owned or controlled by any third party and (ii)
there are no claims or suits pending or threatened, and none of the Conveyed
Entities nor any of their Subsidiaries has received any written notice of a
third party claim or suit (x) alleging that any Conveyed Entity's or any of its
Subsidiaries' activities or the conduct of their businesses infringes upon or
constitutes the unauthorized use of the proprietary rights of any third party,
or (y) challenging the ownership, use, validity or enforceability of the
Intellectual Property.
(g) Except as set forth on Schedule 4.15(g), as of the
date hereof, no third party is infringing upon any Intellectual Property owned
by a Conveyed Entity or any of its Subsidiaries and no such claims against a
third party by a Conveyed Entity or any of its Subsidiaries are pending which,
if adversely determined, would have a Material Adverse Effect.
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(h) As of the date hereof, there are no settlements,
consents, judgments, or orders or other agreements which materially restrict or
impair a Conveyed Entity's or any of its Subsidiaries' rights to use the
registered trademarks, inventions or Computer Software owned or used by the
Conveyed Entities and their Subsidiaries in the conduct of their businesses.
Section 4.16 Taxes. Except as set forth on Schedule 4.16, as of
the date hereof and to the Knowledge of the Shareholders and the Conveyed
Entities:
(a) Each of the Conveyed Corporations is a small business
corporation within the meaning of Section 1361 of the Code and has had in
effect since the date set forth opposite its name on Schedule 4.16 a valid
election to be treated as an "S" corporation for federal income tax purposes,
and none of the Conveyed Corporations or the Shareholders has taken or caused
or permitted to be taken any action that caused a termination of such S
election for any period subsequent to such date.
(b) Each of the Conveyed Partnerships and each of the
partnerships owned directly or indirectly by the Conveyed Partnerships has
qualified since its formation as a partnership for federal income tax purposes
under the Code.
(c) Each of the Conveyed Entities and their Subsidiaries
has (i) duly and timely filed with the appropriate taxing authorities all
material Tax Returns required to be filed by it, and all such Tax Returns are
true, correct and complete in all material respects, and (ii) timely paid all
Taxes shown as due on any such Tax Returns or for which a written notice of
assessment or demand for payment has been received from any taxing authority;
(d) Each of the Conveyed Entities and the Subsidiaries
has complied in all material respects with all applicable Laws relating to the
payment and withholding of Taxes (including withholding of Taxes pursuant to
Sections 1441 and 1442 of the Code or similar provisions under any foreign
Laws) and has, within the time and within the manner prescribed by Law,
withheld from employee wages and paid over to the proper Governmental
Authorities all amounts required to be withheld and paid over under all
applicable Laws;
(e) There are no material Liens for Taxes upon the assets
or properties of the Conveyed Entities and their Subsidiaries except for
statutory liens for Taxes not yet due;
(f) There are no outstanding waivers or comparable
consents regarding the application of the statute of limitations with respect
to any Taxes or Tax Returns of the Conveyed Entities and their Subsidiaries
that have been given by any of the Conveyed Entities;
(g) None of the Conveyed Entities or their Subsidiaries
has requested an extension of time within which to file any Tax Return in
respect of any fiscal year which has not since been filed;
(h) No federal, state, local or foreign audits or other
administrative proceedings have formally commenced or are presently pending
with regard to any Taxes or Tax Returns of the
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Conveyed Entities or their Subsidiaries for which any Conveyed Entity or
Subsidiary thereof would be liable, and no written notification has been
received by any of the Conveyed Entities or their Subsidiaries that such an
audit or other proceeding is pending or threatened with respect to any Taxes
due from any of the Conveyed Entities or their Subsidiaries or any Tax Return
filed by any of the Conveyed Entities or their Subsidiaries;
(i) None of the Conveyed Entities or their Subsidiaries
is required to include in income any adjustment pursuant to Section 481(a) of
the Code by reason of a voluntary change in accounting method (nor has any
taxing authority proposed in writing any such adjustment or change of
accounting method);
(j) None of the Conveyed Entities or their Subsidiaries
is a party to, is bound by or has any obligation under any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement.
(k) No power of attorney has been granted by or with
respect to any of the Conveyed Entities or their Subsidiaries with respect to
any matter relating to Taxes, which power of attorney is currently in force;
(l) None of the Conveyed Corporations or corporate
Subsidiaries thereof is a party to any agreement, plan, contract or arrangement
that could result, separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of Section 280G of the Code;
(m) No closing agreement pursuant to Section 7121 of the
Code (or any predecessor provision) or any similar provision of any state,
local or foreign Law has been entered into by or with respect to any of the
Conveyed Entities or their Subsidiaries;
(n) The Conveyed Entities and their Subsidiaries have
previously delivered or made available to Republic and the Republic
Subsidiaries complete and accurate copies of each of the following items for
the years ended December 31, 1993, December 31, 1994 and December 31, 1995: (i)
all audit reports, letter rulings and technical advice memoranda relating to
federal, state, local and foreign Taxes due from any of the Conveyed Entities
or their Subsidiaries, (ii) federal, state, local and foreign Tax Returns filed
by the Conveyed Entities or their Subsidiaries and (iii) any closing agreements
entered into by any of the Conveyed Entities or their Subsidiaries with any
taxing authority, in each case existing on the date hereof. The Conveyed
Entities and their Subsidiaries will deliver to Republic and the Republic
Subsidiaries all materials with respect to the foregoing for all matters
arising after the date hereof; and
(o) Schedule 4.16 sets forth all taxable years of each
Conveyed Entity and each Subsidiary that are open for purposes of the
assessment of additional federal, state, local or foreign Income Taxes.
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Section 4.17 Employee Benefits; ERISA.
(a) Schedule 4.17 contains a true and complete list of
each material bonus, deferred compensation, incentive compensation, stock
purchase, stock option, severance, change-in-control, or termination pay,
hospitalization or other medical, life or other insurance, supplemental
unemployment benefits, profit sharing, pension, or retirement plan, program,
agreement or arrangement, and each other material employee benefit plan,
program, agreement or arrangement, sponsored, maintained or contributed to or
required to be contributed to by any Conveyed Entity, any Subsidiary thereof or
by any trade or business, whether or not incorporated (an "ERISA Affiliate"),
that together with any Conveyed Entity would be deemed a "single employer"
within the meaning of Section 4001(b)(1) of ERISA, for the benefit of any
employee or former employee of any Conveyed Entity, Subsidiary thereof or any
ERISA Affiliate (the "Plans"). Schedule 4.17 identifies each of the Plans that
is an "employee welfare benefit plan," or "employee pension benefit plan" as
such terms are defined in Sections 3(1) and 3(2) of ERISA (such plans being
hereinafter referred to collectively as the "ERISA Plans"). No Conveyed Entity,
Subsidiary thereof or any ERISA Affiliate has any formal plan or commitment,
whether legally binding or not, to create any additional Plan or modify or
change any existing Plan that would affect any employee or former employee of
any Conveyed Entity, any Subsidiary thereof or any ERISA Affiliate except to
the extent that any such creation, modification or change could not,
individually or in the aggregate, reasonably be expected to result in a
material liability of a Conveyed Entity or any of its Subsidiaries.
(b) With respect to each of the Plans, the Conveyed
Entities have heretofore delivered to Republic and the Republic Subsidiaries
true and complete copies of each of the following documents:
(i) a copy of the Plan documents (including all
amendments thereto) for each written Plan;
(ii) a copy of the annual report or Internal
Revenue Service Form 5500 Series, if required under ERISA, with respect to each
such Plan for the last three Plan years ending prior to the date of this
Agreement for which such a report was filed;
(iii) a copy of the actuarial report, if required
under ERISA, with respect to each such Plan for the last three Plan years
ending prior to the date of this Agreement;
(iv) a copy of the most recent Summary Plan
Description ("SPD"), together with all Summaries of Material Modification
issued with respect to such SPD, required under ERISA with respect to such
Plan;
(v) if the Plan is funded through a trust or any
other funding vehicle, a copy of the trust or other funding agreement
(including all amendments thereto) and the latest financial statements thereof,
if any;
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(vi) all contracts relating to the Plans with
respect to which any Conveyed Entity, Subsidiary thereof or any ERISA Affiliate
may have any material liability,
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including insurance contracts, investment management agreements, subscription
and participation agreements and record keeping agreements; and
(vii) the most recent determination letter received
from the IRS with respect to each Plan that is intended to be qualified under
Section 401(a) of the Code.
(c) Except as set forth on Schedule 4.17, as of the date
hereof, no liability under Title IV of ERISA has been incurred by any Conveyed
Entity, Subsidiary thereof or any ERISA Affiliate that has not been satisfied
in full, and no condition exists that presents a material risk to any Conveyed
Entity, Subsidiary thereof or any ERISA Affiliate of incurring a material
liability under such Title, other than liability for premiums due the Pension
Benefit Guaranty Corporation ("PBGC"), which payments have been made when due
with respect to any ERISA Plan. To the extent this representation applies to
Sections 4064, 4069 or 4204 of Title IV of ERISA, it is made not only with
respect to the ERISA Plans but also with respect to any employee benefit plan,
program, agreement or arrangement subject to Title IV of ERISA to which any
Conveyed Entity, Subsidiary thereof or any ERISA Affiliate made, or was
required to make, contributions during the past six years.
(d) Except as set forth on Schedule 4.17, as of the date
hereof, the PBGC has not instituted proceedings pursuant to Section 4042 of
ERISA to terminate any of the ERISA Plans subject to Title IV of ERISA and, to
the Knowledge of the Shareholders and the Conveyed Entities, no condition
exists that presents a material risk that such proceedings will be instituted
by the PBGC.
(e) With respect to each of the ERISA Plans that is
subject to Title IV of ERISA, the present value of accumulated benefit
obligations under such plan, as determined by the Plan's actuary based upon the
actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such plan's actuary with respect to such plan, did not, as
of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such accumulated benefit obligations.
(f) Except as set forth on Schedule 4.17, as of the date
hereof, none of the Conveyed Entities or Subsidiaries thereof, the ERISA Plans
or any trust created thereunder nor, to the Knowledge of the Shareholders and
the Conveyed Entities, any trustee or administrator thereof, has engaged in a
transaction or has taken or failed to take any action in connection with which
any Conveyed Entity, or any Subsidiary thereof could reasonably be expected to
be subject to any material liability for either a civil penalty assessed
pursuant to Section 409 or 502(i) of ERISA or a tax imposed pursuant to
Sections 4975(a) or (b), 4976 or 4980B of the Code.
(g) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, all contributions and premiums which any Conveyed Entity or
Subsidiary thereof or, to the Knowledge of the Shareholders and the Conveyed
Entities, any ERISA Affiliate is required to pay under the terms of each of the
ERISA Plans and Section 412 of the Code have, to the extent due, been paid in
full or properly recorded on the financial statements or records of the
Conveyed Entities and their Subsidiaries except to the extent that the failure
to make any such contribution or pay any such
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premium could not, individually or in the aggregate, reasonably be expected to
result in a material liability to the Conveyed Entities and their Subsidiaries
taken as a whole; and none of the ERISA Plans or any trust established
thereunder has incurred any "accumulated funding deficiency" (as deemed in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as of
the last day of the most recent fiscal year of each of the ERISA Plans ended
prior to the date of this Agreement. No Lien has been imposed under Section
412(n) of the Code or Section 302(f) of ERISA on the assets of any Conveyed
Entity, Subsidiary thereof or any ERISA Affiliate and no event or circumstance
has occurred that is reasonably likely to result in the imposition of any such
Lien on any such assets on account of any ERISA Plan.
(h) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, with respect to any ERISA Plan that is a "multiemployer plan,"
as such term is defined in Section 3(37) of ERISA, (i) neither a Conveyed
Entity, any Subsidiary thereof nor any ERISA Affiliate has since June 30, 1996,
made or suffered a "complete withdrawal" or a "partial withdrawal," as such
terms are respectively deemed in Sections 4203 and 4205 of ERISA, (ii) to the
Knowledge of the Shareholders and the Conveyed Entities, no event has occurred
that presents a material risk of a partial withdrawal, (iii) to the Knowledge
of the Shareholders and the Conveyed Entities, neither a Conveyed Entity, any
Subsidiary thereof or any ERISA Affiliate has any contingent liability under
Section 4204 of ERISA, and no circumstances exist that present a material risk
that any such plan will go into reorganization, and (iv) to the Knowledge of
the Shareholders and the Conveyed Entities, the aggregate withdrawal liability
of the Conveyed Entities, Subsidiaries thereof and the ERISA Affiliates,
computed as if a complete withdrawal by the Conveyed Entities, any Subsidiaries
thereof and the ERISA Affiliates had occurred under each such Plan on the date
hereof, would not be significant.
(i) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, each of the Plans has been operated and administered in all
material respects in accordance with applicable Laws, including but not limited
to ERISA and the Code.
(j) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, each of the ERISA Plans that is intended to be "qualified"
within the meaning of Section 401(a) of the Code has received a determination
letter from the IRS stating that it is so qualified, and no event has occurred
which would affect such qualified status.
(k) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, any Fund established under an ERISA Plan that is intended to
satisfy the requirements of Section 501(c)(9) of the Code has received a
determination letter from the IRS stating that it has so satisfied such
requirements.
(l) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, no amounts payable under the Plans or any other contract,
agreement or arrangement to which any Conveyed Entity, Subsidiary thereof or,
to the Knowledge of the Shareholders and the Conveyed Entities, any ERISA
Affiliate is a party could reasonably be expected, as a result of the
transactions
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contemplated hereby, to fail to be deductible for federal income tax purposes
by virtue of Section 280G of the Code.
(m) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, no Plan provides for employee welfare benefits, including
death or medical benefits (whether or not insured), with respect to current or
former employees of any Conveyed Entity or any Subsidiary thereof after
retirement or other termination of service (other than (i) coverage mandated by
applicable Law, (ii) death benefits or retirement benefits under any "employee
pension plan," as that term is defined in Section 3(2) of ERISA, (iii) deferred
compensation benefits accrued as liabilities on the books of a Conveyed Entity
or any Subsidiary thereof, or (iv) benefits, the full direct cost of which is
borne by the current or former employee (or beneficiary thereof)).
(n) Except as otherwise set forth on Schedule 4.17, as of
the date hereof, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or officer of any
Conveyed Entity or any Subsidiary thereof to severance pay, unemployment
compensation or any other similar termination payment or (ii) accelerate the
time of payment or vesting, or increase the amount of compensation due any such
employee or officer.
(o) Except as set forth on Schedule 4.17, as of the date
hereof, there are no pending, or, to the Knowledge of the Shareholders and the
Conveyed Entities, threatened or anticipated, claims by or on behalf of any
Plan, by any employee or beneficiary covered under any such Plan, or otherwise
involving any such Plan (other than routine claims for benefits) other than
claims that individually or in the aggregate would not have a Material Adverse
Effect.
Section 4.18 Labor Matters. Except as set forth on Schedule 4.18,
as of the date hereof, to the Knowledge of the Shareholders and the Conveyed
Entities, (i) there is no labor strike, slowdown, stoppage or lockout actually
pending or threatened against a Conveyed Entity or any of its Subsidiaries;
(ii) no union represents the employees of a Conveyed Entity or any of its
Subsidiaries; (iii) neither a Conveyed Entity nor any of its Subsidiaries is a
party to or bound by any collective bargaining or similar agreement with any
labor organization; (iv) each Conveyed Entity and each of its Subsidiaries is,
and has at all times been, in compliance, in all material respects, with all
applicable Laws respecting employment and employment practices, terms and
conditions of employment, wages, hours of work and occupational safety and
health, and is not engaged in any unfair labor practices as defined in the
National Labor Relations Act or other applicable Law, ordinance or regulation;
(v) there is no unfair labor practice charge or complaint asserted against any
Conveyed Entity or any of its Subsidiaries pending or, to the Knowledge of the
Shareholders and the Conveyed Entities, threatened before the National Labor
Relations Board or any similar state or foreign agency, which if adversely
determined against any Conveyed Entity or any of its Subsidiaries, would have a
Material Adverse Effect; (vi) there is no material grievance arising out of any
collective bargaining agreement or other grievance procedure pending before any
Governmental Authority; (vii) no material charges with respect to or relating
to any Conveyed Entity or any of its Subsidiaries are pending before the Equal
Employment Opportunity Commission or any other agency responsible for the
prevention of unlawful employment practices, which, if adversely determined
against any Conveyed Entity or any
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Subsidiaries thereof, would have a Material Adverse Effect; (viii) neither a
Conveyed Entity nor any of its Subsidiaries has received written notice, from
June 30, 1996 through the date hereof of the intent of any federal, state,
local or foreign agency responsible for the enforcement of labor or employment
Laws to conduct an investigation with respect to or relating to any Conveyed
Entity or any of its Subsidiaries and no such investigation is in progress; and
(ix) there are no complaints, lawsuits or other proceedings pending or
threatened in any forum by or on behalf of any present or former employee of a
Conveyed Entity or any of its Subsidiaries alleging breach of any express or
implied contract or employment, any Law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection
with the employment relationship, which, if adversely determined against any
Conveyed Entity or any of its Subsidiaries, would have a Material Adverse
Effect.
Section 4.19 Franchisees. Schedule 4.19 sets forth the name of
each Franchisee and Subfranchisor, his territory, the address of each
Franchisee's and Subfranchisor's office, and the scheduled renewal or
expiration date of each Franchisee's and Subfranchisor's franchise agreement.
Except as set forth on Schedule 4.19, as of the date hereof, there is no
material dispute between any of the Conveyed Entities or any of their
Subsidiaries, on one hand, and any Franchisee or Subfranchisor, on the other
hand.
Section 4.20 Records. Except as set forth on Schedule 4.20, to
the Knowledge of the Shareholders and the Conveyed Entities:
(a) The respective corporate record books of each
Conveyed Entity and each of its Subsidiaries contain records of all material
meetings and reflect, in all material respects, all other actions taken by the
partners, stockholders, Board of Directors and all material committees of the
Board of Directors of such Conveyed Entity and its Subsidiaries. All such
record books have been made available by the Conveyed Entities to Republic and
the Republic Subsidiaries.
(b) As of the date hereof, the books, records and work
papers of the Conveyed Entities and their Subsidiaries are complete and
correct, in all material respects, have been maintained in accordance with
applicable Laws and reflect the basis for the financial condition and results
of operations of the Conveyed Entities and their Subsidiaries set forth in the
combined financial statements of Alamo and its Affiliates.
Section 4.21 Affiliate Transactions. Schedule 4.21 contains a
summary of all material transactions from December 31, 1995 through the date
hereof between a Conveyed Entity or any of its Subsidiaries, on the one hand,
and any current shareholder, partner, director, executive officer or other
Affiliate of a Conveyed Entity or any of its Subsidiaries, or any entity in
which any such Person has a direct or indirect material interest, on the other
hand, other than standard employment agreements, arrangements and employee
benefit plans.
Section 4.22 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this
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Agreement based upon arrangements made by or on behalf of the Shareholders or
any of the Conveyed Entities or their Subsidiaries.
Section 4.23 Information in Registration Statement. None of the
information supplied in writing or to be supplied in writing by the
Shareholders, the Conveyed Entities or any of their Subsidiaries for the
purpose of inclusion or incorporation by reference in the Registration
Statement (the "Registration Statement") to be prepared by, and filed with the
SEC, by Republic and the Republic Subsidiaries in respect of the registration
of the Republic Common Stock to be issued in connection with the transactions
contemplated hereby will, at the time it is filed with the SEC and at the time
it becomes effective under the Securities Act, contain any untrue statement of
a material fact or omit to state any material fact required to be stated
therein if necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
Section 4.24 Certain Accounting Matters. To the knowledge of the
Shareholders, none of the Conveyed Entities or the Shareholders, nor any of
their Affiliates, has taken any action that (without regard to any action taken
or agreed to be taken by Republic or any of its Affiliates) would prevent
Republic from accounting for the transactions contemplated hereby as pooling of
interests business combinations.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF
REPUBLIC AND THE REPUBLIC SUBSIDIARIES
Republic and each Republic Subsidiary jointly and severally represent
and warrant to the Shareholders as follows:
Section 5.1 Authority; Binding Effect. Republic and each
Republic Subsidiary has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution, delivery and performance of this Agreement by Republic and each
Republic Subsidiary and the consummation by Republic and each Republic
Subsidiary of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Republic and each Republic
Subsidiary, respectively, and no other corporate proceedings on the part of
Republic or any Republic Subsidiary is necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Republic and each Republic Subsidiary and
constitutes a valid and binding obligation of Republic and each Republic
Subsidiary enforceable against Republic and each Republic Subsidiary in
accordance with its terms.
Section 5.2 Organization. Republic and each Republic Subsidiary
is a duly organized and validly existing corporation, in good standing under
the laws of the state of its incorporation. Republic and each Republic
Subsidiary has delivered to the Shareholders and the Conveyed Entities a
complete and correct copy of its certificate of incorporation and Bylaws, each
as amended to date.
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Such organizational documents are in full force and effect and neither Republic
nor any Republic Subsidiary is in violation of any provision of such
organizational documents.
Section 5.3 Non-Contravention. Except as set forth on Schedule
5.3, the execution and delivery by Republic and the Republic Subsidiaries of
this Agreement does not, and the consummation by Republic and the Republic
Subsidiaries of the transactions contemplated hereby and the performance by
Republic and the Republic Subsidiaries of their respective obligations
hereunder will not, (a) result in the violation of any Requirement of Law
applicable to Republic or any Republic Subsidiary or (b) (i) result in the
creation of any Lien on the properties or assets of Republic or any Republic
Subsidiary or (ii) violate, or result in the violation of, or default (with or
without notice or lapse of time, or both) under any provision of, or result in
the termination or acceleration of, or give rise to a right of termination or
acceleration of or the loss of a material benefit under, any loan agreement,
note, contract, lease, Plan, obligation, instrument, Lien or Permit applicable
to Republic or any Republic Subsidiary or the properties or assets thereof.
Section 5.4 Consents and Approvals. Except as set forth on
Schedule 5.4 and except for filings under the Securities Act, the HSR Act and
other Competition Laws, no consent, authorization, order or approval of, or
filing or registration with, any Governmental Authority is required for or in
connection with the execution and delivery of this Agreement by Republic and
the Republic Subsidiaries and the consummation by Republic and the Republic
Subsidiaries of the transactions contemplated hereby and the performance by
Republic and the Republic Subsidiaries of their respective obligations
hereunder.
Section 5.5 SEC Documents. Republic has made available to the
Shareholders true and correct copies of its Quarterly Reports on Form 10-Q for
the fiscal quarters ended March 31, 1996, June 30, 1996, and September 30,
1996, and a true and correct copy of its proxy statement relating to its 1996
annual meeting of stockholders held on May 10, 1996. As of their respective
dates, all of the documents so filed with the SEC complied in all material
respects with the requirements of the Exchange Act or the Securities Act, as
the case may be, and the applicable rules of the SEC thereunder, and none of
such documents contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of Republic included in such
documents comply as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with GAAP applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of the unaudited statements, as permitted by Form
10Q of the SEC) and fairly present the consolidated financial position of
Republic and the Republic Subsidiaries and their respective consolidated
subsidiaries as at the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended.
Section 5.6 Information in Registration Statement. Subject to
Section 4.23 with respect to the information supplied in writing or to be
supplied in writing by the Shareholders, the Conveyed Entities and the
Subsidiaries thereof, none of the information included in the Registration
Statement
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will, at the time it is filed with the SEC and at the time it becomes effective
under the Securities Act, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein if necessary to
make the statements therein, in light of the circumstances under which they
were made, not misleading.
Section 5.7 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Republic and/or the Republic Subsidiaries.
Section 5.8 [Intentionally Deleted].
Section 5.9 Republic Common Stock. Upon the Closing, the
Republic Common Stock will be duly authorized and validly issued, shall be
fully paid and non-assessable and free of all Liens (except any Liens created
by the Shareholders).
Section 5.10 Litigation and Claims; Compliance with Laws. c.
Except as set forth on Schedule 5.10, as of the date hereof, there is no
material Litigation pending or, to Republic's or the Republic Subsidiaries'
Knowledge, threatened by or against Republic or the Republic Subsidiaries or
with respect to any of their respective properties or assets, which is not
fully covered by Republic's or the Republic Subsidiaries' insurance policies or
which, if adversely determined, would have a material adverse effect on the
business, results of operations or financial condition of Republic or the
Republic Subsidiaries or prohibit or otherwise adversely affect Republic's or
the Republic Subsidiaries' ability to consummate the transactions contemplated
hereby. No Litigation before any arbitrator or Governmental Authority has been
commenced, is pending or, to Republic's and the Republic Subsidiaries'
Knowledge, threatened by or against Republic or any Republic Subsidiary or
against any of their respective properties or assets which, if adversely
determined, would have a material adverse effect on the business, results of
operations or financial condition of Republic or the Republic Subsidiaries or
prohibit or otherwise adversely affect Republic's or the Republic Subsidiaries'
ability to consummate the transactions contemplated hereby. Except as set
forth on Schedule 5.10, as of the date hereof, (i) neither Republic nor any
Republic Subsidiary is subject to any material order, consent decree,
settlement or similar agreement with any Governmental Authority which would
have a material adverse effect on the business, results of operations or
financial condition of Republic or any Republic Subsidiary or prohibit or
otherwise adversely affect Republic's or the Republic Subsidiaries' ability to
consummate the transactions contemplated hereby and (ii) since June 30, 1996
there has been no judgment, injunction, decree, order or other determination of
an arbitrator or Governmental Authority applicable to Republic or any Republic
Subsidiary which would have a material adverse effect on the business, results
of operations or financial condition of Republic or any Republic Subsidiary or
prohibit or otherwise adversely affect Republic's or the Republic Subsidiaries'
ability to consummate the transactions contemplated hereby.
(b) Republic and each Republic Subsidiary is in
compliance in all material respects with all Requirements of Law, including the
FTC Act, all applicable state and foreign franchise Laws
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and all Environmental Laws, holds all Permits and Environmental Permits that
are material to the conduct of their respective businesses or the ownership of
their respective properties, and are in compliance, in all material respects,
with each such Permit, except where the failure to so comply with Requirements
of Law, Environmental Laws or hold such Permits and Environmental Permits has
not had and would not reasonably be expected to have, individually or in the
aggregate, a material adverse effect on the business, results of operations or
financial condition of Republic or the Republic Subsidiaries or prohibit or
otherwise adversely affect Republic's or the Republic Subsidiaries' ability to
consummate the transactions contemplated hereby. Since June 30, 1996, neither
Republic nor any Republic Subsidiary has received any written communication
from any Governmental Authority asserting that it is not in material compliance
with any Requirement of Law, any Environmental Law or any material Permit or
Environmental Permit which non-compliance has had or could reasonably be
expected to have, individually or in the aggregate, a material adverse effect
on the business, results of operations or financial condition of Republic or
the Republic Subsidiaries or prohibit or otherwise adversely affect Republic's
or the Republic Subsidiaries' ability to consummate the transactions
contemplated hereby.
Section 5.11 Taxes. Prior to and as of the Closing, Republic will
be in control of each Republic Subsidiary within the meaning of Section 368(c)
of the Code. Immediately after the Closing, each of the Surviving Corporations
will hold substantially all of the assets of the corresponding Republic
Subsidiary. Prior to and as of the Closing, none of the Surviving Corporations
will have any plan or intention, and Republic will have no plan or intention to
cause any of the Surviving Corporations, to issue additional shares of stock
that would result in Republic losing control of the Surviving Corporation
within the meaning of Section 368(c) of the Code. Republic has no plan or
intention to reacquire any of its stock issued in the Mergers. Republic has no
plan or intention to (i) liquidate any Surviving Corporation; (ii) merge any
Surviving Corporation (other than the Alasys Surviving Corporation, the Rising
Moon Surviving Corporation, the Alamo Sales Surviving Corporation, the Alamo
Leasing Surviving Corporation, the Alamo Automobile Surviving Corporation, the
Alamo Shuttle Surviving Corporation, the Tower Restaurants Surviving
Corporation, the Tower Food Surviving Corporation and the Corporate Planners
Surviving Corporation) with or into another corporation; (iii) sell or
otherwise dispose of the stock of any Surviving Corporation, except for
transfers of stock to corporations controlled by Republic within the meaning of
Section 368(c) of the Code; or (iv) cause any Surviving Corporation to sell or
otherwise dispose of any of the assets of the corresponding Conveyed
Corporation or any of the assets acquired from the corresponding Republic
Subsidiary, except for dispositions made in the ordinary course of business or
transfers of assets to a corporation controlled by such Surviving Corporation
within the meaning of Section 368(c) of the Code. No Republic Subsidiary will
have any liabilities assumed by the corresponding Conveyed Corporation and will
not transfer to the corresponding Conveyed Corporation any assets subject to
liabilities. Prior to and as of the Closing, it is the plan and intention of
Republic to cause each Surviving Corporation to continue the historic business
of the corresponding Conveyed Corporation or will use a significant portion of
the corresponding Conveyed Corporation's historic business assets in a
business.
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Section 5.12 Financial Projections. The Shareholders and/or the
Conveyed Entities provided Republic and the Republic Subsidiaries certain
financial projections (the "Projections") attached hereto as Schedule 5.12
without any representation or warranty as to their accuracy. Neither Republic
nor any Republic Subsidiary has relied on the Projections in making their
determination to enter into this Agreement or to consummate the Transactions.
Section 5.13 Intention Concerning Reorganizations. Following the
Closing, it is Republic's present intention not to effect any merger or
liquidation involving any of the entities the capital stock of which is
contributed to Alamo or Guy Salmon, Ltd. in accordance with Section 6.2.
Section 5.14 Other Information. No representation or warranty of
Republic or any Republic Subsidiary in this Agreement, or any statement,
certificate or other document furnished or to be furnished by Republic or any
Republic Subsidiary to the Shareholders pursuant to this Agreement, nor the
exhibits and schedules hereto, contains, or on the Closing Date will contain,
any untrue statement of a material fact, or omits to state, or on the Closing
Date will omit to state, a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
ARTICLE VI
COVENANTS
Section 6.1 Access.
(a) Prior to the Closing:
(i) The Shareholders shall permit, and shall
cause the Conveyed Entities and their Subsidiaries to permit, Republic, the
Republic Subsidiaries and their respective representatives to have reasonable
access, during regular business hours and upon reasonable notice, to (I) the
assets, properties, books, records and other documents and information of the
Conveyed Entities and the Subsidiaries thereof reasonably necessary for
Republic and the Republic Subsidiaries to complete (A) their due diligence
investigation in respect of the transactions contemplated hereby and (B) the
Registration Statement and (II) the officers, directors and employees of the
Conveyed Entities and the Subsidiaries thereof, but only upon the prior written
consent of Michael S. Egan, D. Keith Cobb, Roger Ballou or their respective
designees;
(ii) The Shareholders shall furnish, or cause the
Conveyed Entities and the Subsidiaries thereof to furnish, to Republic and the
Republic Subsidiaries such financial, tax and operating data and other
available information with respect to such entities and their respective
assets, properties, employees, businesses and operations as Republic and the
Republic Subsidiaries shall from time to time reasonably request;
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provided that neither the Shareholders nor the Conveyed Entities or their
Subsidiaries shall be obligated to (x) provide Republic or any Republic
Subsidiary with any customer lists, confidential information or trade secrets
or (y) permit Republic, the Republic Subsidiaries or their respective agents or
consultants to conduct any environmental investigations, tests or studies
(including any Phase I and Phase II environmental audit(s)) relating to the
Real Property, without the prior written consent of the Shareholders; and
provided further that any such access, investigation, test or study shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of any Conveyed Entity or any Subsidiary thereof. All
information provided to Republic or any Republic Subsidiary by or on behalf of
the Shareholders hereunder will be held by Republic and the Republic
Subsidiaries pursuant to the terms of the Confidentiality Agreement.
(b) Prior to the Closing, the Shareholders shall and
shall cause the Conveyed Entities and their Subsidiaries and their respective
accountants, counsel, agents and other representatives to cooperate with
Republic and the Republic Subsidiaries by providing information about the
Conveyed Entities and their Subsidiaries which is reasonably necessary for
Republic, the Republic Subsidiaries and their respective accountants, counsel,
agents and other representatives to prepare the Registration Statement.
Notwithstanding the final sentence of Section 6.1(a) or the terms of the
Confidentiality Agreement, Republic and the Republic Subsidiaries may, upon the
prior written consent of the Shareholders (which consent may be granted or
withheld at the Shareholders' sole discretion), disclose, or cause its
representatives to disclose, and at the request of Republic and/or the Republic
Subsidiaries, the Shareholders shall, or shall cause the Conveyed Entities to,
disclose information concerning the Conveyed Entities and their Subsidiaries
and their respective businesses, assets and properties, and the transactions
contemplated by this Agreement in the Registration Statement.
Section 6.2 Conduct of Business. Except (i) as expressly
provided by this Agreement or required by any of the documents listed in the
Schedules hereto or (ii) with the prior written consent of Republic and the
Republic Subsidiaries, during the period from the date of this Agreement to the
Closing Date, the Shareholders will cause each Conveyed Entity and each
Subsidiary thereof to conduct its business only in the ordinary course
consistent with past practice and will cause the Conveyed Entities and the
Subsidiaries thereof to use commercially reasonable efforts to keep available
the services of their present officers and employees and preserve their
material relationships with licensors, licensees, Franchisees, Subfranchisors,
customers and suppliers and other Persons having material business dealings
with them. Accordingly, except as expressly provided by this Agreement, each
of the Conveyed Entities and each Subsidiary thereof shall not, during the
period from the date of this Agreement to the Closing Date, directly or
indirectly do or agree to do any of the following without the prior written
consent of Republic (which consent shall not be unreasonably withheld):
(a) amend or otherwise change its articles of
incorporation or bylaws or equivalent organizational documents;
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(b) issue, sell, reclassify, or redeem, or authorize the
issuance, sale, reclassification, or redemption of, any shares of its capital
stock of any class (or partnership interests, as the case may be), or any
options, warrants, convertible securities or other rights to acquire any equity
interest in any Conveyed Entity;
(c) declare, set aside, make or pay any dividend or other
distribution (except for Taxes).
(d) incur any indebtedness for borrowed money or issue
any debt securities, except for borrowings under existing credit facilities in
the ordinary course of business consistent with past practices; or
(e) increase the compensation payable or to become
payable to its officers and key employees, except pursuant to existing
obligations in employment contracts.
Nothing contained in this Section 6.2 shall prohibit mergers by and
between the Conveyed Entities or their Subsidiaries or require the Conveyed
Entities or their Subsidiaries to obtain the prior written consent of Republic
and/or the Republic Subsidiaries in connection therewith. In addition, prior
to the consummation of the transactions contemplated by Sections 2.2 through
2.22, any or all of the following events (collectively, the "Contributions")
may, at the option of the Shareholder Representative, be consummated: (i) all
of the capital stock of each of Alamo Canada, Green Corn, Tower and Guy Salmon
may be contributed to Alamo in exchange for additional shares of Alamo Common
Stock and (ii) all of the capital stock of Alamo Belgium and Territory Blue may
be contributed to Guy Salmon, Ltd. in exchange for additional limited
partnership interests in Guy Salmon, Ltd., such that, in each case, the
consideration received by the Shareholders hereunder shall be no different than
if the Contributions had not taken place. In the event that any of the
Contributions are consummated, the transactions contemplated at Closing shall
be modified as follows: (x) if the Contributions involving Alamo Canada, Alamo
Belgium, Territory Blue, Tower, Green Corn and/or Guy Salmon are consummated,
the transactions contemplated by Sections 2.3, 2.4, 2.5, 2.6, 2.7 and 2.8,
respectively, shall not be consummated; and (y) the number of shares of
Republic Common Stock issuable in the transactions contemplated by Section 2.2
(in the case of the Contributions involving the entities listed in clause (i)
above) and Section 2.22(b) (in the case of the Contributions involving Alamo
Belgium and Territory Blue) shall, to the extent applicable, be appropriately
increased to reflect the additional shares of Alamo Common Stock and the
additional limited partnership interests in Guy Salmon, Ltd. issued in
connection with such Contributions, such that, in each case, the consideration
received by the Shareholders hereunder shall be no different than if the
Contributions had not taken place; provided, however, that the aggregate number
of shares of Republic Common Stock issuable pursuant to Section 2.23 shall
remain unchanged.
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Section 6.3 Commercially Reasonable Efforts.
(a) Prior to the Closing, upon the terms and subject to
the conditions of this Agreement, Republic, the Republic Subsidiaries and the
Shareholders agree to, and the Shareholders agree to cause each of the Conveyed
Entities to, use commercially reasonable efforts to take, or cause to be taken,
all actions, and to do, or cause to be done, all things necessary, or required
under applicable Laws to consummate and make effective the transactions
contemplated by this Agreement as promptly as practicable including, but not
limited to, (i) the preparation and filing of all applicable forms under the
HSR Act and other Competition Laws, (ii) the preparation and filing of all
other forms, registrations and notices required to be filed to consummate the
transactions contemplated by this Agreement and the taking of such actions as
are necessary to obtain any requisite approvals, consents, orders, exemptions
or waivers by any third party or Governmental Authority, and (iii) the
satisfaction of the conditions to Closing.
(b) From the date of this Agreement through the Closing
Date, each party shall promptly consult with the other parties hereto with
respect to, provide any necessary information with respect to and provide the
other (or its counsel) copies of, all filings made by such party with any
Governmental Authority or any other information supplied by such party to a
Governmental Authority in connection with this Agreement and the transactions
contemplated by this Agreement, except personal information with respect to
officers and directors. Each party hereto shall promptly inform the other of
any communication from any Governmental Authority regarding any of the
transactions contemplated by this Agreement. If any party hereto or Affiliate
thereof receives a request for additional information or documentary material
from any such Governmental Authority prior to the Closing Date with respect to
the transactions contemplated by this Agreement, then such party will endeavor
in good faith to make, or cause to be made, as soon as reasonably practicable
and after consultation with the other party or parties, an appropriate response
in compliance with such request, but in no event shall any such response be
submitted without the prior review and consent of the other party or parties.
(c) Following the Closing, Republic shall use
commercially reasonable efforts to take, or cause to be taken, all actions, and
to do, or cause to be done, all things necessary or required under applicable
Laws to consummate and make effective, as promptly as practicable, the
transactions contemplated by this Agreement and the Registration Rights
Agreement attached hereto as Exhibit "A".
Section 6.4 No Solicitation. The Shareholders shall not, and
shall cause the Conveyed Entities and their Subsidiaries and their respective
officers, directors, Affiliates, representatives, agents and employees not to,
directly or indirectly, (a) solicit, or engage in any discussions or
negotiations with, any Person or group of Persons concerning any merger,
business combination, sale of material assets, sale of shares, partnership
interests or other securities or any similar transactions involving the
Conveyed Entities or their Subsidiaries, or (b) enter into any agreement or
commitment (whether or not binding) with respect to any of the foregoing
transactions. The Shareholders will
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immediately notify Republic if any third party attempts to initiate any
solicitation, discussion or negotiation with respect to any of the foregoing
transactions.
Section 6.5 Further Assurances. From and after the Closing Date,
the Shareholders shall, at the sole cost and expense of Republic and the
Republic Subsidiaries, promptly execute, acknowledge and deliver any other
assurances or documents reasonably requested by Republic and the Republic
Subsidiaries to permit Republic and the Republic Subsidiaries to satisfy their
respective obligations hereunder or evidence title or to provide to Republic
and the Republic Subsidiaries the benefits contemplated hereby.
Section 6.6 SEC Documents; Financial Statements.
(a) Alamo shall deliver to Republic and the Republic
Subsidiaries a true and correct copy of its Quarterly Reports on Form 10-Q for
each quarter prior to the Closing Date, which Quarterly Reports shall be
delivered to Republic and the Republic Subsidiaries as, and promptly after the
time, filed with the SEC.
(b) The Shareholders shall cause to be prepared, at the
sole cost and expense of Republic and the Republic Subsidiaries, all reasonably
requested financial statements of the Conveyed Entities and their Subsidiaries
required to be included in the Registration Statement.
Section 6.7 Certain Tax Matters.
(a) S Corporation Status. From the date hereof through
the Closing Date, the Shareholders and the Conveyed Corporations shall maintain
the status as an S corporation for federal, state and local Income Tax purposes
of each of the Conveyed Corporations (other than any Conveyed Corporation that
is not an S corporation for federal, state or local Income Tax purposes as of
the date hereof).
(b) Conveyed Partnership Status. From the date hereof
through the Closing Date, the Shareholders and the Conveyed Partnerships shall
maintain the status of each of the Conveyed Partnerships as a partnership for
federal, state or local Income Tax purposes.
(c) Preparation and Filing of Tax Returns: Payment of
Taxes. (i) The Shareholders shall prepare (at their own cost and expense and
in a manner consistent with past practice) all Income Tax Returns for all
taxable periods ending on or before the Closing Date (such periods being
hereinafter referred to as "Pre-Closing Periods") for each Conveyed Corporation
that is an S corporation, for each jurisdiction in which such Conveyed
Corporation is an S corporation, and (ii) each Conveyed Partnership. The
Shareholders shall deliver to Republic and the Republic Subsidiaries each such
Tax Return that has not been filed by the Closing Date no later than fifteen
(15) days prior to the due date for the filing of such Tax Return (including
any extensions requested and received), and Republic and/or the Republic
Subsidiaries shall file or cause such Tax Return to be filed on or before such
due date. At the request of the Shareholders, Republic and the Republic
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Subsidiaries shall file or cause the relevant Conveyed Entity to file one or
more requests for an extension of the time to file any Tax Return referred to
in this Section 6.7(c)(i). The Shareholders shall pay all federal, state and
local Income Taxes shown to be due and payable by them on such Tax Returns.
(ii) Republic and the Republic Subsidiaries shall
cause each of the Conveyed Entities and its Subsidiaries to prepare and file
(in each case, at Republic's and the Republic Subsidiaries' own cost and
expense) on a timely basis all Tax Returns of each of the Conveyed Entities and
its Subsidiaries other than those referred to in Section 6.7(c)(i) hereof.
Subject to Section 6.7(e), Republic and the Republic Subsidiaries shall pay or
cause each of the Conveyed Entities and its Subsidiaries to pay all Taxes shown
to be due and payable on each such Return.
(iii) The Shareholders, Republic, the Republic
Subsidiaries and their respective Subsidiaries shall cooperate, and shall cause
their respective, officers, employees, agents, auditors and representatives to
cooperate, in (x) preparing and filing the Tax Returns of the Conveyed Entities
and (y) defending against any adjustments proposed by any taxing authority, in
each case with respect to any taxable period that begins before the Closing
Date, including maintaining and making available to each other all necessary or
appropriate records.
(d) Transfer and Similar Taxes. Notwithstanding any
other provision of this Agreement to the contrary, Republic and the Republic
Subsidiaries shall assume and promptly pay all sales, use, privilege, transfer,
documentary, gains, stamp, duties, recording and similar Taxes and fees
(including any penalties, interest or additions) imposed upon any party in
connection with the transfer of any of the Company Common Stock and the
Partnership Interests (collectively, the "Transfer Taxes"), and Republic and
the Republic Subsidiaries shall procure any stock transfer stamps required by,
and accurately file all necessary Tax Returns and other documentation with
respect to, any Transfer Tax.
(e) Tax Indemnification.
(i) Republic and the Republic Subsidiaries shall
jointly and severally indemnify, defend and hold harmless each Shareholder from
and against any and all Losses asserted against, resulting to, imposed on or
sustained, incurred or suffered by such Shareholder, directly or indirectly, by
reason of or resulting from any and all Taxes imposed upon any of the Conveyed
Entities or its Subsidiaries with respect to (x) any taxable period beginning
before the Closing Date and ending after the Closing Date (such taxable periods
are hereinafter referred to as "Straddle Periods", and the Taxes for such
periods are hereinafter referred to as "Straddle Taxes") and (y) any taxable
period (other than a Straddle Period) ending after the Closing Date (such
taxable periods are hereinafter referred to as "Post-Closing Periods", and the
Taxes for such periods are hereinafter referred to as "Post-Closing Taxes").
(ii) Indemnification payments pursuant to this
Section 6.7(e) shall be made by paying to the indemnified party amounts that,
on an after-Tax basis reflecting the Tax
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consequences, if any, of each payment by the indemnified party of Taxes and the
receipt of the payments from the indemnifying party pursuant to this Section
6.7(e), are equal to the amount of the Losses suffered by the indemnified
party. Any payment due pursuant to this Section 6.7(e) shall be made not later
than three (3) days after receipt by the indemnifying party of written notice
from the indemnified party stating that any Losses against which the
indemnified party is entitled to indemnification have been paid and the amount
thereof and of the related indemnity payment. Any indemnification payment
required to be made hereunder that is not paid when due shall bear interest
until paid at a rate per annum equal to the rate of interest publicly announced
in the Wall Street Journal from time to time as the prime rate.
(iii) For purposes of determining the amount of
Straddle Taxes for or which relate to the pre-Closing or post-Closing portion
of Straddle Period, the Closing Date shall be treated as the last day of a
taxable period, and the portion of any such Tax that is allocable to the
taxable period that is so deemed to end on and include the Closing Date: (x) in
the case of Taxes that are either (1) based upon or measured by income or
receipts or (2) imposed in connection with any sale, transfer, assignment or
distribution of property (real or personal, tangible or intangible), shall be
deemed equal to the amount which would be payable if the period for which such
Tax is assessed ended on and included the Closing Date, and (y) in the cases of
Taxes other than Taxes described in clause (x) hereof, shall be the total
amount of Tax for the full taxable period that includes the Closing Date
multiplied by a fraction, the numerator of which is the number of days in the
pre-Closing portion of the Straddle Period and the denominator of which is the
total number of days in that full taxable period.
(iv) If a notice of deficiency, proposed
adjustment, adjustment, assessment, audit, examination, suit, dispute or other
claim with respect to Taxes for which one party to this Agreement is entitled
to indemnification from another party (a "Tax Claim") shall be delivered or
sent to or commenced or initiated against any of the Conveyed Entities or its
Subsidiaries by any taxing authority, such Conveyed Entity or Subsidiary shall
promptly notify the Shareholders in writing of the Tax Claim. If a Tax Claim
shall be delivered or sent to or commenced or initiated against any Shareholder
by any taxing authority, such Shareholder shall promptly notify Republic or the
Republic Subsidiaries in writing of such Tax Claim.
(f) Personnel. Republic and each Republic Subsidiary
hereby agrees to cause the Conveyed Entities to file their respective Tax
Returns for all Straddle Periods on or before the due date therefor (including
any permitted filing extension). Republic and each Republic Subsidiary further
agrees to employ, engage and/or retain such personnel as would be necessary to
accomplish the foregoing, possibly including one or more of those individuals
specified on Schedule 6.7(f).
(g) Tax-Free Reorganization. From and after the date
hereof and through the Closing, each party hereto shall use its best efforts to
cause the Mergers to qualify, and shall not take any action or cause any action
to be taken which could prevent any Merger from qualifying, as a reorganization
under Section 368(a) of the Code. Following the Closing, none of Republic, any
Surviving Corporation nor any of their Affiliates shall knowingly take any
action or knowingly cause
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any action to be taken which could reasonably be expected to cause any Merger
to fail to qualify as a reorganization under Section 368(a) of the Code.
Section 6.8 Intercompany Obligations; Affiliate Agreements.
(a) Except for accounts of the types set forth in
Schedule 6.8(a) or accounts incurred in the ordinary course of business
consistent with past practice and in connection with goods actually sold or
services actually rendered, immediately prior to the Closing, the Shareholders
shall cause (i) all of their Affiliates (other than the Conveyed Entities and
Subsidiaries thereof) to repay in full any Indebtedness or other amounts owing
to the Conveyed Entities or their Subsidiaries and (ii) all of their Affiliates
(other than the Conveyed Entities and Subsidiaries thereof) to satisfy and
discharge in full, or at the Shareholders' option cancel without payment, any
Indebtedness or other amounts owing to such Persons from the Conveyed Entities
or their Subsidiaries.
(b) Except for those agreements set forth on Schedule
6.8(b), prior to the Closing, the Shareholders shall cause all agreements
between the Shareholders or their Affiliates (other than the Conveyed Entities
and the Subsidiaries thereof), on the one hand, and any Conveyed Entity or
Subsidiary thereof, on the other hand, to be terminated in all respects such
that there shall be no liability thereunder on the part of any Conveyed Entity
or any Subsidiary thereof.
Section 6.9 [Intentionally Deleted].
Section 6.10 [Intentionally Deleted].
Section 6.11 HSR Act Filings; Other Action. Subject to the terms
and conditions herein provided, Republic, the Republic Subsidiaries and the
Shareholders shall with respect to the HSR Act: (a) promptly make their
respective filings and thereafter make any other required submissions under the
HSR Act with respect to the transactions contemplated hereby (including without
limitation diligently and promptly responding to any "second request" from the
Antitrust Division of the Department of Justice or the Federal Trade
Commission); (b) use reasonable commercial efforts to cooperate with one
another in (i) determining which filings are required to be made prior to the
Closing Date with, and which consents, approvals, permits or authorizations are
required to be obtained prior to the Closing Date from, governmental or
regulatory authorities of the United States, the several states and foreign
jurisdictions in connection with the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and (ii) timely
make all such filings and timely seek all such consents, approvals, permits or
authorizations; and (c) use reasonable commercial efforts to take, or cause to
be taken, all other actions and do, or cause to be done, all other things
necessary, proper or appropriate to consummate and make effective the
transactions contemplated by this Agreement.
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Section 6.12 Non-Competition.
(a) The Shareholders severally (but not jointly) agree
that for a period beginning on the Closing Date and ending on the third
anniversary of the Closing Date, each Shareholder and his Affiliates shall not
(A) engage in, anywhere in the world, the daily general use automobile rental
business or (B) directly or indirectly invest in, manage, operate, join or
control as a partner, stockholder, consultant or otherwise, any Person that
engages in any type of automobile rental business (including, without
limitation, the general use, Local Business and Replacement Business),
provided, however, that, it shall not be deemed to be a violation of this
Section 6.12 for (i) the Shareholders to acquire, directly or indirectly, an
interest in or invest in securities of any Person whose business, at the time
of such acquisition or investment, derives less than 5% of its revenues from
the daily general use automobile rental business; (ii) the Shareholders to
invest in securities, which are publicly traded or listed on any securities
exchange or automated quotation system, of any Person engaged in the daily
general use automobile rental business so long as such investment is solely as
a passive investor and not with the purpose or intent of controlling or
managing such Person and which constitute no more than 5% of the outstanding
securities of the same class of the issuer thereof; (iii) Norman D. Tripp and
William H. Kelly, Jr., to provide legal services to any automobile rental
business; and/or (iv) William H. Kelly, Jr. to, directly or indirectly, invest
in, manage, operate, join or control as a partner, stockholder, consultant or
otherwise any Person that engages in the automobile business.
(b) The Shareholders, Republic and each Republic
Subsidiary has independently consulted with its counsel and after such
consultation agrees that the covenants set forth in this Section 6.12 are
reasonable and proper. It is the desire and intent of the parties that the
provisions of this Section 6.12 shall be enforced to the fullest extent
permissible under applicable Law. If all or part of this Section 6.12 is held
invalid, illegal or incapable of being enforced by any Law or public policy,
all other terms and provisions of this Agreement shall nevertheless remain in
full force and effect. If any part of this Section 6.12 is finally determined
in a proceeding by a Governmental Authority to be excessively broad as to
duration, scope, activity or subject, such part will be construed by limiting
and reducing it so as to be enforceable to the maximum extent compatible with
applicable Law.
Section 6.13 Public Disclosure. The parties hereto agree that no
press release or similar public announcement or communication shall, if prior
to the Closing, be made or caused to be made concerning the execution or
performance of this Agreement without each party's prior written consent (which
consent may be granted or withheld at any party's sole discretion); provided
however that any press release or similar public announcement or communication
as may be required to comply with the requirements of any applicable Laws shall
not require any party's consent but shall only be made after (a) the disclosing
party consults with legal counsel regarding such press release or similar
public announcement or communication and (b) the Shareholders and Republic
consult in advance, and cooperate, with respect to the content and substance of
any required press release or similar public announcement or communication.
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Section 6.14 Affected Employees. (a) It is the intention of the
parties hereto that the employees of the Conveyed Entities and their
Subsidiaries (including employees on vacation, leave of absence, disability or
layoff) immediately prior to the Closing Date will remain employees of the
Conveyed Entities and their Subsidiaries immediately following the Closing Date
at the salary levels (or higher) and subject to the rights (including
severance) under existing employment agreements or arrangements (including
without limitation FAMPACT) in effect immediately prior to the Closing Date,
subject to the right of the Conveyed Entities and their Subsidiaries to deal
with (including by termination of employment) their employees.
(b) After the Closing Date, Republic and the Republic
Subsidiaries will and will cause the Conveyed Entities and the Subsidiaries
thereof to give to each Affected Employee the same service credit with
Republic, the Republic Subsidiaries and the Conveyed Entities and the
Subsidiaries thereof as each such Affected Employee previously earned up to the
Closing Date for purposes of determining the Affected Employee's eligibility to
participate in, vesting under, benefit accrual under, eligibility for early
distribution of benefits from and eligibility for early retirement or any other
subsidized benefit provided for in any employee benefit plan, practice or
policy established, maintained or contributed to by Republic, the Republic
Subsidiaries and/or the Conveyed Entities and the Subsidiaries thereof (a
"Republic Subsidiary's Plan") in which such Affected Employee is eligible to
participate and shall, where appropriate, cause each Republic Subsidiary's Plan
to reflect the foregoing requirement.
(c) For a period of one (1) year after the Closing Date,
the Affected Employees will be provided such pension and other employee
benefits, which are identical to, or no less favorable in the aggregate than,
such benefits provided to them by the Conveyed Entities and the Subsidiaries
thereof immediately prior to the Closing Date. For purposes of computing
deductible amounts (or like adjustments or limitations on coverage) under
Republic's or any Republic Subsidiary's Plan which is an "employee welfare
benefit plan," as defined in Section 3(1) of ERISA (a "Successor Welfare Plan")
in which such Affected Employee is eligible to participate, expenses and claims
previously recognized for similar purposes under any plans of the Conveyed
Entities and the Subsidiaries thereof, providing similar benefits prior to the
Closing Date, shall be credited or recognized under the applicable Successor
Welfare Plan.
(d) Republic and each Republic Subsidiary hereby agrees
to pay or cause the Conveyed Entities and the Subsidiaries thereof to pay (i)
all accrued bonuses payable by the Conveyed Entities and the Subsidiaries
thereof under all employment, severance, consulting or other agreements with
employees and consultants of the Conveyed Entities and the Subsidiaries thereof
and (ii) the unaccrued amounts payable by the Conveyed Entities and the
Subsidiaries to the individuals and in the amounts set forth on Schedule 6.14.
Section 6.15 [Intentionally Deleted].
Section 6.16 Insurance. From and after the Closing Date until the
fifth anniversary thereof, Republic and the Republic Subsidiaries hereby agree
to maintain, in full force and effect, the directors'
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and officers' insurance policies of the Conveyed Entities set forth on Schedule
6.16, or procure and maintain, in full force and effect, replacement insurance
policies which are no less favorable than the insurance policies on said
Schedule. From and after the Closing Date until the fifth anniversary thereof,
Republic and the Republic Subsidiaries further agree to maintain, in full force
and effect, and/or procure and maintain, in full force and effect, customary
liability insurance policies for the Conveyed Entities and their Subsidiaries
which (a) name the Shareholders as additional insureds and (b) cover all
periods prior to the Closing Date.
Section 6.17 Distribution of Earnings. (a) Republic and the
Republic Subsidiaries hereby acknowledge that, prior to the Closing Date, the
Conveyed Entities declared and paid to the Shareholders dividends and/or
distributions (the "Tax Dividends") to be used by the Shareholders exclusively
to satisfy their respective Tax liabilities attributable to their status as
shareholders or partners of the Conveyed Entities for the period beginning
January 1, 1996 and ending on the Closing Date (the "1996 Pre-Closing Period").
To the extent the Income Taxes for the 1996 Pre- Closing Period, as estimated
by the Shareholders and provided in writing to Republic one (1) day prior to
the Closing Date, exceed the Tax Dividends paid (such excess, the "Estimated
Excess Tax Amount"), Republic shall issue to the Shareholders, on the Closing
Date, that number of shares (the "Tax Shares") of Republic Common Stock having
a value (based on the per share price of Republic Common Stock utilized to
determine the Aggregate Consideration) equal to the Estimated Excess Tax
Amount; provided that the value (based on the per share price of Republic
Common Stock utilized to determine the Aggregate Consideration) of the Tax
Shares shall not exceed $15,000,000 in the aggregate.
(b) Republic shall cause the Conveyed Entities to provide
to the Shareholders, on or before February 15, 1997, all information necessary
to calculate the Income Taxes payable by the Shareholders which are
attributable to their status as shareholders or partners of the Conveyed
Entities for the 1996 Pre-Closing Period (the "1996 Income Taxes"). No later
than April 1, 1997, the Shareholders shall provide to Republic's "Big 6"
accountants a copy of page 2 of each Shareholder's 1996 Federal Income Tax
Return, Form 1040 (the "Tax Disclosure") showing the total amount of 1996
Income Taxes (and the calculation thereof and related supporting schedules),
which tax return shall be prepared by a "Big 6" accounting firm chosen by each
Shareholder (the "Return Preparer(s)"). Republic and the Shareholders hereby
agree that a "Big 6" accounting firm chosen by Republic shall have the right to
consult with the Return Preparer(s) between February 15, 1997 and April 1, 1997
in respect of the Shareholders' respective 1996 Federal Income Tax Returns,
Form 1040, and the calculation of the Taxes shown to be due thereon, and the
Shareholders shall direct the Return Preparer(s) to so consult with such "Big
6" accounting firm. The 1996 Income Taxes of the Shareholders, based on the
Tax Disclosure, shall be conclusive and binding on Republic and the
Shareholders absent mathematical errors. The excess of (i) the 1996 Income
Taxes, based on the Tax Disclosure, over (ii) the Tax Dividends is hereinafter
referred to as the "Excess Tax Amount." If the Excess Tax Amount is less than
the Estimated Excess Tax Amount, the Shareholders will return to Republic
(within five (5) days of such determination) that number of Tax Shares having a
value (based on the per share price of Republic Common Stock utilized to
determine the Aggregate Consideration) equal to such difference. In no event
shall the Shareholders be required, for purposes
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of this Section 6.17(b), to return to Republic more than the number of Tax
Shares issued by Republic to the Shareholders. If the Excess Tax Amount is
greater than the Estimated Excess Tax Amount, Republic will not be required to
issue additional shares of Republic Common Stock to the Shareholders.
(c) If the Tax Dividends exceed the 1996 Income Taxes,
based on the Tax Disclosure, the Shareholders shall pay, in cash, any such
excess amount to the entity from which such Tax Dividends were made.
(d) The Shareholders represent and warrant that the
Estimated Excess Tax Amount will be recorded as an accrued dividend payable in
the financial statements of the Conveyed Entities one (1) day prior to the
Closing Date and such accrued dividend payable is a valid and legal liability
of the Conveyed Entities.
(e) For purposes of this Section 6.17, the term "Income
Taxes" shall mean any federal, state, local or foreign tax based on or measured
by net income.
(e) For purposes of making the calculation of Excess Tax
Amount:
(i) Federal income taxes shall be computed as the
difference between (x) the Shareholders' federal income tax liability from
their respective 1996 federal income tax returns, including all items of
income, deduction and credit from the Conveyed Entities and (y) the
Shareholders' federal income tax liability from their respective 1996 federal
income tax returns, excluding all items of income, deduction and credit from
the Conveyed Entities; and
(ii) State and local income taxes (reduced by the
corresponding federal income tax benefit to the Shareholders) shall be computed
as the difference between (x) the Shareholders' state and local income tax
liability from their respective state or local income tax returns, including
all items of income, deduction and credit from the Conveyed Entities and (y)
the Shareholders' state and local tax liability from their respective state or
local income tax returns, excluding all items of income, deductions and credits
from the Conveyed Entities.
Section 6.18 Pooling Accounting. Each of the parties hereto
shall use its reasonable efforts to cause the business combination to be
effected by the Transactions to be accounted for as a pooling of interests.
Each of the parties hereto shall use its reasonable efforts to cause its
Affiliates not to take any action that would adversely affect the ability of
Republic and the Republic Subsidiaries to account for the business combination
to be effected by the Transactions as a pooling of interests.
Section 6.19 Sale of Republic Common Stock. From and after the
Closing Date, Republic shall cooperate with the Shareholders to effect the sale
of the Republic Common Stock as the Shareholders may reasonably request
(including, without limitation, making its officers available to discuss the
business of Republic to potential purchasers of the Republic Common Stock and
preparing any supplements or amendments to the Registration Statement) and
Republic will execute and deliver,
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or arrange for the execution and delivery of, such documents as may reasonably
be requested by the Shareholders related to the sale of the Republic Common
Stock.
Section 6.20 Certified. Republic agrees to cause the Conveyed
Entities and their respective Subsidiaries to continue to provide data, public
relations, human resources and marketing services to Certified Tours, Inc.,
Dancing Bear Group, Inc. and New River Technologies, Inc. on the same terms and
conditions contained in the agreements in effect as of the date hereof between
such Persons and one or more of the Conveyed Entities and the Subsidiaries
thereof. Notwithstanding anything to the contrary contained in any agreement
between any one or more of the Conveyed Entities, Certified Tours, Inc.,
Dancing Bear Group, Inc. and New River Technologies, Inc. (or any affiliate of
Certified Tours, Inc., Dancing Bear Group, Inc. or New River Technologies,
Inc.), any party thereto shall have the right to terminate such agreement at
any time without cost or penalty; provided however, that, the parties agree to
cooperate with one another and to provide reasonable assistance to one another
for a reasonable period of time, not to exceed in the case of data processing
services two (2) years, and in the case of any services other than data
processing services one (1) year, in either case, following receipt of a notice
of termination, to enable each party to arrange for satisfactory replacement of
such services.
ARTICLE XXI.
CONDITIONS TO CLOSING
Section 7.1 Conditions to the Obligations of Republic, the
Republic Subsidiaries and the Shareholders. The obligations of each party
hereto to effect the Closing are subject to the satisfaction (or waiver) on or
prior to the Closing Date of the following conditions:
(a) HSR Act. All waiting periods applicable to the
consummation of the transactions contemplated hereby under the HSR Act shall
have expired or been terminated.
(b) No Injunctions. No temporary restraining order,
preliminary or permanent injunction or other order or decree which prevents the
consummation of the transactions contemplated hereby shall have been issued and
remain in effect, and no statute, rule or regulation shall have been enacted by
any Governmental Authority which makes the consummation of the transactions
contemplated hereby illegal.
Section 7.2 Conditions to the Obligations of Republic and the
Republic Subsidiaries. The obligation of Republic and the Republic Subsidiaries
to effect the Closing is subject to the satisfaction (or waiver by Republic and
the Republic Subsidiaries) on or prior to the Closing Date, of the following
conditions:
(a) Representations and Warranties. The representations
and warranties of the Conveyed Entities contained in Article IV shall have been
true and correct in all material respects
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when made and shall be true and correct in all material respects as of the
Closing, as if made as of the Closing (except that representations and
warranties that are expressly made as of a specific date need be true in all
material respects only as of such date).
(b) Covenants. The Conveyed Entities and the
Shareholders shall have performed in all material respects the covenants and
obligations required to be performed by them on or prior to the Closing.
(c) No Material Adverse Effect. Since the date of this
Agreement, there shall not have been, or occurred any event which could
reasonably be expected to result in, a Material Adverse Effect.
(d) Certificates. The Conveyed Entities and the
Shareholders shall have furnished Republic and the Republic Subsidiaries with a
certificate of the Shareholders, dated the Closing Date, to the effect that the
conditions set forth in Sections 7.2(a), (b) and (c) have been satisfied.
(e) Opinion. The Shareholders shall have furnished
Republic and the Republic Subsidiaries with an opinion of (i) Greenberg,
Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A. and (ii) Tripp, Scott, Conklin
& Smith, in each case in form and substance reasonably satisfactory to Republic
and the Republic Subsidiaries with respect to the matters set forth in Exhibit
"B" and Exhibit "C", respectively, attached hereto.
(f) Litigation. No Litigation shall have been commenced
and be continuing by any Governmental Authority which seeks to prevent
consummation of the transactions contemplated hereby or which seeks material
damages in connection with the transactions contemplated hereby.
(g) Consents. All necessary consents, approvals and
authorizations including those described in Sections 4.4, 4.5 and 5.5 and the
Schedules thereto and the declarations and filings described in Sections 4.4,
4.5 and 5.5 and the Schedules thereto shall have been obtained, made or filed,
except for those consents, approvals, authorizations, declarations and/or
filings, the failure to obtain, make or file by the Closing Date would not,
individually or in the aggregate, subject Republic, the Republic Subsidiaries,
the Conveyed Entities or their Subsidiaries, taken as a whole, to a significant
penalty or other Material Adverse Effect as a result of consummating the
transactions contemplated hereby without having obtained, made or filed such
consents, approvals or authorizations, declarations and/or filings.
(h) Indebtedness. Republic and/or the Republic
Subsidiaries shall have either (i) refinanced the Indebtedness of the Conveyed
Entities and their Subsidiaries on terms reasonably acceptable to Republic and
the Republic Subsidiaries or (ii) obtained valid consents, waivers and
amendments to covenants, on terms reasonably acceptable to Republic and the
Republic Subsidiaries, from the holders of such Indebtedness or of Indebtedness
of any third party guaranteed by any of the Conveyed Entities ("Guaranties")
and from the issuers of any letters of credit issued for the benefit of any of
the Conveyed Entities ("LOCs") sufficient to
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permit the Closing and consummation of the transactions contemplated hereby
without resulting (with or without notice or lapse of time or both) in any
material increase in interest rate, material modification or default under such
Indebtedness, Guaranties or any obligation related to the LOCs or in any
ability of the holders of such Indebtedness (or trustees or agents) to
accelerate the time for payment thereof; provided however that the refinancing
of the 11 3/4% Notes due 2006 in the original principal amount of $100,000,000
(the "Senior Notes") shall not be a condition to Purchaser's obligation to
effect the Closing if (i) the Closing would not cause an event of default under
the Senior Notes and (ii) the holders of the Senior Notes would not have the
right to put their Senior Notes to certain of the Conveyed Entities for more
than 101% of the face thereof.
(i) Accountant's Letter With Respect to Pooling of
Interest Accounting Treatment. Republic shall have received from KPMG Peat
Marwick LLP, independent certified public accountants for the Conveyed
Entities, a letter dated the Effective Time, in form and substance reasonably
acceptable to Republic, confirming that, to their knowledge after due and
diligent inquiry of management, there have been no transactions or events with
respect to the Conveyed Entities which would, and the ownership structure and
attributes of the Conveyed Entities and the Shareholders would not, proscribe
the transactions contemplated hereby, if consummated, from being considered as
pooling of interests business combinations. Republic shall have received from
Arthur Andersen LLP, a letter dated the Effective Time, confirming that the
transactions contemplated hereby, if consummated, can properly be accounted for
as pooling of interests business combinations in accordance with GAAP and the
criteria of Accounting Principles Board Opinion No. 16 and the regulations of
the SEC.
Section 7.3 Conditions to the Obligations of the Shareholders.
The obligation of the Shareholders to effect the Closing is subject to the
satisfaction (or waiver by the Shareholders) prior to the Closing, of the
following conditions:
(a) Representations and Warranties. The representations
and warranties of Republic and the Republic Subsidiaries contained herein shall
have been true and correct in all material respects when made and shall be true
and correct in all material respects as of the Closing, as if made as of the
Closing (except that representations and warranties that are expressly made as
of a specific date need be true in all material respects only as of such date).
(b) Covenants. Republic and the Republic Subsidiaries
shall have performed in all material respects the covenants and obligations
required to be performed by them on or prior to the Closing.
(c) Certificate. Republic and the Republic Subsidiaries
shall have furnished the Shareholders with a certificate dated the Closing
Date, signed on its behalf by an executive officer of Republic and each
Republic Subsidiary, to the effect that the conditions set forth in Sections
7.3(a) and (b) have been satisfied.
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(d) Opinion. Republic and the Republic Subsidiaries shall
have furnished the Shareholders with an opinion of Akerman, Senterfitt &
Eidson, P.A. in form and substance reasonably satisfactory to the Shareholders
with respect to the matters set forth in Exhibit "D" attached hereto.
(e) Registration Rights Agreement. Republic shall have
executed that certain Registration Rights Agreement, attached hereto as Exhibit
"A", with respect to the Republic Common Stock.
(f) Indebtedness. Republic and/or the Republic
Subsidiaries shall have either (i) refinanced the Indebtedness of the Conveyed
Entities and their Subsidiaries on terms reasonably acceptable to Republic and
the Republic Subsidiaries or (ii) obtained valid consents, waivers and
amendments to covenants, on terms reasonably acceptable to Republic and the
Republic Subsidiaries, from the holders of such Indebtedness sufficient to
permit the Closing and consummation of the transactions contemplated hereby
without resulting (with or without notice or lapse of time or both) in any
material increase in interest rate, material modification or default under such
Indebtedness or in any ability of the holders of such Indebtedness (or trustees
or agents) to accelerate the time for payment thereof.
ARTICLE XXII.
SURVIVAL AND INDEMNIFICATION
Section 8.1 Survival. None of the representations and warranties
of Republic, the Republic Subsidiaries, the Conveyed Entities or the
Shareholders contained in this Agreement shall survive the Closing Date except
that (a) the representations and warranties contained in Sections 4.3 and 5.9
shall have no expiration date and (b) the representations and warranties
contained in Sections 4.16(c) and 5.11 shall terminate on the first anniversary
of the Closing Date. The covenants and agreements of the parties set forth in
this Agreement and the related indemnification obligations of the parties
hereunder to be performed or complied with after the Closing shall survive
indefinitely except as expressly provided herein. In the event written notice
of any claim for indemnification under Section 8.2 hereof shall have been given
(within the meaning of Section 10.1) within the applicable survival period, the
representations and warranties that are the subject of such indemnification
claim shall survive until such time as such claim is finally resolved.
Section 8.2 Indemnification by the Shareholders. The
Shareholders hereby agree that, from and after the Closing and until the first
anniversary of the Closing Date, they shall indemnify, defend and hold
harmless, Republic, the Republic Subsidiaries, their respective Affiliates
(including, after the Closing, the Conveyed Entities and their Subsidiaries)
and, if applicable, their respective directors, officers, shareholders,
partners, attorneys, accountants, agents and employees and their heirs,
successors and assigns (the "Republic Subsidiary's Indemnified Parties") from,
against and in respect of any actual damages, fines, judgments, claims, losses,
charges, actions, suits, proceedings, deficiencies, interest, penalties, and
reasonable costs and expenses (including reasonable attorneys'
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and consultants' fees), and in each such case, net of any insurance proceeds
payable to or for the benefit of the Person suffering such damages, fines,
judgments, claims, losses, charges, actions, suits, proceedings, interest,
penalties and/or costs and expenses, as the case may be (collectively, the
"Losses"), imposed on, sustained, incurred or suffered by or asserted against
the Republic Subsidiary's Indemnified Parties relating to or arising out of any
breach of any representation or warranty of the Shareholders contained in
Section 4.3 or Section 4.16(c).
Section 8.3 Indemnification by Republic and the Republic
Subsidiaries.
(a) In addition to the indemnification obligations set
forth in Section 6.7(e), Republic and each Republic Subsidiary hereby agrees
that, from and after the Closing and until the first anniversary thereof, it
shall indemnify, defend and hold harmless the Shareholders, their Affiliates
and, if applicable, their respective directors, officers, shareholders,
partners, attorneys, accountants, agents and employees and their heirs,
successors and assigns (the "the Shareholders' Indemnified Parties") from,
against and in respect of any Losses imposed on, sustained, expended, incurred
or suffered by or asserted against any of the Shareholders' Indemnified Parties
relating to or arising out of (i) any breach of any representation or warranty
made by Republic and/or the Republic Subsidiaries contained in this Agreement
and (ii) the breach of any covenant or agreement of Republic and/or the
Republic Subsidiaries contained in this Agreement.
(b) Republic and each Republic Subsidiary hereby further
agrees that it shall from and after the Closing indemnify, defend and hold
harmless the Shareholders' Indemnified Parties from, against and in respect of
any Environmental Costs sustained, incurred or suffered by or asserted against
any of the Shareholders' Indemnified Parties: (i) relating to or arising out of
any Environmental Liability, whether resulting from pre-Closing acts or
omissions or post-Closing acts or omissions of the Conveyed Entities and their
Subsidiaries or Republic, the Republic Subsidiaries and their Affiliates or
conditions existing before or after the Closing Date, and (ii) by virtue of the
Shareholders' Indemnified Parties status or former status as a general partner
of DKBERT Assoc. Republic's and the Republic Subsidiaries' obligation to
indemnify the Shareholders' Indemnified Parties pursuant to this Section 8.3(b)
shall not be limited as to time.
Section 8.4 Indemnification Procedures. With respect to third
party claims, other than those relating to Taxes (which are the subject of
Section 6.7(e)), all claims for indemnification by the Shareholders'
Indemnified Parties and the Republic Subsidiary's Indemnified Partners (each,
an "Indemnified Party" and, collectively, the "Indemnified Parties") hereunder
shall be asserted and resolved as set forth in this Section 8.4. In the event
that any claim or demand by any third party for which a party or parties to
this Agreement (the "Indemnifying Party) may be liable to the Indemnified Party
hereunder (a "Claim") is asserted against or sought to be collected from the
Indemnified Party by such third party, such Indemnified Party shall as promptly
as practicable notify the Indemnifying Party in writing of such Claim and the
amount or the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such Claim) (the "Claim
Notice"). The failure on the part of the Indemnified Party to give any such
Claim Notice in a reasonably prompt manner shall not relieve the Indemnifying
Party of any indemnification obligation
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hereunder unless, and only to the extent that, the Indemnifying Party is
materially prejudiced thereby. The Indemnifying Party shall have thirty days
from delivery of the Claim Notice (the "Notice Period") to notify the
Indemnified Party whether or not it desires to defend the Indemnified Party
against such Claim, in which case the Indemnified Party shall, at its sole cost
and expense, have the right to defend the Indemnified Party by appropriate
proceedings and by counsel reasonably acceptable to the Indemnified Party and
shall have the sole power to direct and control such defense; provided that any
Indemnified Party may participate in any such defense at its sole cost and
expense. The Indemnified Party shall not settle a Claim for which it is
indemnified by the Indemnifying Party without the written consent of the
Indemnifying Party unless the Indemnifying Party does not defend the
Indemnified Party against such Claim. Notwithstanding the foregoing, the
Indemnified Party shall have the sole right to defend, settle or compromise any
Claim with respect to which it has agreed in writing to waive its right to
indemnification pursuant to this Agreement. Notwithstanding the foregoing, the
Indemnified Party, during the period the Shareholders are determining whether
to elect to assume the defense of a matter covered by this Section 8.4, may
take such reasonable actions as it deems necessary to preserve any and all
rights with respect to the matter, without such actions being construed as a
waiver of the Indemnified Party's rights to defense and indemnification
pursuant to this Agreement.
ARTICLE XXIII.
TERMINATION
Section 9.1 Termination. This Agreement may be terminated at any
time prior to the Closing:
(a) by mutual written agreement of Republic, the Republic
Subsidiaries and the Shareholders;
(b) by the Shareholders, by giving written notice of such
termination to Republic and the Republic Subsidiaries, if the Closing shall not
have occurred on or prior to December 20, 1996, because of an action, inaction
or material delay by Republic or any Republic Subsidiary (unless the failure to
consummate the Closing by such date shall be due to or have resulted from any
material breach of the representations or warranties made by, or the failure to
have fulfilled in all material respects the covenants or obligations of, the
Shareholders hereunder);
(c) by Republic and/or the Republic Subsidiaries, by
giving written notice of such termination to the Shareholders, if the Closing
shall not have occurred on or prior to December 20, 1996, because of an action,
inaction or material delay by the Shareholders (unless the failure to
consummate the Closing by such date shall be due to or have resulted from any
material breach of the representations or warranties made by, or the failure to
have fulfilled in all material respects the covenants or obligations of,
Republic or any Republic Subsidiary hereunder).
-73-
<PAGE> 81
(d) by Republic or the Republic Subsidiaries or by the
Shareholders, by giving written notice of termination to the other party
(provided that the terminating party is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), if
there shall have been a material breach of any of the covenants or agreements
or any of the representations or warranties set forth in this Agreement on the
part of the other party, which breach is not cured within thirty days following
written notice given by the terminating party to the party committing such
breach, or which breach, by its nature, cannot be cured prior to the Closing;
(e) by either Republic or the Republic Subsidiaries or by
the Shareholders, by written notice of termination to the other party if any
Governmental Authority of competent jurisdiction shall have issued any statute,
rule, regulation, order, decree or injunction or taken any other action
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such statute, rule, regulation, order,
decree or injunction or other action shall have become final; or
(f) by Republic, within five (5) days of any amendment
or modification of the Schedules to this Agreement, if as a direct result of
any disclosure or disclosures taken as a whole on any one or more Schedules
made after the date hereof, but on or before the Schedule Date (as hereinafter
defined in Section 10.8(b)), Republic becomes aware of a circumstance or
condition that would have a Material Adverse Effect.
Section 9.2 Effect of Termination.
(a) In the event of the termination of this Agreement in
accordance with Section 9.1 hereof, subject to Section 9.2(b), this Agreement
shall thereafter become void and have no effect, and no party hereto shall have
any liability to the other party hereto or their respective Affiliates,
directors, officers or employees, except for the obligations of the parties
hereto contained in this Section 9.2 and in Sections 10.1, 10.6, 10.7 and 10.9
hereof, and except that nothing herein will relieve any party from liability
for a breach of any provision of this Agreement.
(b) If this Agreement is terminated as provided herein:
(i) Republic and the Republic Subsidiaries shall
deliver to Alamo all documents, work papers and other materials (including all
copies thereof and all memoranda, work papers and other materials prepared or
created by Republic, the Republic Subsidiaries and/or their attorneys,
accountants and other representatives based thereon or otherwise in respect of
the transactions contemplated hereby) of the Shareholders, the Conveyed
Entities or any Subsidiaries thereof relating to the transactions contemplated
hereby, whether obtained before or after the execution hereof;
(ii) all information received by Republic and/or
the Republic Subsidiaries with respect to the business of the Conveyed Entities
or any Subsidiaries thereof (other than information which is a matter of public
knowledge or which has heretofore been or is hereafter
-74-
<PAGE> 82
published in any publication for public distribution) shall not at any time be
used for the advantage of Republic and/or the Republic Subsidiaries or to the
detriment of the Person furnishing such information; and Republic and/or the
Republic Subsidiary will use their best efforts to prevent the disclosure
thereof to third persons without the prior written consent of the Shareholders
(which consent may be granted or withheld in the sole discretion of the
Shareholders); and
(iii) all filings, applications and other
submissions made pursuant to the terms of this Agreement shall, to the extent
practicable, be withdrawn from the agency or other person or entity to which
made.
(c) If this Agreement shall have been terminated (i) by
the Shareholders in accordance with Section 9.1(d) for the material breach by
Republic or any Republic Subsidiary, of any of its covenants and agreements
contained in this Agreement, following written notice of such breach and a
reasonable opportunity to cure (not to exceed thirty (30) days), then the
parties hereby agree that (x) the damages that the Shareholders shall be
entitled to receive from Republic and the Republic Subsidiaries by reason of
such termination shall in no event exceed $25,000,000, in the aggregate, and
(y) such damages may be paid in cash or, at Republic's election, by the
delivery of that number of shares of Republic Common Stock determined by
dividing the amount of such damages (not to exceed $25,000,000 in any event) by
the per share value of a share of Republic Common Stock which was used by the
parties in calculating the aggregate number of shares referenced in Section
2.23 (which common stock shall be subject to the terms and conditions of that
certain Registration Rights Agreement attached hereto as Exhibit "A") or (ii)
by Republic or any Republic Subsidiary in accordance with Section 9.1(d) for
the material breach by the Shareholders, of any of their covenants and
agreements contained in this Agreement, following written notice of such breach
and a reasonable opportunity to cure (not to exceed thirty (30) days), then the
parties hereby agree that (x) the damages that Republic or any Republic
Subsidiary shall be entitled to receive from the Shareholders by reason of such
termination shall in no event exceed $25,000,000, in the aggregate, and (y)
such damages shall be paid in cash.
ARTICLE XXIV.
MISCELLANEOUS
Section 10.1 Notices. All notices or other communications
hereunder shall be deemed to have been duly given and made if in writing and if
served by personal delivery upon the party for whom it is intended, if
delivered by registered or certified mail, return receipt requested, or by a
national courier service, or if sent by telecopier, provided that the telecopy
is promptly confirmed by telephone confirmation thereof, to the person at the
address set forth below, or such other address as may be designated in writing
hereafter, in the same manner, by such person:
-75-
<PAGE> 83
To the Shareholders:
c/o Mr. Michael S. Egan
110 S.E. 6th Street
29th Floor
Fort Lauderdale, Florida 33301
Telephone: (954) 527-6550
Telecopy: (954) 527-6182
With a copy to:
Greenberg, Traurig, Hoffman,
Lipoff, Rosen & Quentel, P.A.
1221 Brickell Avenue
Miami, Florida, 33131
Attention: Larry J. Hoffman, Esq.
Telephone: (305) 579-0500
Telecopy: (305) 579-0717
With a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Valerie Jacob, Esq.
Telephone: (212) 859-8158
Telecopy: (212) 859-4000
To Republic or the Republic Subsidiaries:
Republic Industries, Inc.
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
Attention: Richard L. Handley, General Counsel
Telephone: (954) 627-6000
Telecopy: (954) 522-8219
-76-
<PAGE> 84
With a copy to:
Akerman, Senterfitt & Eidson, P.A.
One S.E. 3rd Avenue, 28th Floor
Miami, Florida 33131
Attention: Stephen K. Roddenberry, Esq.
Telephone: (305) 374-5600
Telecopy: (305) 374-5095
Section 10.2 Amendment: Waiver. Any provision of this Agreement
may be amended or waived if, and only if, such amendment or waiver is in
writing and signed, in the case of an amendment, by Republic, the Republic
Subsidiaries and the Shareholders, or in the case of a waiver, by the party
against whom the waiver is to be effective. No failure or delay by any party in
exercising any right, power or privilege hereunder shall operate as a waiver
thereof nor shall any single or partial exercise thereof preclude any other or
further exercise thereof or the exercise of any other right, power or
privilege.
Section 10.3 Assignment. No party to this Agreement may assign
any of its rights or obligations under this Agreement without the prior written
consent of the other party hereto.
Section 10.4 Entire Agreement. This Agreement (including all
Schedules, Annexes and Exhibits hereto) contains the entire agreement between
the parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral or written, with respect to such
matters, except for the Confidentiality Agreement which will remain in full
force and effect for the term provided for therein and other than any written
agreement of the parties that expressly provides that it is not superseded by
this Agreement.
Section 10.5 Fulfillment of Obligations. Any obligation of any
party to any other party under this Agreement, which obligation is performed,
satisfied or fulfilled by an Affiliate of such party, shall be deemed to have
been performed, satisfied or fulfilled by such party.
Section 10.6 Parties in Interest. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns. Except as otherwise provided in this Section
10.6, nothing in this Agreement, express or implied, is intended to confer upon
any Person other than Republic, the Republic Subsidiaries, the Shareholders, or
their successors or permitted assigns, any rights or remedies under or by
reason of this Agreement.
Section 10.7 Expenses. Except as otherwise expressly provided in
this Agreement, whether or not the transactions contemplated by this Agreement
are consummated, all costs and expenses incurred by Republic and the Republic
Subsidiaries in connection with this Agreement and the transactions
contemplated hereby and all costs and expenses paid or incurred in respect of
the Registration Statement and all related Blue Sky filing requirements
(including the cost and expense of preparing such filings) and all NASDAQ
listing fees shall be borne by Republic and the Republic Subsidiaries, and all
costs and expenses incurred by the Shareholders in connection with this
Agreement and the transactions contemplated hereby shall be borne by Alamo.
-77-
<PAGE> 85
Section 10.8 Schedules.
(a) The disclosure of any matter in any Schedule to this
Agreement, as may be amended or supplemented prior to the Closing, shall be
deemed to be a disclosure for all purposes of this Agreement to which such
matter could reasonably be expected to be pertinent, but shall expressly not be
deemed to constitute an admission by the Shareholders, Republic or the Republic
Subsidiaries, or to otherwise imply, that any such matter is material for the
purposes of this Agreement.
(b) The parties hereto acknowledge and agree that, as of
the date hereof, the Schedules to this Agreement are preliminary in nature and,
therefore, may be inaccurate in certain respects. The parties hereto further
acknowledge and agree that (i) the Shareholders and the Conveyed Entities shall
be permitted to finalize the Schedules to this Agreement within five (5) days
of the date hereof (the "Schedule Date"), with the further right to revise said
Schedules prior to the Closing to correct any other inaccuracy or omission
therein and (ii) any inaccuracy or omission in any of the Schedules on or
before the Schedule Date shall not subject the Shareholders or the Conveyed
Entities to any liability or claim for damages by Republic or any Republic
Subsidiary, notwithstanding any provision to the contrary contained herein.
Section 10.9 Governing Law: Jurisdiction. This Agreement shall be
governed by the laws of the State of Florida, its rules of conflict of laws
notwithstanding. The Conveyed Entities, the Shareholders, Republic and each
Republic Subsidiary hereby agree and consent to be subject to the jurisdiction
of the U.S. federal district court and the jurisdiction of the courts of the
State of Florida wherein Broward County, Florida is located in any suit, action
or proceeding seeking to enforce any provision of, or based on any matter
arising out of or in connection with, this Agreement or the transactions
contemplated hereby. Each party hereby irrevocably consents to the service of
any and all process in any such suit, action or proceeding by the delivery of
such process to such party at the address and in the manner provided in Section
10.1.
Section 10.10 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, and all of
which shall constitute one and the same agreement.
Section 10.11 Headings. The heading references herein and in the
table of contents hereto are for convenience purposes only, do not constitute a
part of this Agreement and shall not be deemed to limit or affect any of the
provisions hereof.
Section 10.12 Specific Performance. Except as otherwise provided
in Section 9.2(c), the parties hereto agree that if any of the provisions of
this Agreement are not performed in accordance with their specific terms or
otherwise breached, irreparable damage would occur, no adequate remedy at law
would exist and damages would be difficult to determine, and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
-78-
<PAGE> 86
IN WITNESS WHEREOF, the parties have executed or caused this Agreement
to be executed as of the date first written above.
REPUBLIC INDUSTRIES, INC., a
Delaware corporation
By: /s/ H. Wayne Huizenga
-------------------------------
Name: H. Wayne Huizenga
-----------------------------
Title: Chairman and Co-CEO
----------------------------
ALAMO ACQUISITION CORP., a Florida
corporation
By: /s/ Steven R. Berrard
-------------------------------
Name: Steven R. Berrard
-----------------------------
Title: President and Co-CEO
----------------------------
ALAMO (CANADA) ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
ALAMO (BELGIUM) ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
-79-
<PAGE> 87
TERRITORY BLUE ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
TOWER ADVERTISING GROUP
ACQUISITION CORP., a Florida
corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
GREEN CORN ACQUISITION CORP., a
Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
GUY SALMON ACQUISITION CORP., a
Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
-80-
<PAGE> 88
ALASYS ACQUISITION CORP., a
Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
TRIPPEROO WINGS ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
RISING MOON ACQUISITION CORP., a
Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
ALAMO (PUERTO RICO) ACQUISITION
CORP., a Delaware corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
ALAMO SALES ACQUISITION CORP., a
Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
-81-
<PAGE> 89
RISK MANAGEMENT ACQUISITION
CORP., a Cayman Islands company
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
AFL FLEET ACQUISITION CORP., a
New York corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
ALAMO LEASING ACQUISITION CORP.,
a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
ALAMO AUTOMOBILE ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
-82-
<PAGE> 90
ALAMO SHUTTLE ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
TOWER RESTAURANTS ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
TOWER FOOD ACQUISITION CORP.,
a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
CORPORATE PLANNERS ACQUISITION
CORP., a Florida corporation
By: /s/ Thomas W. Hawkins
-------------------------------
Name: Thomas W. Hawkins
-----------------------------
Title: SVP
----------------------------
-83-
<PAGE> 91
ALAMO RENT-A-CAR, INC., a Florida
corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: CEO
----------------------------
ALAMO RENT-A-CAR (CANADA), INC.,
a Florida corporation
By: /s/ Roger H. Ballou
-------------------------------
Name: Roger H. Ballou
-----------------------------
Title: President
----------------------------
ALAMO RENT-A-CAR, (BELGIUM) INC.,
a Florida corporation
By: /s/ N. Maria Menendez
-------------------------------
Name: N. Maria Menendez
-----------------------------
Title: Treasurer
----------------------------
TERRITORY BLUE, INC., a Florida
corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: CEO
----------------------------
-84-
<PAGE> 92
TOWER ADVERTISING GROUP, INC., a
Florida corporation
By: /s/ Roger H. Ballou
-------------------------------
Name: Roger H. Ballou
-----------------------------
Title: President
----------------------------
GREEN CORN, INC., a Florida
corporation
By: /s/ Michael S. Egan
-------------------------------
Name: Michael S. Egan
-----------------------------
Title: President
----------------------------
GUY SALMON USA, INC., a Florida
corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: President
----------------------------
ALASYS, INC., a Florida corporation
By: /s/ N. Maria Menendez
-------------------------------
Name: N. Maria Menendez
-----------------------------
Title: Treasurer
----------------------------
TRIPPEROO WINGS, INC., a Florida
corporation
By: /s/ Michael S. Egan
-------------------------------
Name: Michael S. Egan
-----------------------------
Title: President
----------------------------
-85-
<PAGE> 93
RISING MOON INC., a Florida
corporation
By: /s/ Michael S. Egan
-------------------------------
Name: Michael S. Egan
-----------------------------
Title: President
----------------------------
ALAMO RENT-A-CAR (PUERTO RICO)
INC., a Delaware corporation
By: /s/ Roger H. Ballou
-------------------------------
Name: Roger H. Ballou
-----------------------------
Title: President
----------------------------
ALAMO INTERNATIONAL SALES, INC.,
a Florida corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: President
----------------------------
RISK MANAGEMENT REENGINEERING
ASSURANCE GROUP, a Cayman
Islands company
By: /s/ N. Maria Menendez
-------------------------------
Name: N. Maria Menendez
-----------------------------
Title: Vice President
----------------------------
AFL FLEET FUNDING, INC., a
New York corporation
By: /s/ Richard L. Taiano
-------------------------------
Name: Richard L. Taiano
-----------------------------
Title: Vice President
----------------------------
-86-
<PAGE> 94
ALAMO LEASING CORP., a Florida
corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: President
----------------------------
ALAMO AUTOMOBILE SALES, INC., a
Florida corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: President
----------------------------
ALAMO SHUTTLE, INC., a Florida
corporation
By: /s/ D. Keith Cobb
-------------------------------
Name: D. Keith Cobb
-----------------------------
Title: President
----------------------------
110 TOWER RESTAURANTS, INC., a
Florida corporation
By: /s/ Mary Wood
-------------------------------
Name: Mary Wood
-----------------------------
Title: President
----------------------------
TOWER FOOD & BEVERAGE, INC., a
Florida corporation
By: /s/ Rosalie V. Arthur
-------------------------------
Name: Rosalie V. Arthur
-----------------------------
Title: President
----------------------------
-87-
<PAGE> 95
CORPORATE PLANNERS & DEVELOPERS,
INC., a Florida corporation
By: /s/ Roger H. Ballou
-------------------------------
Name: Roger H. Ballou
-----------------------------
Title: President
----------------------------
ALASYS, LTD., a Florida limited
partnership
By: Alasys, Inc., its General
Partner
By: /s/ N. Maria Menendez
--------------------------
Name: N. Maria Menendez
------------------------
Title: Treasurer
-----------------------
GUY SALMON USA, LTD., a Florida
limited partnership
By: Guy Salmon USA, Inc., its
General Partner
By: /s/ D. Keith Cobb
---------------------------
Name: D. Keith Cobb
-------------------------
Title: President
------------------------
-88-
<PAGE> 96
DKBERT ASSOC., a Florida general
partnership
By: /s/ Michael S. Egan
--------------------------------
Michael S. Egan, General Partner
By: /s/ Norman D. Tripp
--------------------------------
Norman D. Tripp, General Partner
By: /s/ William H. Kelly, Jr.
--------------------------------
William H. Kelly, Jr., General
Partner
RKCTR, a Florida general
partnership
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee - Michael S. Egan
-----------------------------
Living Trust as Partner
/s/ Michael S. Egan
-----------------------------------
MICHAEL S. EGAN
THE MICHAEL S. EGAN LIVING TRUST
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
-89-
<PAGE> 97
THE MICHAEL S. EGAN GRANTOR
RETAINED ANNUITY TRUST FOR
SARAH EGAN MOONEY
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
THE MICHAEL S. EGAN GRANTOR
RETAINED ANNUITY TRUST FOR
ELIZA SHENNERS EGAN
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
THE MICHAEL S. EGAN GRANTOR
RETAINED ANNUITY TRUST FOR
CATHERINE LEWIS EGAN
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
THE MICHAEL S. EGAN GRANTOR
RETAINED ANNUITY TRUST FOR
TEAGUE MICHAEL THOMAS EGAN
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
-90-
<PAGE> 98
THE MICHAEL S. EGAN GRANTOR
RETAINED ANNUITY TRUST FOR
RILEY MARTIN MICHAEL EGAN
By: /s/ Michael S. Egan
--------------------------------
Name: Michael S. Egan
------------------------------
Title: Trustee
/s/ Norman D. Tripp
-----------------------------------
NORMAN D. TRIPP
/s/ William H. Kelly, Jr.
-----------------------------------
WILLIAM H. KELLY, JR.
-91-
<PAGE> 99
THE 110 GROUP TRUST
By: /s/ Rosalie V. Arthur
--------------------------------
Name: Rosalie V. Arthur
Title: Trustee
-92-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757,
333-04269, and 333-08479) and S-8 (Registration Nos. 33-93742 and 333-07623).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 11, 1996.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our reports included in this Form 8-K, into the previously
filed Registration Statements of Republic Industries, Inc. on Forms S-3
(Registration Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757,
333-04269, and 333-08479) and S-8 (Registration Nos. 33-93742 and 333-07623).
MUNSON, CRONICK & ASSOCIATES
Fullerton, California,
December 10, 1996.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
(Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269 and
333-08479) on Form S-3 and (Nos. 33-93742 and 333-07623) on Form S-8 of
Republic Industries, Inc. of our report dated March 8, 1996 (except as to the
second paragraph of Note 13, which is as of April 19, 1996 and the second
paragraph of Note 18, which is as of November 26, 1996) with respect to the
combined balance sheets of Alamo Rent-A-Car, Inc. and Affiliates as of December
31, 1995 and 1994, and the related combined statements of operations, equity,
and cash flows for each of the years in the three-year period ended December
31, 1995, our report dated March 8, 1996 (except as to the second paragraph of
Note 10, which is as of April 19, 1996 and the second paragraph of Note 13,
which is as of November 26, 1996) with respect to the consolidated balance
sheets of Guy Salmon USA, Ltd. and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations, partners' capital
(deficiency), and cash flows for each of the years in the three-year period
ended December 31, 1995, and our report dated March 8, 1996 (except as to the
third paragraph of Note 12, which is as of November 26, 1996) with respect to
the balance sheets of DKBERT Assoc. as of December 31, 1995 and 1994, and the
related statements of income, partners' capital, and cash flows for each of
the years in the three-year period ended December 31, 1995, which reports
appear in the Form 8-K of Republic Industries, Inc. dated November 25, 1996.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
December 11, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 164,572
<SECURITIES> 0
<RECEIVABLES> 40,651
<ALLOWANCES> 2,559
<INVENTORY> 14,924
<CURRENT-ASSETS> 228,668
<PP&E> 293,734
<DEPRECIATION> 88,785
<TOTAL-ASSETS> 582,466
<CURRENT-LIABILITIES> 84,339
<BONDS> 0
0
0
<COMMON> 1,618
<OTHER-SE> 448,930
<TOTAL-LIABILITY-AND-EQUITY> 450,548
<SALES> 295,238
<TOTAL-REVENUES> 295,238
<CGS> 192,311
<TOTAL-COSTS> 192,311
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,139
<INCOME-PRETAX> 35,455
<INCOME-TAX> 15,534
<INCOME-CONTINUING> 19,921
<DISCONTINUED> (293)
<EXTRAORDINARY> 0
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<NET-INCOME> 19,628
<EPS-PRIMARY> .15
<EPS-DILUTED> .14
</TABLE>
<PAGE> 1
EXHIBIT 99.1
INDEX TO FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
(a) Historical Financial Information
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ............................................ 1
Consolidated Balance Sheets as of December 31, 1995 and 1994 (Restated) ....................... 2
Consolidated Statements of Operations for the
Years Ended December 31, 1995, 1994 and 1993 (Restated) ..................................... 3
Consolidated Statements of Shareholders'
Equity for the Years Ended December 31, 1995, 1994 and 1993 (Restated) ...................... 4
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993 (Restated) ........................................... 5
Notes to Consolidated Financial Statements (Restated) ......................................... 6
Supplemental Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 and 1994............................................................... 22
Supplemental Consolidated Statements of Operations for the Nine Months Ended
September 30, 1996 and 1995 (unaudited) and for the Years Ended December
31, 1995, 1994 and 1993...................................................................... 23
Supplemental Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993....................................................... 24
Supplemental Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (unaudited) and for the Years Ended December
31, 1995, 1994 and 1993...................................................................... 25
Notes to Supplemental Consolidated Financial Statements........................................ 26
AUTONATION INCORPORATED AND SUBSIDIARIES
Report of Independent Certified Public Accountants ........................................... 48
Consolidated Balance Sheets as of December 31, 1995 (audited) and
September 29, 1996 (unaudited) ............................................................. 49
Consolidated Statements of Operations for the Period From Inception (September 12, 1995) to
December 31, 1995 (audited) and for the Three and Nine Months Ended
September 29, 1996 (unaudited) ............................................................. 50
Consolidated Statements of Shareholders' Equity for the Period From Inception
(September 12, 1995) to December 31, 1995 (audited) and for the Nine Months Ended
September 29, 1996 (unaudited) ............................................................. 51
Consolidated Statements of Cash Flows for the Period From Inception
(September 12, 1995) to December 31, 1995 (audited) and for the Nine Months
Ended September 29, 1996 (unaudited) ....................................................... 52
Notes to Consolidated Financial Statements.................................................... 53
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ........................................... 59
Consolidated Balance Sheets as of December 31, 1995 (Restated) and 1994 (Restated) ........... 60
Consolidated Statements of Income for the Years Ended December 31, 1995 (Restated),
1994 (Restated) and 1993 ................................................................... 61
Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1995
(Restated), 1994 (Restated) and 1993 ....................................................... 62
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995 (Restated),
1994 (Restated) and 1993 ................................................................... 63
Notes to Consolidated Financial Statements ................................................... 64
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 (Restated) ............................................................... 80
Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended
September 30, 1996 and 1995 (Restated) ...................................................... 81
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995 (Restated)....................................................... 83
Notes to Unaudited Condensed Consolidated Financial Statements ............................... 84
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants ........................................... 89
Consolidated Balance Sheets as of December 31, 1995 and 1994 ................................. 90
Consolidated Statements of Operations for the Years Ended
December 31, 1995, 1994 and 1993 ............................................................ 91
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993 ...................................................... 92
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 ............................................................ 93
Notes to Consolidated Financial Statements ................................................... 94
Unaudited Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 ........................................................................... 111
Unaudited Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1996 and 1995 ........................................................... 112
Unaudited Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 .......................................................... 113
Notes to Unaudited Consolidated Financial Statements ........................................ 114
ALAMO RENT-A-CAR, INC. AND AFFILIATES
Independent Auditor's Report ................................................................ 120
Combined Balance Sheets as of December 31, 1995 and 1994 .................................... 121
Combined Statements of Operations for the Years
Ended December 31, 1995, 1994 and 1993 ..................................................... 122
Combined Statements of Equity for the Years Ended
December 31, 1995, 1994 and 1993 ........................................................... 123
Combined Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and 1993 ........................................................... 124
Notes to Combined Financial Statements ...................................................... 126
Unaudited Combined Condensed Balance Sheets as of September 30, 1996
and December 31, 1995 ...................................................................... 149
Unaudited Combined Condensed Statements of Operations for the Three and Nine Months
Ended September 30, 1996 and 1995 .......................................................... 150
Unaudited Combined Condensed Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 .......................................................... 151
Notes to Unaudited Combined Condensed Financial Statements .................................. 152
ACQUIRED SOLID WASTE COMPANIES
Report of Independent Auditors................................................................ 158
Combined Balance Sheets as of December 31, 1995 (audited) and March 31, 1996 (unaudited) ..... 159
Combined Statements of Operations for the Year Ended December 31, 1995 (audited) and for
the Three Months Ended March 31, 1996 and 1995 (unaudited) ................................. 160
Combined Statements of Shareholders' Equity for the Year Ended December 31, 1995 (audited)
and for the Three Months Ended March 31, 1996 (unaudited)................................... 161
Combined Statements of Cash Flows for the Year Ended December 31, 1995 (audited) and for
the Three Months Ended March 31, 1996 and 1995 (unaudited).................................. 162
Notes to Combined Financial Statements ....................................................... 163
(b) Pro Forma Financial Information.
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED, CONTINENTAL WASTE INDUSTRIES, INC.,
ADDINGTON RESOURCES, INC. AND ALAMO RENT-A-CAR, INC.
Unaudited Condensed Consolidated Pro Forma Financial Statements .............................. 166
Unaudited Condensed Consolidated Pro Forma Balance Sheet as of
September 30, 1996 ......................................................................... 167
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Nine Months Ended September 30, 1996 ....................................................... 168
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1995................................................................ 169
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1994............................................................... 170
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1993............................................................... 171
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements ..................... 172
REPUBLIC INDUSTRIES, INC., HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC. AND
ACQUIRED SOLID WASTE COMPANIES
Unaudited Condensed Consolidated Pro Forma Financial Statements .............................. 173
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Nine Months Ended September 30, 1996 ....................................................... 174
Unaudited Condensed Consolidated Pro Forma Statement of Operations for the
Year Ended December 31, 1995 ............................................................... 175
Notes to Unaudited Condensed Consolidated Pro Forma Financial Statements ..................... 176
CONTINENTAL WASTE INDUSTRIES, INC.
Unaudited Pro Forma Combining Statement of Income for the
Year Ended December 31, 1995 ............................................................... 177
Unaudited Pro Forma Combining Statement of Income for the
Nine Months Ended September 30, 1996 ....................................................... 178
Notes to Unaudited Pro Forma Combining Financial Statements .................................. 179
(c) Management's Discussion and Analysis of Financial Condition and Results of Operations
of Republic (Restated)................................................................... 183
</TABLE>
<PAGE> 2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Industries, Inc. (a Delaware corporation, formerly Republic Waste Industries,
Inc.) and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, shareholders' equity and cash flows
(restated) for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Republic
Industries, Inc. and its subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows (restated) for each of the
three years in the period ended December 31, 1995, all in conformity with
generally accepted accounting principles.
We have also made similar audits of the accompanying supplemental
consolidated balance sheets of Republic Industries, Inc. and subsidiaries as of
December 31, 1995 and 1994, and the related supplemental consolidated statements
of operations, shareholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1995. The supplemental consolidated
statements give retroactive effect to the merger with Alamo Rent-A-Car, Inc. and
Affiliates on November 25, 1996, which has been accounted for as a pooling of
interests as described in Note 1. These supplemental financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these supplemental financial statements based on our audits.
We did not audit the financial statements of DKBERT Assoc. ("DKBERT") and
Guy Salmon USA, Ltd. and subsidiaries, ("GUSA Ltd."), affiliates of Alamo
Rent-A-Car, Inc. and Affiliates, companies acquired during 1996 in a
transaction accounted for as a pooling of interests, as described in Note 1.
Such statements are included in the supplemental consolidated financial
statements of Republic Industries, Inc. and subsidiaries and reflect total
assets and revenues constituting 13.7 percent and 7.8 percent, respectively, in
1995, 11.9 percent and 4.9 percent, respectively in 1994, and 4.3 percent of
total revenue in 1993, of the related supplemental consolidated totals. These
statements were audited by other auditors whose reports thereon have been
furnished to us and our opinion expressed herein, insofar as it relates to the
amounts included for DKBERT and GUSA Ltd., is based solely upon the reports of
the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the reports of other
auditors provide a reasonable basis for our opinion.
In our opinion, based upon our audits and the reports of the other
auditors, the supplemental consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Republic
Industries, Inc. and its subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1995, after giving retroactive
effect to the merger with Alamo Rent-A-Car, Inc. and Affiliates as described in
Note 1, all in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 5, 1996.
1
<PAGE> 3
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS (RESTATED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................... $164,572 $ 11,485
Accounts receivable, less allowance for doubtful accounts of
$2,559 and $1,581, respectively.......................... 38,092 26,159
Prepaid expenses............................................ 3,757 2,735
Inventory................................................... 14,924 4,104
Other current assets........................................ 7,323 2,389
-------- --------
TOTAL CURRENT ASSETS................................ 228,668 46,872
Property and equipment, net................................... 204,949 141,126
Investment in subscriber accounts, net of accumulated
amortization of $11,446 and $6,977, respectively............ 42,240 24,193
Intangible assets, net of accumulated amortization of $9,026
and $3,212, respectively.................................... 101,363 15,605
Net assets of discontinued operations......................... -- 20,292
Other assets.................................................. 5,246 9,119
-------- --------
TOTAL ASSETS........................................ $582,466 $257,207
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................ $ 18,732 $ 12,829
Accrued liabilities......................................... 21,506 11,635
Current portion of deferred revenue......................... 25,555 13,892
Current maturities of long-term debt and notes payable...... 11,996 11,210
Current portion of accrued environmental and landfill
costs.................................................... 2,925 1,404
Income taxes payable........................................ 3,625 1,281
-------- --------
TOTAL CURRENT LIABILITIES........................... 84,339 52,251
Long-term debt and notes payable, net of current maturities... 3,791 40,703
Deferred revenue, net of current portion...................... 18,012 20,353
Accrued environmental and landfill costs, net of current
portion..................................................... 8,386 8,244
Deferred income taxes......................................... 14,414 11,597
Other liabilities............................................. 2,976 8,841
-------- --------
TOTAL LIABILITIES................................... 131,918 141,989
-------- --------
COMMITMENTS AND CONTINGENCIES.................................
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 5,000,000 shares
authorized; none issued.................................. -- --
Common stock, par value $.01 per share;
350,000,000 and 100,000,000 shares authorized,
respectively; 161,820,630 and 96,456,334 shares
issued, respectively..................................... 1,618 965
Additional paid-in capital.................................. 420,557 109,301
Retained earnings........................................... 28,373 5,625
Notes receivable arising from stock purchase agreements..... -- (673)
-------- --------
TOTAL SHAREHOLDERS' EQUITY.......................... 450,548 115,218
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $582,466 $257,207
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 4
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS (RESTATED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue..................................... $295,238 $218,173 $182,495
Expenses:
Cost of operations........................ 192,311 143,375 121,640
Selling, general and administrative....... 67,048 49,245 46,477
Restructuring and unusual charges......... -- -- 10,040
-------- -------- --------
Operating income............................ 35,879 25,553 4,338
Interest and other income................... 5,715 1,081 760
Interest expense............................ (6,139) (4,487) (2,936)
-------- -------- --------
Income from continuing operations before
income taxes.............................. 35,455 22,147 2,162
Income tax provision........................ 15,534 5,298 2,493
-------- -------- --------
Income (loss) from continuing operations.... 19,921 16,849 (331)
Discontinued operations:
Income (loss) from discontinued
operations,
net.................................... (293) 2,684 (14,579)
-------- -------- --------
Net income (loss)........................... $ 19,628 $ 19,533 $(14,910)
======== ======== ========
Primary earnings (loss) per common and
common equivalent share:
Continuing operations..................... $ .15 $ .17 $ --
Discontinued operations................... -- .03 (.15)
-------- -------- --------
Net income (loss)................. $ .15 $ .20 $ (.15)
======== ======== ========
Fully diluted earnings (loss) per common and
common equivalent share:
Continuing operations..................... $ .14 $ .17 $ --
Discontinued operations................... -- .03 (.15)
-------- -------- --------
Net income (loss)................. $ .14 $ .20 $ (.15)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 5
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (RESTATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
RETAINED ARISING
ADDITIONAL EARNINGS FROM STOCK
COMMON PAID-IN (ACCUMULATED PURCHASE
STOCK CAPITAL DEFICIT) AGREEMENTS
------ ---------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992........................ $ 968 $103,353 $ 17,423 $(673)
Contributions to capital from former owners
of pooled companies............................ -- 4,167 -- --
Distributions to former owners of pooled
companies...................................... -- -- (6,350) --
Other............................................. -- (679) (418) --
Net loss.......................................... -- -- (14,910) --
------ -------- -------- -----
BALANCE AT DECEMBER 31, 1993........................ 968 106,841 (4,255) (673)
Distributions to former owners of pooled
companies...................................... -- -- (9,671) --
Other............................................. (3) 2,460 18 --
Net income........................................ -- -- 19,533 --
------ -------- -------- -----
BALANCE AT DECEMBER 31, 1994........................ 965 109,301 5,625 (673)
Sales of common stock............................. 415 231,616 -- --
Stock issued in acquisitions...................... 172 82,811 -- --
Exercise of stock options and warrants, including
tax benefit of $4,068.......................... 28 13,346 -- --
Payments received on notes........................ -- -- -- 673
Reclassification of additional paid-in capital to
effect the spin-off............................ -- (36,305) 36,305 --
Spin-off of Republic Environmental Systems, Inc... -- -- (23,579) --
Distributions to former owners of pooled
companies...................................... -- -- (9,718) --
Other............................................. 38 19,788 112 --
Net income........................................ -- -- 19,628 --
------ -------- -------- -----
BALANCE AT DECEMBER 31, 1995........................ $1,618 $420,557 $ 28,373 $ --
====== ======== ======== =====
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 6
REPUBLIC INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (RESTATED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations............ $ 19,921 $ 16,849 $ (331)
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
continuing operations:
Restructuring and unusual charges................. -- -- 10,040
Depreciation, depletion and amortization.......... 22,673 19,525 15,591
Provision for accrued environmental and landfill
costs........................................... 400 377 215
Gain on the sale of equipment..................... (311) (286) (143)
Changes in assets and liabilities, net of effects
from business acquisitions:
Accounts receivable............................... (5,452) (2,754) (2,070)
Prepaid expenses and other assets................. (13,387) (708) (2,348)
Accounts payable and accrued liabilities.......... 2,505 2,681 251
Income taxes payable.............................. 4,300 2,171 534
Deferred and current revenue and other liabilities. (13,356) (10,985) (2,928)
-------- -------- --------
Net cash provided by continuing operations... 17,293 26,870 18,811
-------- -------- --------
CASH USED BY DISCONTINUED OPERATIONS.................. (261) (736) (4,360)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances and loans.................................. -- -- --
Business acquisitions, net of cash acquired......... (7,304) (4,776) (5,664)
Purchases of property and equipment................. (62,930) (23,383) (13,317)
Investment in subscriber accounts................... (15,980) (17,512) (9,569)
Other............................................... 126 (901) (2,357)
-------- -------- --------
Net cash used in investing activities............. (86,088) (46,572) (30,907)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of common stock............................... 232,031 -- --
Exercise of stock options and warrants.............. 9,306 -- --
Capital contribution to Republic Environmental
Systems, Inc...................................... (2,520) -- --
Payments of long-term debt and notes payable........ (86,667) (17,950) (16,035)
Proceeds from long-term debt and notes payable...... 39,693 21,717 23,201
Proceeds from financing arrangements................ 24,747 27,070 15,473
Distributions to former owners of pooled
companies......................................... (7,434) (9,041) (6,044)
Other............................................... 12,987 (1,240) 615
-------- -------- --------
Net cash provided by financing activities......... 222,143 20,556 17,210
-------- -------- --------
INCREASE IN CASH AND CASH EQUIVALENTS................. 153,087 118 754
CASH AND CASH EQUIVALENTS:
Beginning of Period................................. 11,485 11,367 10,613
-------- -------- --------
End of Period....................................... $164,572 $ 11,485 $ 11,367
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 7
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
Republic Industries, Inc. (formerly Republic Waste Industries, Inc.) and its
subsidiaries ("Republic" or the "Company"). All significant intercompany
accounts and transactions have been eliminated. In 1994, the Board of Directors
authorized management to pursue a plan to distribute its hazardous waste
services segment, Republic Environmental Systems, Inc. ("RESI"), now known as
International Alliance Services, Inc., to Republic shareholders. Accordingly, as
discussed in Note 9, this segment has been accounted for as a discontinued
operation and the accompanying Consolidated Financial Statements presented here
in have been restated to report separately the net assets and operating results
of these discontinued operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. The most significant estimates made in the preparation of the
accompanying Consolidated Financial Statements are estimated future cost
requirements for closure and post-closure monitoring and maintenance for the
Company's solid waste facilities and estimated customer lives utilized in
amortizing the investment in subscriber accounts with respect to the Company's
electronic security service segment. Although the Company believes its estimates
are appropriate, changes in assumptions utilized in preparing such estimates
could cause these estimates to change in the near term.
The accompanying Consolidated Financial Statements include the financial
position and results of operations of Kertz Security Systems II, Inc. and
Kertz Security Systems, Inc. (collectively, "Kertz"), with which the Company
merged in August 1995; United Waste Service, Inc. ("United") and Southland
Environmental Services, Inc. ("Southland"), with which the Company merged in
October 1995; J.C. Duncan Company, Inc. and affiliates ("Duncan"), Garbage
Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. and affiliates
("Fennell") and Scott Security Systems and affiliates ("Scott"), with which the
Company merged in November 1995; The Denver Fire Reporter & Protective Co.
and affiliate ("Denver Alarm") and Incendere, Inc. and affiliates ("Schaubach"),
with which the Company merged in February 1996; and CarChoice, Inc.
("CarChoice") which the Company acquired in August 1996. These transactions
were accounted for under the pooling of interests method of accounting and,
accordingly, the Consolidated Financial Statements have been previously
restated as if the Company and Kertz, United, Southland, Duncan, GDS, Fennell,
Scott, Denver Alarm, Schaubach and CarChoice had operated as one entity since
inception. See Note 2 for further discussion of these transactions.
All per share data and numbers of shares of common stock for all periods
included in the financial statements and notes thereto have been adjusted to
reflect a two-for-one stock split in the form of a 100% stock dividend that
was effected in June 1996, as more fully described in Note 5.
6
<PAGE> 8
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Inventory. Inventory consists primarily of vehicles valued using the
specific identification method. Cost includes acquisition expenses as well as
charges to bring inventory units to their existing location and condition,
including reconditioning cost. Parts and accessories are valued at the lower of
cost, using the first-in, first-out method, or market.
Property and Equipment. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for trucks and equipment and five to ten
years for furniture and fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. No general and administrative costs are
capitalized as landfills and landfill improvements.
Depreciation, amortization and depletion expense related to property and
equipment was $15,988,000, $14,815,000 and $12,817,000 in 1995, 1994 and 1993,
respectively.
A summary of property and equipment is shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Land, landfills and improvements...................... $ 97,610 $ 84,864
Trucks and equipment.................................. 157,677 106,881
Buildings and improvements............................ 29,386 17,127
Furniture and fixtures................................ 9,061 8,128
-------- --------
293,734 217,000
Less: accumulated depreciation, amortization and
depletion........................................... (88,785) (75,874)
-------- --------
$204,949 $141,126
======== ========
</TABLE>
7
<PAGE> 9
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Investment in Subscriber Accounts. Investment in subscriber accounts
consists of certain capitalized costs associated with new monitoring systems
installed by the Company's electronic security service business and the cost of
acquired subscriber accounts.
The costs are amortized over periods ranging from eight to twelve years
(based on estimated and historical customer attrition rates) on a
straight-line basis. Amortization expense related to investment in subscriber
accounts was $4,357,000, $3,377,000 and $1,801,000 in 1995, 1994 and 1993,
respectively.
Intangible Assets. Intangible assets consist primarily of the cost of
acquired businesses in excess of the fair value of net tangible assets acquired.
The cost in excess of the fair value of net tangible assets is amortized over
forty years on a straight-line basis. Amortization expense related to intangible
assets was $2,328,000, $1,333,000 and $973,000 in 1995, 1994 and 1993,
respectively.
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted net income over the remaining life of the intangible assets in
measuring their recoverability.
Deferred Revenue. Deferred revenue consists primarily of proceeds from the
factoring of electronic security monitoring contracts by one of the Company's
acquired security businesses. The use of factoring was discontinued by the
Company subsequent to the date of acquisition of such business. Revenue is
recognized over the period services are provided.
Accrued Environmental and Landfill Costs. Accrued environmental and
landfill costs include landfill site closure and post-closure costs. Landfill
site closure and post-closure costs include estimated costs to be incurred for
final closure of the landfills and estimated costs for providing required
post-closure monitoring and maintenance of landfills. These costs are accrued
based on consumed airspace. Estimated aggregate closure and post-closure costs
are to be fully accrued for these landfills at the time that such facilities
cease to accept waste and are closed. Excluding existing accruals at the end of
1995, approximately $7,871,000 of such costs are to be expensed over the
remaining lives of these facilities. The Company estimates its future cost
requirements for closure and post-closure monitoring and maintenance for its
solid waste facilities based on its interpretation of the technical standards of
the United States Environmental Protection Agency's Subtitle D regulations.
These estimates do not take into account discounts for the present value of such
total estimated costs.
Environmental costs are accrued by the Company through a charge to income
in the period such costs become probable and reasonably estimable.
The Company periodically reassesses its method and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
As discussed in Note 7, the Company is involved in litigation and is
subject to ongoing environmental investigations by certain regulatory agencies,
as well as other claims and disputes that could result in additional litigation
which are in the normal course of business.
Revenue Recognition. Revenue from the Company's solid waste services
segment includes primarily waste collection and landfill tipping fees. Revenue
from the Company's electronic security services business results from monitoring
contracts for security systems and fees charged for the sale and installation of
such systems. Revenue from the Company's vehicle retailing segment consists
primarily of sales of used vehicles. The Company recognizes revenue from its
solid waste, electronic security services and vehicle retailing segments in the
period services are provided or products are sold.
8
<PAGE> 10
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Statements of Cash Flows. The Company considers all highly liquid
investments with purchased maturities of three months or less to be cash
equivalents. The effect of non-cash transactions related to business
combinations, as discussed in Note 2, and other non-cash transactions are
excluded from the Statements of Cash Flows.
Fair Value of Financial Instruments. The carrying values of cash, trade
accounts receivable, trade accounts payable and financial instruments included
in other current assets and other assets approximate their fair values
principally because of the short-term maturities of these instruments. The fair
value of the Company's long-term debt is estimated based on the current rates
offered to the Company for debt of similar terms and maturities. Under this
method the Company's fair value of long-term debt was not significantly
different than the stated value at December 31, 1995 and 1994.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying Consolidated Balance Sheets. The Company's management believes
that the likelihood of performance under these financial instruments is
minimal and expects no material losses to occur in connection with these
financial instruments.
Concentrations of Credit Risk. Concentrations of credit risk with respect
to trade receivables are limited due to the wide variety of customers and
markets in which the Company's services are provided, as well as their
dispersion across many different geographic areas. As a result, at December 31,
1995, the Company does not consider itself to have any significant
concentrations of credit risk.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which was adopted by the Company in the first quarter
of 1996 without material effect. SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which requires adoption in 1996. SFAS No. 123
requires that the Company's financial statements include certain disclosures
about stock-based employee compensation arrangements and permits the adoption of
a change in accounting for such arrangements. Changes in accounting for
stock-based compensation are optional and the Company will adopt only the
disclosure requirements in its 1996 annual report on Form 10-K.
2. BUSINESS COMBINATIONS
Pending Acquisitions
In June 1996, the Company signed a definitive agreement to acquire
Continental Waste Industries, Inc. ("Continental") in a merger transaction.
Continental provides integrated solid waste management services to residential,
commercial and industrial customers primarily in the mid-south and eastern
United States. Under the terms of the agreement, each share of common stock of
Continental would be exchanged, on a tax-free basis, for .80 of a share of the
Company's common stock par value $.01 per share ("Common Stock"). As of
September 30, 1996, Continental had approximately 15,349,000 shares of common
stock issued and outstanding. The transaction, which will be accounted for
under the pooling of interests method of accounting, is subject to approval of
Continental's shareholders and other customary closing conditions, including
regulatory approvals. Certain shareholders of Continental, representing
approximately 23% of Continental's outstanding common stock, have agreed to
vote their shares in favor of the transaction and have granted to the Company
irrevocable proxies to vote or to execute written consents with respect to
their shares in favor of the transaction.
In June 1996, the Company signed a definitive agreement to acquire
Addington Resources, Inc. ("Addington") in a merger transaction. Addington
provides integrated solid waste disposal services including landfill, collection
and recycling services for cities and counties in the southeastern United
States. Under the terms of the agreement, each share of common stock of
Addington would be exchanged, on a tax-free basis,
9
<PAGE> 11
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
for .90 of a share of the Company's Common Stock. As of September 30, 1996,
Addington had approximately 15,194,000 shares of common stock issued and
outstanding. The transaction, which will be accounted for under the pooling of
interests method of accounting, is subject to approval by the shareholders of
Addington and other customary closing conditions, including regulatory
approvals. Six of Addington's shareholders, representing approximately 45% of
Addington's outstanding common stock, have granted to the Company irrevocable
proxies to, and agreed to, vote or to execute written consents with respect to
their shares in favor of the transaction.
In May 1996, after approval by a special committee of disinterested members
of the Company's Board of Directors, the Company signed a definitive agreement
to acquire AutoNation. AutoNation is a privately-owned company developing a
chain of megastores for the sale of new and used vehicles in a customer friendly
environment and is partially owned by the Company's Chairman and Chief Executive
Officer, and certain other officers and directors of the Company. The
transaction, which will be accounted for under the purchase method of
accounting, is subject to final approval by the shareholders of the Company and
other customary closing conditions, including regulatory approvals. It is
contemplated that the Company will issue approximately 17,467,000 shares of its
Common Stock in connection with the transaction.
Completed Acquisitions
Significant businesses acquired and accounted for under the pooling of
interests method of accounting have been included retroactively in the
financial statements as if the companies had operated as one entity since
inception. Businesses acquired through December 31, 1995 and accounted for
under the purchase method of accounting are included in the financial
statements from the date of acquisition.
In August 1996, the Company acquired all of the net assets of CarChoice.
CarChoice, which commenced operations in January 1995 and opened its first store
in December 1995, is a developer and operator of used car superstores similar to
those being developed by AutoNation.
In February 1996, the Company acquired all of the outstanding capital stock
of Denver Alarm. Denver Alarm provides installation, monitoring and maintenance
services to residential and commercial customers throughout Colorado.
In February 1996, the Company acquired Schaubach. Schaubach provides solid
waste collection and recycling services to residential, commercial, and
industrial customers in southeastern Virginia and eastern North Carolina and
provides transportation of medical waste throughout the Mid-Atlantic states.
The Company issued an aggregate of 9,707,664 shares of Common Stock to
acquire CarChoice, Denver Alarm and Schaubach (the "Pooled Entities"), all of
which have been accounted for under the pooling of interests method of
accounting.
10
<PAGE> 12
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Details of the results of operations of the previously separate companies
for the periods before the pooling of interests combinations were consummated
are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
The Company....................... $260,315 $187,111 $154,301
Pooled Entities................... 34,923 31,062 28,194
-------- -------- --------
$295,238 $218,173 $182,495
======== ======== ========
Net income (loss):
The Company....................... $ 22,919 $ 17,116 $(17,052)
Pooled Entities................... (3,291) 2,417 2,142
-------- -------- --------
$ 19,628 $ 19,533 $(14,910)
======== ======== ========
</TABLE>
In August 1995, the Company merged with Kertz, which provides electronic
security monitoring and maintenance predominantly in the South Florida area. In
October 1995, the Company merged with United and Southland. United provides
solid waste collection, transfer and recycling services in the Atlanta, Georgia
metropolitan area, and Southland provides solid waste collection services in the
Northeast Florida area. In November 1995, the Company merged with Duncan, GDS,
Fennell and Scott. Duncan provides solid waste collection and recycling services
in the Dallas-Fort Worth metropolitan area and throughout west Texas and also
operates two landfills. GDS provides solid waste collection and recycling
services throughout western North Carolina. Fennell is a full-service solid
waste management company, providing services in and around Charleston and
Greenville, South Carolina and also owns a landfill. Scott is an electronic
security alarm company, providing installation, monitoring and maintenance
services in Jacksonville, Orlando and Tallahassee, Florida, and other
metropolitan areas in the southeastern United States, including Charlotte, North
Carolina; Savannah, Georgia and Nashville, Tennessee. The Company issued an
aggregate of 36,255,968 shares of the Company's Common Stock for the above
acquisitions. These acquisitions were accounted for under the pooling of
interests method of accounting and, accordingly, the accompanying Consolidated
Financial Statements have previously been restated as if the Company and Kertz,
United, Southland, Duncan, GDS, Fennell and Scott had operated as one entity
since inception.
In August 1995, the Company acquired all of the outstanding shares of
capital stock of Hudson Management Corporation and Envirocycle, Inc.
(collectively, "HMC"). The purchase price paid by the Company was approximately
$72,800,000 and consisted of 16,000,000 shares of Common Stock. HMC, as the
third largest solid waste management company in Florida, provides solid waste
collection and recycling services to commercial, industrial and residential
customers. This acquisition, as well as several other minor business
combinations from January 1, 1993 to December 31, 1995, have been accounted for
under the purchase method of accounting.
11
<PAGE> 13
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The following summarizes the preliminary purchase price allocation for
business combinations accounted for under the purchase method of accounting
(including historical accounts of immaterial acquisitions accounted for under
the pooling of interests method of accounting) consummated during the following
periods:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- ------ -------
<S> <C> <C> <C>
Property and equipment.................. $ 17,696 $1,619 $ 7,744
Investment in subscriber accounts....... -- -- --
Intangible assets....................... 88,818 3,307 338
Working capital (deficiency), net of
cash acquired......................... (4,693) 309 37
Long-term debt assumed.................. (11,519) (459) (1,322)
Other liabilities, net.................. (15) -- (1,133)
Common stock issued..................... (82,983) -- --
-------- ------ -------
Cash used in acquisitions..... $ 7,304 $4,776 $ 5,664
======== ====== =======
</TABLE>
The Company's unaudited pro forma supplemental consolidated results of
operations, assuming the acquisition of HMC had occurred at the beginning of
each of the periods presented are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Revenue........................................... $328,439 $266,176
======== ========
Net income from continuing operations............. $ 20,773 $ 19,059
======== ========
Fully diluted earnings per common and common
equivalent share from continuing operations..... $ .14 $ .17
======== ========
</TABLE>
The unaudited pro forma results of operations are presented for
informational purposes only and may not necessarily reflect the future results
of operations of the Company or what the results of operations would have been
had the Company owned and operated HMC as of January 1, 1994.
In September 1996, Republic announced that the Agreement and Plan of
Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the
"ADT Agreement"), by and among Republic, R.I./Triangle, Ltd. and ADT Limited, a
Bermuda corporation ("ADT"), which provided for the acquisition of ADT by
Republic, had been terminated by mutual agreement of the parties. In connection
with the execution of the ADT Agreement, ADT granted to Republic a warrant
(the "ADT Warrant") to purchase 15,000,000 common shares of ADT at a purchase
price $20 per share (which approximated fair market value), subject to
certain anti-dilution adjustments. The warrant became exercisable upon the
termination of the ADT Agreement and remains exercisable until March 1997.
Pursuant to the terms of the warrant, ADT has granted to Republic certain
registration rights with respect to the common shares of ADT issuable to
Republic upon exercise of the warrant.
In November 1996, the Company acquired Alamo Rent-A-Car, Inc. ("Alamo") in
a merger transaction. Alamo is the fourth largest rental car company in the
United States and operates a fleet of approximately 158,000 vehicles. Alamo
operates in 42 states in the United States and has operations in 10 European
countries and Canada. The Company issued 22,123,893 shares of Common Stock to
acquire Alamo which will be accounted for under the pooling of interests
method of accounting. The Company's unaudited pro forma consolidated results of
operations assuming the Alamo acquisition had been consummated as of December
31, 1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue.............................. $1,686,892 $1,531,095 $1,331,693
========== ========== ==========
Net income (loss).................... $ (11,832) $ 31,337 $ 4,150
========== ========== ==========
Fully diluted earnings (loss) per
common and common equivalent share.. $ (.08) $ .26 $ .03
========== ========== ==========
</TABLE>
12
<PAGE> 14
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
3. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Revolving credit facility, secured by the stock of
the Company's subsidiaries, interest at prime or
at a Eurodollar rate plus 1.5%, principal repaid
in 1995........................................... $ -- $ 12,600
Vehicle floorplan credit facility, secured by the
Company's vehicle inventory, interest at LIBOR
plus 2.75%, due on demand......................... 9,909 --
Notes to banks and financial institutions, secured
by equipment and other assets, interest ranging
from 7.2% to 13.0%, principal repaid in 1996...... 4,590 31,937
Other notes, secured by equipment and other assets,
interest ranging from 8.3% to 9.0%................ 1,288 7,376
-------- --------
15,787 51,913
Less current maturities............................. (11,996) (11,210)
-------- --------
$ 3,791 $ 40,703
======== ========
</TABLE>
In December 1995, the Company entered into a credit agreement (the "Credit
Agreement") with certain banks pursuant to which such banks have agreed to
advance the Company on an unsecured basis an aggregate of $250,000,000 for a
term of 36 months. Outstanding advances, if any, are payable at the expiration
of the 36-month term. At December 31, 1995, the Company had standby letters of
credit of $5,386,000 which reduce availability under this facility. The Credit
Agreement requires, among other items, that the Company maintain certain
financial ratios and comply with certain financial covenants. Interest is
payable monthly and generally determined using either a competitive bid feature
or a LIBOR based rate. As of December 31, 1995, no amounts were outstanding and
the Company was in material compliance with all covenants under the Credit
Agreement.
In August 1996, the Company refinanced its existing $21,000,000
vehicle floorplan credit facility with a new $25,000,000 vehicle floorplan
credit facility. Advances under this facility bear interest at LIBOR plus
2.75% and are secured by the Company's vehicle inventory. In October
1996, the Company repaid all borrowings under this facility.
At December 31, 1995, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1996....................................................................... $11,996
1997....................................................................... 1,193
1998....................................................................... 1,001
1999....................................................................... 726
2000....................................................................... 735
Thereafter................................................................. 136
-------
$15,787
=======
</TABLE>
The Company made interest payments of approximately $5,894,000, $4,373,000
and $2,688,000 in 1995, 1994 and 1993, respectively.
4. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
13
<PAGE> 15
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The Company files a consolidated federal income tax return which includes
the operations of businesses acquired for periods subsequent to the dates of the
acquisitions. Certain businesses acquired which were accounted for under the
pooling of interests method of accounting were subchapter S corporations for
income tax purposes prior to their acquisition by the Company. For purposes of
these Consolidated Financial Statements, federal and state income taxes have
been provided as if these companies had filed subchapter C corporation tax
returns for the pre-acquisition periods, and the current income tax expense is
reflected as an increase to additional paid-in capital. The subchapter S
corporation status of these companies was terminated effective with the closing
date of the acquisitions.
The components of the income tax provision related to continuing operations
for the years ended December 31 are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current:
Federal................................................ $ 9,778 $ 5,270 $ 2,815
State.................................................. 1,038 751 405
------- ------- -------
10,816 6,021 3,220
Federal deferred......................................... 3,010 2,482 (1,969)
Tax reserve adjustments.................................. 763 (1,963) --
Change in valuation allowance............................ 945 (1,242) 1,242
------- ------- -------
Income tax provision..................................... $15,534 $ 5,298 $ 2,493
======= ======= =======
</TABLE>
Net operating loss carryforwards are recognized under SFAS No. 109 unless
it is more likely than not that they will not be realized. In 1995, the Company
recorded a $945,000 valuation allowance due to the uncertainty surrounding
future realization of a portion of the deferred tax assets generated as a result
of acquired net operating loss carryforwards. In 1993, the Company recorded a
$1,242,000 valuation allowance related to the realization of deferred tax assets
generated as a result of the 1993 restructuring and unusual charges. This
valuation allowance was recorded due to the uncertainty surrounding the future
utilization of such deferred tax assets. In 1994, the valuation allowance was
eliminated based on the expected realization of such deferred tax assets.
In the years immediately following an acquisition, the Company provides
income taxes at the statutory income tax rate applied to pre-tax income. As part
of its tax planning to reduce effective tax rates and cash outlays for taxes,
the Company employs a number of strategies such as combining entities to reduce
state income taxes, claiming tax credits not previously claimed and recapturing
taxes previously paid by acquired companies. At such time as these reductions in
the Company's deferred tax liabilities are determined to be realizable, the
impact of the reduction is recorded as tax reserve adjustments in the tax
provision.
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- ------
<S> <C> <C> <C>
Statutory federal income tax rate............................. 35.0% 34.0% 34.0%
Amortization of intangible assets............................. 1.3 .4 3.6
State income taxes, net of federal benefit.................... 2.3 3.0 14.4
Tax reserve adjustments....................................... 2.2 (8.9) --
Change in valuation allowance................................. 2.7 (5.1) 47.3
Other, net.................................................... .3 .5 16.0
---- ---- -----
Effective tax rate.................................. 43.8% 23.9% 115.3%
==== ==== =====
</TABLE>
14
<PAGE> 16
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
Components of the net deferred income tax liability at December 31 are
shown below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis.......................... $ 25,507 $ 23,773
Deferred costs................................................. 8,067 8,954
-------- --------
33,574 32,727
-------- --------
Deferred income tax assets:
Net operating losses........................................... (5,414) (5,186)
Deferred revenue............................................... (10,353) (11,240)
Accrued environmental and landfill costs....................... (2,842) (2,761)
Accruals not currently deductible.............................. (1,496) (1,943)
-------- --------
(20,105) (21,130)
-------- --------
Valuation allowance.............................................. 945 --
-------- --------
Net deferred income tax liability................................ $ 14,414 $ 11,597
======== ========
</TABLE>
At December 31, 1995, the Company had available federal net operating loss
carryforwards of approximately $15,500,000 which begin to expire in the year
2006.
The Company made income tax payments of approximately $4,839,000,
$2,278,000 and $1,260,000 in 1995, 1994 and 1993, respectively.
5. SHAREHOLDERS' EQUITY
In November 1996, the Company sold approximately 12,080,000 shares of
Common Stock in a private placement transaction resulting in net proceeds of
approximately $353,000,000.
In May 1996, the Company sold 9,878,400 shares of Common Stock in a private
placement transaction resulting in net proceeds of approximately $197,583,000.
In May 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend, payable June 8,
1996, to holders of record on May 28, 1996. As a result, $790,000 (par value of
shares outstanding at December 31, 1995) has been transferred from additional
paid-in capital to common stock.
In May 1996, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock from 350,000,000 shares
to 500,000,000 shares.
In August 1995, the Company sold an aggregate of 16,700,000 shares of
Common Stock and warrants to purchase an additional 33,400,000 shares of Common
Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation
controlled by Michael G. DeGroote, former Chairman of the Board, President and
Chief Executive Officer of Republic), Harris W. Hudson, and certain of their
assigns for an aggregate purchase price of $37,500,000. Mr. Huizenga is the
Chairman of the Board and Chief Executive Officer of the Company; Mr. DeGroote
is the Vice Chairman of the Board of the Company and Mr. Hudson is President and
a Director of the Company. The warrants are exercisable at prices ranging from
$2.25 to $3.50 per share. In August 1995, the Company issued and sold an
additional 2,000,000 shares of Common Stock each to Mr. Huizenga and John J.
Melk (a Director of the Company) for $6.63 per share for aggregate proceeds of
approximately $26,500,000.
In July 1995, the Company sold 10,800,000 shares of Common Stock in a
private placement transaction for $6.63 per share, resulting in net proceeds of
approximately $69,000,000 after deducting expenses, fees and commissions. In
September 1995, the Company sold 10,000,000 shares of Common Stock in an
additional private placement transaction for $10.13 per share resulting in net
proceeds of approximately $99,000,000.
15
<PAGE> 17
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
As a result of the 1995 transactions discussed above, the Company received
approximately $232,000,000 in cash proceeds. The Company used a portion of these
proceeds to repay all outstanding borrowings under its revolving line of credit
facility and a substantial portion of the debt related to acquired businesses.
The Company has 5,000,000 authorized shares of preferred stock par value,
$.01 per share, none of which are issued or outstanding. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
establish the rights, preferences and dividends.
6. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the fair market value of the Common Stock at the date of grant.
A summary of stock option and warrant transactions for the following
periods is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1995 1994 1993
--------------- --------------- ---------------
<S> <C> <C> <C>
Options and warrants outstanding at
beginning of period.............. 6,786 6,394 14,854
Granted............................ 44,874 752 2,034
Exercised.......................... (2,804) -- --
Canceled........................... (322) (360) (664)
Expired............................ -- -- (9,830)
--------------- --------------- ---------------
Options and warrants outstanding at
end of period.................... 48,534 6,786 6,394
=============== =============== ===============
Average price of options and
warrants exercised............... $4.02 $-- $--
Average price of options and
warrants outstanding at end
of period........................ $4.77 $3.80 $3.99
Prices of options and warrants
outstanding at end of period..... $1.05 to $15.50 $ 1.05 to $7.25 $ 1.05 to $7.25
Vested options and warrants at end
of period........................ 39,038 3,656 2,800
Options available for future grants
at end of period................. 4,344 5,698 5,690
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. On May 3, 1991, the Company filed an action against
G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United
States District Court for the Central District of California (the "Court"). The
Company requested a declaratory judgment that it did not anticipatorily breach a
merger agreement (the "Merger Agreement") between the Company and GI and that
the Merger Agreement had been properly terminated. The Company also sought to
recover $600,000 from GI, plus interest and costs, with respect to a certain
financial guaranty provided by the Company in 1990 for the benefit
16
<PAGE> 18
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED)
(CONTINUED)
of GI. In response to the Company's action, GI filed a counterclaim alleging
that the Company breached the Merger Agreement and that it had suffered damages
in excess of $16,000,000. In August 1993, the Court rendered a ruling favorable
to the Company which GI appealed. In March 1995, the United States Court of
Appeals for the Ninth Circuit vacated the August 1993 decision and remanded the
case for further proceedings. The Court has commenced proceedings that may lead
to a trial on damages.
Subsequent to the commencement of the Company's litigation in this matter,
GI filed for protection under Chapter 11 of the Bankruptcy Code.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 alleging various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case was scheduled for trial in May 1996, but by stipulation of the parties the
trial date has been postponed pending the outcome of settlement discussions. By
mutual agreement of the parties, the litigation was settled and the matter was
dismissed with prejudice in October 1996. Such settlement had no material
impact on the Company's consolidated financial position, results of operations
or cash flows.
The Company's solid waste and environmental services activities are
conducted in the context of a developing and changing statutory and regulatory
framework, aggressive government enforcement and a highly visible political
environment. Governmental regulation of the waste management industry requires
the Company to obtain and retain numerous governmental permits to conduct
various aspects of its operations. These permits are subject to revocation,
modification or denial. The costs and other capital expenditures which may be
required to obtain or retain the applicable permits or comply with applicable
regulations could be significant.
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to obtain a variance under California
regulations to reclassify the Filters as a special waste so they may be left in
the landfill. If this occurs, the State, regional and local regulatory agencies
may nevertheless require that the affected area of the landfill be capped and
closed. In the event that the variance is not granted, remedial measures may be
required based on the Filters' classification as a California hazardous waste.
One of those measures could include the removal of the Filters or the closure of
a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) if so, what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with the
resolution of this matter, including loss of airspace at the landfill, in the
United States District Court for the Southern District of California, alleging
claims for CERCLA response costs recovery and intentional misrepresentation
among other claims. This suit was settled in November 1996 without material
impact on the Company's consolidated financial position, results of operations
or cash flows.
While the results of the legal and environmental proceedings described
above and other proceedings which arose in the normal course of business cannot
be predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial
17
<PAGE> 19
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
position. However, unfavorable resolution of each matter individually or in the
aggregate could affect the consolidated results of operations or cash flows for
the quarterly periods in which they are resolved.
Lease Commitments. The Company and its subsidiaries lease portions of
their premises and certain equipment under various operating lease agreements.
At December 31, 1995, total minimum rental commitments becoming payable under
all operating leases are as follows:
<TABLE>
<S> <C>
1996........................................................................ $1,940
1997........................................................................ $1,285
1998........................................................................ $ 733
1999........................................................................ $ 401
2000........................................................................ $ 119
Thereafter.................................................................. $ 94
</TABLE>
Total rental expense incurred under operating leases was $4,344,000,
$3,672,000 and $2,688,000 in 1995, 1994 and 1993, respectively.
8. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per common and common equivalent share are based on the combined
weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing earnings per common and common equivalent
share, the Company utilizes the modified treasury stock method.
The computations of weighted average common and common equivalent shares
used in the calculation of primary and fully diluted earnings per share for the
following periods are presented below:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
--------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Primary:
Common shares outstanding..................... 161,821 96,456 96,782
Common equivalent shares...................... 53,104 166 320
Weighted average treasury shares purchased.... (14,202) 298 --
Effect of using weighted average common and
common equivalent shares outstanding....... (66,300) -- --
------ ------ ------
134,423 96,920 97,102
======= ====== ======
Fully diluted:
Common shares outstanding..................... 161,821 96,456 96,782
Common equivalent shares...................... 53,104 166 320
Weighted average treasury shares purchased.... (7,646) 298 --
Effect of using weighted average common and
common equivalent shares outstanding....... (66,000) -- --
------- ------ ------
141,279 96,920 97,102
======= ====== ======
</TABLE>
9. DISCONTINUED OPERATIONS
In 1994, the Company announced the contemplation of a plan to spin-off
RESI, its hazardous waste services segment. This segment of the Company's
business has been accounted for as a discontinued operation and, accordingly,
the Company restated its Consolidated Financial Statements presented prior to
that date to report separately the operating results of these discontinued
operations. In April 1995, Republic
18
<PAGE> 20
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
shareholders received one share of common stock of RESI for every ten shares of
Common Stock of Republic owned on April 21, 1995 in connection with the spin-off
of RESI. Approximately 5,400,000 RESI shares were distributed to Republic
shareholders (the "Distribution"). Revenue of the discontinued operations of
RESI was $12,148,000, $46,599,000 and $61,617,000 in 1995, 1994 and 1993,
respectively. The net income (loss) of the discontinued operations of RESI was
($293,000), $2,684,000 and ($14,579,000) in 1995, 1994 and 1993, respectively.
In connection with the Distribution, the Company entered into a
distribution agreement with RESI which sets forth the terms of the Distribution.
Under this agreement, Republic contributed the intercompany balance to RESI's
equity at the date of the Distribution. In April 1995, Republic contributed
approximately $2,500,000 to RESI to repay RESI's indebtedness and to provide
working capital to RESI. Additionally, the Company reclassified approximately
$36,300,000 to retained earnings from additional paid-in capital to effect the
spin-off under Delaware law. As a result of these transactions, the Company's
equity at the date of the Distribution was reduced by approximately $23,600,000.
10. RESTRUCTURING AND UNUSUAL CHARGES
During the three months ended December 31, 1993, the Company recorded
restructuring and unusual charges of $10,040,000 based on the Company's
reevaluation of each of its solid waste operations. As a result of this
reevaluation, the Company decided to close one of its facilities due to low
waste volumes and abandon its permitting effort at another facility because of
limited market opportunity in that area and delays in the permitting process. In
accordance with industry standards, the Company provides for closure and
post-closure over the life of a facility. Accordingly, the Company fully
provided for these costs on the closed facility. The provision for closure and
post-closure and the write-off of property and equipment and accumulated
permitting costs associated with these facilities totaled $6,600,000. In
conjunction with the reevaluation, the Company also decided to terminate certain
contracts and employees. Costs related to employee relocations and terminations
and other contract terminations totaled $1,200,000. In addition, the Company
also reevaluated its exposure related to litigation and environmental matters
and provided additional accruals aggregating $2,200,000 for the costs to defend
or settle certain litigation and environmental matters.
11. OPERATIONS BY INDUSTRY SEGMENT
The Company is a holding company with major business segments in solid
waste collection, disposal and recycling services, electronic security services
for commercial and residential use and vehicle retailing and related businesses.
19
<PAGE> 21
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
The following tables present financial information regarding the Company's
different industry segments for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Solid waste services................................. $245,339 $176,260 $146,107
Electronic security services......................... 49,826 41,913 36,388
Automobile retailing................................. 73 -- --
-------- -------- --------
$295,238 $218,173 $182,495
======== ======== ========
Operating income (loss):
Solid waste services................................. $ 31,687 $ 23,201 $ 4,224
Electronic security services......................... 8,255 2,352 114
Automobile retailing................................. (4,063) -- --
-------- -------- --------
$ 35,879 $ 25,553 $ 4,338
======== ======== ========
Depreciation, depletion and amortization:
Solid waste services................................. $ 17,727 $ 15,414 $ 13,238
Electronic security services......................... 4,946 4,111 2,353
Automobile retailing................................. -- -- --
-------- -------- --------
$ 22,673 $ 19,525 $ 15,591
======== ======== ========
Capital expenditures and investment in subscriber
accounts:
Solid waste services................................. $ 51,436 $ 22,620 $ 12,243
Electronic security services......................... 17,459 18,275 10,643
Automobile retailing................................. 10,015 -- --
-------- -------- --------
$ 78,910 $ 40,895 $ 22,886
======== ======== ========
Assets:
Solid waste services................................. $514,220 $202,468 $179,837
Electronic security services......................... 43,834 34,447 20,678
Automobile retailing................................. 24,412 -- --
Net assets of discontinued operations................ -- 20,292 16,872
-------- -------- --------
$582,466 $257,207 $217,387
======== ======== ========
</TABLE>
20
<PAGE> 22
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1995 and 1994.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenue............................................. 1995 $63,094 $69,531 $78,054 $84,559
1994 $50,131 $54,088 $56,070 $57,884
Gross profit........................................ 1995 $22,183 $24,211 $24,133 $32,400
1994 $17,066 $17,593 $19,723 $20,416
Income from continuing operations................... 1995 $ 3,351 $ 3,729 $ 3,886 $ 8,955
1994 $ 2,878 $ 4,261 $ 5,097 $ 4,613
Net income.......................................... 1995 $ 3,859 $ 3,729 $ 3,886 $ 8,154
1994 $ 2,732 $ 5,088 $ 6,085 $ 5,628
Earnings per share from continuing operations....... 1995 $ .03 $ .04 $ .03 $ .05
1994 $ .03 $ .04 $ .05 $ .05
</TABLE>
21
<PAGE> 23
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
SEPTEMBER 30, ---------- ----------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents................................................... $ 190,115 $ 176,525 $ 27,183
Receivables, net............................................................ 322,794 210,102 218,977
Revenue earning vehicles, net............................................... 2,201,583 1,478,409 1,732,515
Inventory................................................................... 27,954 14,924 4,104
Prepaid expenses and other current assets................................... 283,208 119,353 147,465
------------- ---------- ----------
TOTAL CURRENT ASSETS.................................................. 3,025,654 1,999,313 2,130,244
Property and equipment, net................................................... 547,391 418,934 352,077
Investment in subscriber accounts, net of accumulated amortization of $17,603,
$11,446 and $6,977, respectively............................................ 78,940 42,240 24,193
Intangible assets, net of accumulated amortization of $21,856, $11,402 and
$4,406, respectively........................................................ 197,640 117,478 31,730
Other assets.................................................................. 12,449 5,246 29,411
------------- ---------- ----------
TOTAL ASSETS.......................................................... $ 3,862,074 $2,583,211 $2,567,655
============= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................................ $ 164,685 $ 136,783 $ 116,874
Accrued liabilities......................................................... 112,115 32,556 40,747
Estimated auto liability claims............................................. 125,761 112,448 125,331
Revenue earning vehicle financing........................................... 2,254,703 1,546,122 1,794,802
Current maturities of other long-term debt and notes payable................ 37,258 32,380 40,294
Other current liabilities................................................... 39,864 41,948 27,975
------------- ---------- ----------
TOTAL CURRENT LIABILITIES............................................. 2,734,386 1,902,237 2,146,023
Other long-term debt and notes payable, net of current maturities............. 215,153 120,673 128,882
Other liabilities............................................................. 80,282 79,258 94,374
------------- ---------- ----------
TOTAL LIABILITIES..................................................... 3,029,821 2,102,168 2,369,279
------------- ---------- ----------
COMMITMENTS AND CONTINGENCIES.................................................
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01 per share; 5,000,000 shares authorized; none
issued.................................................................... -- -- --
Common stock, par value $.01 per share; 500,000,000, 350,000,000 and
100,000,000 shares authorized, respectively; 213,152,330, 183,944,523 and
118,580,227 shares issued and outstanding, respectively................... 2,131 1,839 1,186
Additional paid-in capital.................................................. 757,308 425,532 122,070
Retained earnings........................................................... 70,499 51,087 73,013
Translation adjustment...................................................... 2,315 2,585 2,780
Notes receivable arising from stock purchase agreements..................... -- -- (673)
------------- ---------- ----------
TOTAL SHAREHOLDERS' EQUITY............................................ 832,253 481,043 198,376
------------- ---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................ $ 3,862,074 $2,583,211 $2,567,655
============= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
22
<PAGE> 24
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Vehicle rentals...................... $1,170,360 $1,065,501 $1,389,351 $1,311,967 $1,148,251
Service revenue...................... 371,714 210,679 295,238 218,173 182,495
Vehicle sales........................ 51,657 -- -- -- --
Other................................ 3,837 1,868 2,303 955 947
---------- -------- -------- ---------- ----------
1,597,568 1,278,048 1,686,892 1,531,095 1,331,693
Expenses:
Vehicle rental operating expenses.... 437,505 450,393 594,323 496,588 371,755
Cost of services..................... 250,307 140,152 192,311 143,375 121,640
Cost of vehicle sales................ 47,309 -- -- -- --
Selling, general and
administrative..................... 787,254 683,668 906,931 835,296 783,502
Restructuring and unusual charges.... -- -- -- -- 10,040
---------- -------- -------- ---------- ----------
Operating income (loss)................ 75,193 3,835 (6,673) 55,836 44,756
Interest income........................ 12,984 5,795 11,392 4,993 3,931
Interest expense....................... (20,603) (13,063) (19,635) (13,707) (14,022)
Other income........................... 4,303 2,500 992 927 593
---------- -------- -------- ---------- ----------
Income (loss) from continuing
operations before income taxes....... 71,877 (933) (13,924) 48,049 35,258
Income tax provision (benefit)......... 32,454 1,272 (2,385) 19,396 16,529
---------- -------- -------- ---------- ----------
Income (loss) from continuing
operations........................... 39,423 (2,205) (11,539) 28,653 18,729
Discontinued operations:
Income (loss) from discontinued
operations, net.................... -- 508 (293) 2,684 (14,579)
---------- -------- -------- ---------- ----------
Net income (loss)...................... $ 39,423 $ (1,697) $ (11,832) $ 31,337 $ 4,150
========== ========== ========== ========== ==========
Fully diluted earnings (loss) per
common and common equivalent share:
Continuing operations................ $ .16 $ (.02) $ (.08) $ .24 $ .16
Discontinued operations.............. -- .01 -- .02 (.13)
---------- ---------- ---------- ---------- ----------
Net income (loss)............. $ .16 $ (.01) $ (.08) $ .26 $ .03
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 25
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NOTES
RECEIVABLE
ARISING
ADDITIONAL FROM STOCK
COMMON PAID-IN RETAINED TRANSLATION PURCHASE
STOCK CAPITAL EARNINGS ADJUSTMENT AGREEMENTS
------ ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992................ $1,189 $ 109,881 $ 97,344 $ 3,015 $(673)
Contributions to capital from former
owners of pooled companies............. -- 3,480 279 -- --
Distributions to former owners of pooled
companies.............................. -- -- (42,005) -- --
Other..................................... -- 2,940 (418) 100 --
Net income................................ -- -- 4,150 -- --
------ -------- -------- ------- -----
BALANCE AT DECEMBER 31, 1993................ 1,189 116,301 59,350 3,115 (673)
Distributions to former owners of pooled
companies.............................. -- -- (17,868) -- --
Other..................................... (3) 5,769 194 (335) --
Net income................................ -- -- 31,337 -- --
------ -------- -------- ------- -----
BALANCE AT DECEMBER 31, 1994................ 1,186 122,070 73,013 2,780 (673)
Sales of common stock..................... 415 231,616 -- -- --
Stock issued in acquisitions.............. 172 82,811 -- -- --
Exercise of stock options and warrants,
including tax benefit of $4,068........ 28 13,346 -- -- --
Reclassification of additional paid-in
capital to effect the spin-off......... -- (36,305) 36,305 -- --
Spin-off of Republic Environmental
Systems, Inc........................... -- -- (23,579) -- --
Distributions to former owners of pooled
companies.............................. -- -- (22,932) -- --
Other..................................... 38 11,994 112 (195) 673
Net loss.................................. -- -- (11,832) -- --
------ -------- -------- ------- -----
BALANCE AT DECEMBER 31, 1995................ $1,839 $ 425,532 $ 51,087 $ 2,585 $ --
====== ========= ========= ======= =====
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 26
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------------- ---------------------------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES OF CONTINUING
OPERATIONS:
Income (loss) from continuing operations............ $ 39,423 $ (2,205) $ (11,539) $ 28,653 $ 18,729
Adjustments to reconcile income (loss) from
continuing operations to net cash provided by
continuing operations:
Restructuring and unusual charges................. -- -- -- -- 10,040
Depreciation and amortization..................... 368,328 336,218 445,287 392,069 305,207
Changes in assets and liabilities, net of effects
from business acquisitions:
Accounts receivable............................. (63,075) (31,660) (1,959) (22,186) (16,513)
Prepaid expenses and other assets............... (76,191) 5,861 1,679 (1,030) (12,147)
Accounts payable and accrued liabilities........ 75,607 29,131 4,226 22,338 18,639
Other liabilities............................... 26,773 (18,116) (43,801) 1,673 35,758
----------- ----------- ----------- ----------- -----------
Net cash provided by continuing operations.... 370,865 319,229 393,893 421,517 359,713
----------- ----------- ----------- ----------- -----------
CASH USED BY DISCONTINUED OPERATIONS.................. -- (263) (261) (736) (4,360)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances and loans.................................. (112,900) -- -- -- --
Purchases of revenue earning vehicles from third
party suppliers................................... (1,808,621) (1,666,917) (1,961,343) (2,762,648) (2,276,065)
Purchases of revenue earning vehicles from related
party suppliers................................... (567,954) (295,071) (351,755) (551,157) (576,895)
Sales of revenue earning vehicles................... 1,281,044 1,580,650 2,182,698 2,673,654 2,214,528
Business acquisitions, net of cash acquired......... (17,046) (5,497) (7,304) (9,459) (5,664)
Purchases of property and equipment................. (94,055) (57,349) (87,853) (54,820) (47,307)
Investment in subscriber accounts................... (24,943) (10,775) (15,980) (17,512) (9,569)
Other............................................... 7,370 22,307 23,236 (5,920) 11,188
----------- ----------- ----------- ----------- -----------
Net cash used in investing activities......... (1,337,105) (432,652) (218,301) (727,862) (689,784)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of revenue earning vehicle financing....... (1,717,883) (1,933,683) (2,606,436) (3,071,250) (2,674,907)
Proceeds from revenue earning vehicle financing..... 2,427,356 2,002,832 2,348,791 3,348,787 3,048,121
Payments of other long-term debt and notes
payable........................................... (55,304) (69,070) (120,282) (25,817) (40,379)
Proceeds from other long-term debt and notes
payable........................................... 121,633 76,244 94,339 40,268 30,201
Sales of common stock............................... 197,583 232,031 232,031 -- --
Exercise of stock options and warrants.............. 9,355 6,333 9,306 -- --
Other............................................... (2,770) 12,258 16,173 10,472 (24,742)
----------- ----------- ----------- ----------- -----------
Net cash provided by financing activities..... 979,970 326,945 (26,078) 302,460 338,294
----------- ----------- ----------- ----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (140) 1,887 89 (1,344) (1,243)
----------- ----------- ----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS................. 13,590 215,146 149,342 (5,965) 2,620
CASH AND CASH EQUIVALENTS:
Beginning of Period................................. 176,525 27,183 27,183 33,148 30,528
----------- ----------- ----------- ----------- -----------
End of Period....................................... $ 190,115 $ 242,329 $ 176,525 $ 27,183 $ 33,148
========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
25
<PAGE> 27
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Supplemental Consolidated Financial Statements include the
accounts of Republic Industries, Inc. (formerly Republic Waste Industries, Inc.)
and its subsidiaries ("Republic" or the "Company"). All significant intercompany
accounts and transactions have been eliminated. In 1994, the Board of Directors
authorized management to pursue a plan to distribute its hazardous waste
services segment, Republic Environmental Systems, Inc. ("RESI"), now known as
International Alliance Services, Inc., to Republic shareholders. Accordingly, as
discussed in Note 10, this segment has been accounted for as a discontinued
operation and the accompanying Supplemental Consolidated Financial Statements
presented herein have been restated to report separately the net assets and
operating results of these discontinued operations.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements in order to conform with the financial statement
presentation of the current period.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
In the opinion of management, the unaudited Supplemental Consolidated
Financial Statements contain all material adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the supplemental consolidated
financial position of the Company at September 30, 1996, and the supplemental
consolidated results of its operations and cash flows for the nine months ended
September 30, 1996 and 1995. Operating results for these interim periods are not
necessarily indicative of the results that can be expected for a full year.
The accompanying Supplemental Consolidated Financial Statements include the
financial position and results of operations of Kertz Security Systems II, Inc.
and Kertz Security Systems, Inc. (collectively, "Kertz"), with which the Company
merged in August 1995; United Waste Service, Inc. ("United") and Southland
Environmental Services, Inc. ("Southland"), with which the Company merged in
October 1995; J.C. Duncan Company, Inc. and affiliates ("Duncan"), Garbage
Disposal Service, Inc. ("GDS"), Fennell Container Co., Inc. and affiliates
("Fennell") and Scott Security Systems and affiliates ("Scott"), with which the
Company merged in November 1995; The Denver Fire Reporter & Protective Co. and
affiliate ("Denver Alarm") and Incendere, Inc. and affiliates ("Schaubach"),
with which the Company merged in February 1996; and CarChoice, Inc.
("CarChoice") which the Company acquired in August 1996. These transactions were
accounted for under the pooling of interests method of accounting and,
accordingly, the Supplemental Consolidated Financial Statements have been
previously restated as if the Company and Kertz, United, Southland, Duncan, GDS,
Fennell, Scott, Denver Alarm, Schaubach and CarChoice had operated as one entity
since inception. See Note 2 for further discussion of these transactions.
All per share data and numbers of shares of common stock for all periods
included in the financial statements and notes thereto have been adjusted to
reflect a two-for-one stock split in the form of a 100% stock dividend that was
effected in June 1996, as more fully described in Note 6.
Supplemental Consolidated Financial Statements. The accompanying
Supplemental Consolidated Financial Statements give retroactive effect to the
acquisition of Alamo Rent-A-Car, Inc. and Affiliates ("Alamo") which took place
in November 1996. The acquisition of Alamo has been accounted for under the
pooling of interests method of accounting. See Note 2 for further discussion of
this transaction.
Accounts Receivable. Accounts receivable include trade receivables from
the Company's various operating business segments which consist of amounts due
from retail and service customers, travel agents and
26
<PAGE> 28
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
tour operators. Accounts receivable also include vehicle receivables from
automobile manufacturers which consist of amounts due under vehicle repurchase
programs and incentive programs and also from vehicle renters for damages
incurred on revenue earning vehicles.
The components of accounts receivable, net of allowance for doubtful
accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------
1996 1995 1994
------------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Trade..................................... $ 171,625 $113,283 $ 85,461
Vehicle................................... 141,605 94,408 111,519
Other..................................... 18,099 10,184 26,307
------------- -------- --------
331,329 217,875 223,287
Less: allowance for doubtful accounts..... (8,535) (7,773) (4,310)
------------- -------- --------
$ 322,794 $210,102 $218,977
============= ======== ========
</TABLE>
Investments. Investments have a maturity of three months or less, are
classified as held-to-maturity securities, are recorded at amortized cost
adjusted for the amortization or accretion of premiums or discounts, which
approximates market value and are included in other current assets.
Investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
------- -------
<S> <C> <C>
Eurodollar deposits...................................... $26,727 $36,784
Repurchase agreements.................................... 24,000 --
Certificate of deposit................................... 9,548 44,358
Other.................................................... 2,351 5,101
------- -------
$62,626 $86,243
======= =======
</TABLE>
Investments serve as collateral for irrevocable letters of credit issued in
favor of the Company's auto liability insurance carriers. Collateral equal to
the stated amount of the letter of credit is required. At December 31, 1995,
letters of credit totalling $31,800,000 expire October 1, 1996. The Company also
has a $7,600,000 irrevocable letter of credit issued in connection with airport
facilities, expiring October 15, 1996, under which no amounts were outstanding
at December 31, 1995. The letter of credit is secured by investments of
$3,800,000. Repurchase agreements are restricted for the settlement of specific
estimated auto liability claims.
Revenue Earning Vehicles and Depreciation. Revenue earning vehicles are
stated at cost less accumulated depreciation and allowances for stolen vehicles.
The straight-line method is used to depreciate revenue earning vehicles to their
estimated residual values over the anticipated periods of use based on the
Company's fleet plan, typically ranging from 4 to 20 months in the United States
and from 4 to 9 months in Canada and Europe. Depreciation expense also includes
those costs relating to losses from damaged and wrecked vehicles, and gains and
losses on vehicle sales in the ordinary course of business.
A summary of revenue earning vehicles is shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
SEPTEMBER ---------- ----------
30,
1996
------------
(UNAUDITED)
<S> <C> <C> <C>
Revenue earning vehicles............ $2,459,240 $1,701,945 $1,870,795
Less accumulated depreciation....... (257,657) (223,536) (138,280)
------------ ---------- ----------
$2,201,583 $1,478,409 $1,732,515
============ ========= =========
</TABLE>
27
<PAGE> 29
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Revenue earning vehicles with depreciated cost of $1,310,000,000 and
$1,640,000,000 at December 31, 1995 and 1994, respectively were acquired under
programs that allow the Company to require counterparties to repurchase vehicles
held for periods of up to 24 months. The Company estimates the future value of
revenue earning vehicles under such repurchase programs to be $1,000,000,000 and
$1,200,000,000 at December 31, 1995 and 1994, respectively. The agreements
contain varying mileage and damage limitations.
The Company also leases vehicles under operating lease agreements which
require the Company to provide normal maintenance and liability coverage. The
agreements generally have terms of 4 to 12 months. Many agreements provide for
an option to terminate the leases early and allow the purchase of leased
vehicles subject to certain restrictions. Most leases provide for an initial
minimum monthly charge, with contingent rental charges for changes in interest
rates and adjustments for wear, damage and mileage in excess of stipulated
amounts. Contingent rental charges totaled $13,191,000, $2,774,000 and
$1,983,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
Gains (losses) on sales of revenue earning vehicles were $(6,431,000),
$(852,000) and $871,000 for the years ended December 31, 1995, 1994 and 1993,
respectively.
Inventory. Inventory consists primarily of retail vehicles held for sale
valued using the specific identification method. Cost includes acquisition
expenses as well as charges to bring inventory units to their existing location
and condition, including reconditioning cost. Parts and accessories are valued
at the lower of cost, using the first-in, first-out method, or market.
Property and Equipment. Property and equipment are recorded at cost.
Expenditures for major additions and improvements are capitalized, while minor
replacements, maintenance and repairs are charged to expense as incurred. When
property is retired or otherwise disposed of, the cost and accumulated
depreciation are removed from the accounts and any resulting gain or loss is
reflected in current operations.
The Company revises the estimated useful lives of property and equipment
acquired through its business acquisitions to conform with its policies
regarding property and equipment. Depreciation is provided over the estimated
useful lives of the assets involved using the straight-line method. The
estimated useful lives are: twenty to forty years for buildings and
improvements, three to fifteen years for trucks and equipment and five to ten
years for furniture and fixtures.
Landfills are stated at cost and are depleted based on consumed airspace.
Landfill improvements include direct costs incurred to obtain a landfill permit
and direct costs incurred to construct and develop the site. These costs are
depleted based on consumed airspace. No general and administrative costs are
capitalized as landfills and landfill improvements.
Depreciation, amortization and depletion expense related to property and
equipment was $37,994,000, $34,230,000 and $30,501,000 in 1995, 1994 and 1993,
respectively.
A summary of property and equipment is shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ---------------------
1996 1995 1994
------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Land, landfills and improvements................... $ 236,258 $ 200,930 $ 187,997
Furniture, fixtures and equipment.................. 366,388 235,004 191,534
Buildings and improvements......................... 190,291 180,254 149,408
--------- --------- ---------
792,937 616,188 528,939
Less: accumulated depreciation and amortization.... (245,546) (197,254) (176,862)
--------- --------- ---------
$ 547,391 $ 418,934 $ 352,077
========= ========= =========
</TABLE>
Investment in Subscriber Accounts. Investment in subscriber accounts
consists of certain capitalized costs associated with new monitoring systems
installed by the Company's electronic security service business and the cost of
acquired subscriber accounts.
28
<PAGE> 30
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The costs are amortized over periods ranging from eight to twelve years
(based on estimated and historical customer attrition rates) on a straight-line
basis. Amortization expense related to investment in subscriber accounts was
$4,357,000, $3,377,000 and $1,801,000 in 1995, 1994 and 1993, respectively.
Intangible Assets. Intangible assets consist primarily of the cost of
acquired businesses in excess of the fair value of net tangible assets acquired.
The cost in excess of the fair value of net tangible assets is amortized over
periods ranging from fifteen to forty years on a straight-line basis.
Amortization expense related to intangible assets was $4,344,000, $1,939,000 and
$1,579,000 in 1995, 1994 and 1993, respectively.
The Company continually evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of intangible
assets or whether the remaining balance of intangible assets should be evaluated
for possible impairment. The Company uses an estimate of the related
undiscounted net income over the remaining life of the intangible assets in
measuring their recoverability.
Accrued Environmental and Landfill Costs. Accrued environmental and
landfill costs are included in other liabilities and include landfill site
closure and post-closure costs. Landfill site closure and post-closure costs
include estimated costs to be incurred for final closure of the landfills and
estimated costs for providing required post-closure monitoring and maintenance
of landfills. These costs are accrued based on consumed airspace. Estimated
aggregate closure and post-closure costs are to be fully accrued for these
landfills at the time that such facilities cease to accept waste and are closed.
Excluding existing accruals at the end of 1995, approximately $7,871,000 of such
costs are to be expensed over the remaining lives of these facilities. The
Company estimates its future cost requirements for closure and post-closure
monitoring and maintenance for its solid waste facilities based on its
interpretation of the technical standards of the United States Environmental
Protection Agency's Subtitle D regulations. These estimates do not take into
account discounts for the present value of such total estimated costs.
In addition to the Company's solid waste collection and disposal
operations, the Company's vehicle rental operations also involve the storage and
dispensing of petroleum products, primarily gasoline. The Company records as
expense, on a current basis, costs associated with remediation of environmental
pollution. The Company also accrues for its proportionate share of costs
associated with the remediation of environmental pollution when it becomes
probable that a liability has been incurred and the amount can be reasonably
estimated. Estimated costs include anticipated site testing, consulting,
remediation, disposal, post-remediation monitoring and legal fees, as
appropriate. The liability does not reflect possible recoveries from insurance
companies or reimbursement of remediation costs.
The Company periodically reassesses its method and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which the Company's facilities are located and the expectations
regarding costs of securing environmental services.
As discussed in Note 8, the Company is involved in litigation and is
subject to ongoing environmental investigations by certain regulatory agencies,
as well as other claims and disputes that could result in additional litigation
which are in the normal course of business.
Estimated Auto Liability Claims. The Company assumes responsibility for up
to $1,000,000 per claim under its domestic automobile rental liability insurance
program for property damage and bodily injury claims. Costs in excess of
$1,000,000 and up to $50,000,000 per claim are insured under various contracts
with insurance carriers. Estimated costs for claims up to $1,000,000 are
actuarially determined based on historical claims experience, adjusted for
current trends and changes in claims-handling procedures, and are discounted to
the net present value. The assumptions used have a significant effect on the
amounts reported. During the year ended December 31, 1994, the Company changed
its methodology used to discount its estimated automobile rental liability
claims to a weighted average rate based on Treasury notes with maturity dates
related to the actuarially determined payout curve. Previously, the rate used
for discounting was based on a
29
<PAGE> 31
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
three-year average of U.S. Treasury notes with three-year maturities. Management
believes its current methodology better reflects the anticipated payout of
claims. The rates used at December 31, 1995 and 1994 were 5.30% and 7.62%,
respectively. The effect of the change in 1994 was a reduction in the accrual of
$3,700,000.
In its foreign car rental operations, the Company assumes responsibility,
subject to a deductible, per incident, under the auto liability insurance
programs and for property and bodily injury claims.
The Company also assumes responsibility, subject to a deductible, per
incident, under its vehicle collision damage and theft insurance policy. Losses
are accrued as incurred.
Revenue Recognition. Revenue from the Company's automotive business
segments consist primarily of vehicle rentals and retail sales of used vehicles.
Revenue is recognized at the time vehicles are rented or sold. Revenue from the
Company's solid waste services segment includes primarily waste collection and
landfill tipping fees. Revenue from the Company's electronic security services
business results from monitoring contracts for security systems and fees charged
for the sale and installation of such systems. The Company recognizes revenue
from its solid waste and electronic security services segments in the period
services are provided or products are sold.
Financial Instruments. The Company utilizes interest rate swaps in the
management of interest rate risk. The differentials between the amounts paid and
received from these swaps are recognized over the terms of the agreements and
are recorded as adjustments to interest expense. Amounts receivable or payable
under the agreements are included in other receivables or accrued expenses in
the consolidated balance sheets and were not material at December 31, 1995 or
1994.
Foreign Currency Translation. Assets and liabilities of foreign
subsidiaries are translated into United States dollars at the current rates of
exchange. Income and expenses are translated at the average rate of exchange in
effect during the period. The related translation adjustments are reported as a
separate component of shareholders' equity. Foreign currency transaction gains
and losses are included in determining net income and are not material.
Advertising. The Company expenses the cost of advertising as incurred or
when such advertising initially takes place. No advertising costs were
capitalized at December 31, 1995 or 1994. Advertising expense was $62,554,000,
$69,482,000 and $41,724,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
Statements of Cash Flows. The Company considers all highly liquid
investments with purchased maturities of three months or less to be cash
equivalents unless the investments are legally or contractually restricted for
more than three months. The effect of non-cash transactions related to business
combinations, as discussed in Note 2, and other non-cash transactions are
excluded from the Statements of Cash Flows.
New Accounting Pronouncements. In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards ("SFAS") No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of", which was adopted by the Company in the first quarter
of 1996 without material effect. SFAS No. 121 establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles, and
goodwill related to those assets to be held and used, and for long-lived assets
and certain identifiable intangibles to be disposed of. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation", which requires adoption in 1996. SFAS No. 123
requires that the Company's financial statements include certain disclosures
about stock-based employee compensation arrangements and permits the adoption of
a change in accounting for such arrangements. Changes in accounting for
stock-based compensation are optional and the Company will adopt only the
disclosure requirements in its 1996 annual report on Form 10-K.
30
<PAGE> 32
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS
PENDING ACQUISITIONS
In June 1996, the Company signed a definitive agreement to acquire
Continental Waste Industries, Inc. ("Continental") in a merger transaction.
Continental provides integrated solid waste management services to residential,
commercial and industrial customers primarily in the mid-south and eastern
United States. Under the terms of the agreement, each share of common stock of
Continental would be exchanged, on a tax-free basis, for .80 of a share of the
Company's Common Stock. As of September 30, 1996, Continental had approximately
15,349,000 shares of common stock issued and outstanding. The transaction, which
will be accounted for under the pooling of interests method of accounting, is
subject to approval of Continental's shareholders and other customary closing
conditions, including regulatory approvals. Certain shareholders of Continental,
representing approximately 23% of Continental's outstanding common stock, have
agreed to vote their shares in favor of the transaction and have granted to the
Company irrevocable proxies to vote or to execute written consents with respect
to their shares in favor of the transaction.
In June 1996, the Company signed a definitive agreement to acquire
Addington Resources, Inc. ("Addington") in a merger transaction. Addington
provides integrated solid waste disposal services including landfill, collection
and recycling services for cities and counties in the southeastern United
States. Under the terms of the agreement, each share of common stock of
Addington would be exchanged, on a tax-free basis, for .90 of a share of the
Company's Common Stock. As of September 30, 1996, Addington had approximately
15,194,000 shares of common stock issued and outstanding. The transaction, which
will be accounted for under the pooling of interests method of accounting, is
subject to approval by the shareholders of Addington and other customary closing
conditions, including regulatory approvals. Six of Addington's shareholders,
representing approximately 45% of Addington's outstanding common stock, have
granted to the Company irrevocable proxies to, and agreed to, vote or to execute
written consents with respect to their shares in favor of the transaction.
In May 1996, after approval by a special committee of disinterested members
of the Company's Board of Directors, the Company signed a definitive agreement
to acquire AutoNation. AutoNation is a privately-owned company developing a
chain of megastores for the sale of new and used vehicles in a customer friendly
environment and is partially owned by the Company's Chairman and Chief Executive
Officer, and certain other officers and directors of the Company. The
transaction, which will be accounted for under the purchase method of
accounting, is subject to final approval by the shareholders of the Company and
other customary closing conditions, including regulatory approvals. It is
contemplated that the Company will issue approximately 17,467,000 shares of its
Common Stock in connection with the transaction.
COMPLETED ACQUISITIONS
Significant businesses acquired and accounted for under the pooling of
interests method of accounting have been included retroactively in the financial
statements as if the companies had operated as one entity since inception.
Businesses acquired through December 31, 1995 and accounted for under the
purchase method of accounting are included in the financial statements from the
date of acquisition.
In November 1996, the Company acquired Alamo in a merger transaction. Alamo
is the fourth largest rental car company in the United States and operates a
fleet of approximately 130,000 vehicles. Alamo operates in 42 states in the
United States and has operations in 10 European countries and Canada.
In August 1996, the Company acquired all of the net assets of CarChoice.
CarChoice, which commenced operations in January 1995 and opened its first store
in December 1995, is a developer and operator of used car superstores similar to
those being developed by AutoNation.
31
<PAGE> 33
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1996, the Company acquired all of the outstanding capital stock
of Denver Alarm. Denver Alarm provides installation, monitoring and maintenance
services to residential and commercial customers throughout Colorado.
In February 1996, the Company acquired Schaubach. Schaubach provides solid
waste collection and recycling services to residential, commercial, and
industrial customers in southeastern Virginia and eastern North Carolina and
provides transportation of medical waste throughout the Mid-Atlantic states.
The Company issued an aggregate of 31,831,557 shares of Common Stock to
acquire Alamo, CarChoice, Denver Alarm and Schaubach (the "Pooled Entities"),
all of which have been accounted for under the pooling of interests method of
accounting.
Details of the results of operations of the previously separate companies
for the periods before the pooling of interests combinations were consummated
are as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
----------------------- ------------------------------------
1996 1995 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
The Company................ $ 376,548 $ 185,207 $ 260,315 $ 187,111 $ 154,301
Pooled Entities............ 1,221,020 1,092,841 1,426,577 1,343,984 1,177,392
---------- ---------- ---------- ---------- ----------
$1,597,568 $1,278,048 $1,686,892 $1,531,095 $1,331,693
========= ========= ========= ========= =========
Net income (loss):
The Company................ $ 44,057 $ 13,136 $ 22,919 $ 17,116 $ (17,052)
Pooled Entities............ (4,634) (14,833) (34,751) 14,221 21,202
---------- ---------- ---------- ---------- ----------
$ 39,423 $ (1,697) $ (11,832) $ 31,337 $ 4,150
========= ========= ========= ========= =========
</TABLE>
During the nine months ended September 30, 1996, the Company also acquired
various other businesses in the solid waste and electronic security services
industries which were immaterial to the Company. The aggregate purchase price
paid by the Company related to immaterial acquisitions accounted for under the
purchase method of accounting was approximately $101,039,000 and consisted of
cash and 8,474,286 shares of Common Stock. With respect to immaterial
acquisitions accounted for under the pooling of interests method of accounting,
the Company issued 8,318,800 shares of Common Stock. These acquisitions were not
significant in the aggregate and, consequently, prior period financial
statements were not restated.
In August 1995, the Company merged with Kertz, which provides electronic
security monitoring and maintenance predominantly in the South Florida area. In
October 1995, the Company merged with United and Southland. United provides
solid waste collection, transfer and recycling services in the Atlanta, Georgia
metropolitan area, and Southland provides solid waste collection services in the
Northeast Florida area. In November 1995, the Company merged with Duncan, GDS,
Fennell and Scott. Duncan provides solid waste collection and recycling services
in the Dallas-Fort Worth metropolitan area and throughout west Texas and also
operates two landfills. GDS provides solid waste collection and recycling
services throughout western North Carolina. Fennell is a full-service solid
waste management company, providing services in and around Charleston and
Greenville, South Carolina and also owns a landfill. Scott is an electronic
security alarm company, providing installation, monitoring and maintenance
services in Jacksonville, Orlando and Tallahassee, Florida, and other
metropolitan areas in the southeastern United States, including Charlotte, North
Carolina; Savannah, Georgia and Nashville, Tennessee. The Company issued an
aggregate of 36,255,968 shares of the Company's Common Stock for the above
acquisitions. These acquisitions were accounted for under the pooling of
interests method of accounting and, accordingly, the accompanying Supplemental
32
<PAGE> 34
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Consolidated Financial Statements have previously been restated as if the
Company and Kertz, United, Southland, Duncan, GDS, Fennell and Scott had
operated as one entity since inception.
In August 1995, the Company acquired all of the outstanding shares of
capital stock of Hudson Management Corporation and Envirocycle, Inc.
(collectively, "HMC"). The purchase price paid by the Company was approximately
$72,800,000 and consisted of 16,000,000 shares of Common Stock. HMC, as the
third largest solid waste management company in Florida, provides solid waste
collection and recycling services to commercial, industrial and residential
customers. This acquisition, as well as several other minor business
combinations from January 1, 1993 to December 31, 1995, have been accounted for
under the purchase method of accounting.
The following summarizes the preliminary purchase price allocation for
business combinations accounted for under the purchase method of accounting
(including historical accounts of immaterial acquisitions accounted for under
the pooling of interests method of accounting) consummated during the following
periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------
1996 1995 1995 1994 1993
-------- -------- ------- ------ ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Property and equipment................... $ 65,869 $ 23,822 $17,696 $2,654 $7,744
Investment in subscriber accounts........ 17,914 -- -- -- --
Intangible assets........................ 87,385 76,887 88,818 16,851 338
Working capital (deficiency), net of cash
acquired............................... (33,695) (7,559) (4,693) (1,908) 37
Long-term debt assumed................... (29,563) (14,594) (11,519) (8,138) (1,322)
Other liabilities, net................... (9,731) -- (15) -- (1,133)
Common stock issued...................... (81,133) (73,059) (82,983) -- --
-------- -------- ------- ------ ------
Cash used in acquisitions.............. $ 17,046 $ 5,497 $ 7,304 $9,459 $5,664
======== ======== ======= ====== ======
</TABLE>
In September 1996, Republic announced that the Agreement and Plan of
Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the "ADT
Agreement"), by and among Republic, R.I./Triangle, Ltd. and ADT Limited, a
Bermuda corporation ("ADT"), which provided for the acquisition of ADT by
Republic, had been terminated by mutual agreement of the parties. Included in
selling, general and administrative expenses for the nine months ended September
30, 1996 are approximately $3,000,000 of transaction costs associated with the
terminated ADT Agreement. In connection with the execution of the ADT Agreement,
ADT granted to Republic a warrant (the "ADT Warrant") to purchase 15,000,000
common shares of ADT at a purchase price $20 per share (which approximated fair
market value), subject to certain anti-dilution adjustments. The warrant became
exercisable upon the termination of the ADT Agreement and remains exercisable
until March 1997. Pursuant to the terms of the warrant, ADT has granted to
Republic certain registration rights with respect to the common shares of ADT
issuable to Republic upon exercise of the warrant. Upon termination of the ADT
Agreement, the Company recorded the estimated fair value of the ADT Warrant
totaling approximately $5,670,000 based upon an option pricing model
computation. The Company has recorded $3,000,000 of the $5,670,000 value
attributed to the ADT Warrant as a credit to selling, general and administrative
expenses for the nine months ended September 30, 1996 to offset the transaction
costs incurred in connection with the ADT Agreement as described above. The
remaining value of the ADT Warrant totalling $2,670,000 has been included as a
component of other income for the nine months ended September 30, 1996.
33
<PAGE> 35
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
Notes payable and lines of credit secured by revenue earning vehicles
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
SEPTEMBER 30, ---------- ----------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
Amounts under $750 million revolving credit
agreement and predecessor agreements with
termination date of June 30, 1999; secured by
eligible vehicle collateral and vehicle
receivable balances; interest at formulas based
on prime, Federal funds or LIBOR at the Company's
discretion....................................... $ 576,995 $ 19,393 $ 364,385
Amounts under $580 million loan agreement with
termination date of June 10, 1997; secured by
eligible vehicle collateral and vehicle
receivable balances; interest based on market
dictated commercial paper rates.................. 576,232 579,001 575,857
Senior secured notes payable with interest at fixed
rates ranging from 5.58% to 7.08% with various
maturity dates and amounts as follows: December
15, 1996 -- $133 million; December 15,
1997 -- $25 million; December 15, 1998 -- $113
million; December 15, 2000 -- $94 million; and,
December 15, 2003 -- $80.5 million; secured by
eligible vehicle collateral and vehicle
receivable balances.............................. 445,500 445,500 445,500
Amounts under $250 million loan agreement with
termination date of September 19, 1997; secured
by eligible vehicle collateral and vehicle
receivable balances; interest based on market
dictated commercial paper rates.................. 246,982 236,357 247,965
Amounts under $175 million revolving credit
agreement and predecessor agreements with
termination date of December 1, 1997; secured by
eligible vehicle collateral and vehicle
receivable balances; interest at formulas based
on prime or LIBOR at the Company's discretion.... 134,000 -- --
Amounts under various uncommitted revolving lease
facilities with financing institutions in Great
Britain; secured by eligible vehicle collateral;
interest based on an as quoted basis dictated by
market competition; no stated expiration dates,
reviewed annually................................ 167,998 157,088 72,697
Other, including amounts to be financed after
period end, under various revolving credit
agreements and lease facilities.................. 106,996 108,783 88,398
------------- ---------- ----------
$ 2,254,703 $1,546,122 $1,794,802
============= ========= =========
</TABLE>
34
<PAGE> 36
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain of the notes payable and lines of credit secured by revenue earning
vehicles contain various restrictive covenants, including provisions relating to
the maintenance of tangible net worth and debt to tangible net worth ratios,
incurrence of additional indebtedness, and limitations on the payment of
dividends and certain investments. The effective economic interest rate on notes
payable and lines of credit secured by revenue earning vehicles was 6.94%, 6.02%
and 5.45% at December 31, 1995, 1994 and 1993, respectively. Interest expense on
notes payable and lines of credit secured by revenue earning vehicles is
included as a component of vehicle rental operating expenses in the accompanying
Supplemental Consolidated Statements of Operations.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Interest protection
agreements with several counterparties are used to manage the impact of interest
rate changes. At December 31, 1995 and 1994, the Company effectively converted
interest rates on the following notional principal amounts:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- LATEST
1995 1994 MATURITY
-------- -------- --------------
<S> <C> <C> <C>
Variable-rate (capped) into fixed-rate obligations... $175,000 $ 75,000 February 1997
Variable-rate into fixed-rate obligations............ -- 100,000 September 1995
Fixed-rate into variable-rate obligations............ -- 125,000 December 1995
-------- --------
Aggregate notional principal......................... $175,000 $300,000
======== ========
</TABLE>
35
<PAGE> 37
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt and notes payable consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
SEPTEMBER 30, -------- --------
1996
-------------
(UNAUDITED)
<S> <C> <C> <C>
11 3/4% Senior Notes due 2006, interest payable
semi-annually on January 31 and July 31 of each year,
commencing July 31, 1996; unsecured...................... $ 100,000 $ -- $ --
Mortgages payable to GMAC and predecessor agreements with
interest at 9.193%; payable in monthly installments, due
July 2005; secured by real property...................... 108,169 107,840 69,335
Note payable to bank with interest at a formula based on
LIBOR or prime paid quarterly; secured by a building;
principal payable in quarterly installments beginning
March 1996 and based on the balance outstanding at that
date, due December 2003.................................. 7,800 8,700 8,700
Amounts under Great Britain pound (GBP) 10 million
revolving credit commitment to expire December 21, 1996;
interest based on Sterling LIBOR plus 125 basis points or
base rate plus 125 basis points; secured by non-vehicle
equipment and leaseholds................................. 13,563 11,431 9,708
Revolving credit facility, secured by the stock of the
Company's subsidiaries, interest at prime or at a
Eurodollar rate plus 1.5%, principal repaid in 1995...... -- -- 12,600
Vehicle floorplan credit facility, secured by the Company's
vehicle inventory, interest at LIBOR plus 2.75%, due on
demand................................................... 18,805 9,909 --
Notes to banks and financial institutions, secured by real
property, equipment and other assets, interest ranging
from 7.2% to 13.0%....................................... 779 5,524 33,073
Other notes, secured by equipment and other assets,
interest ranging from 8.3% to 9.0%....................... 3,295 9,649 35,760
------------- -------- --------
252,411 153,053 169,176
Less current maturities.................................... (37,258) (32,380) (40,294)
------------- -------- --------
$ 215,153 $120,673 $128,882
========== ======== ========
</TABLE>
The 11 3/4% Senior Notes due 2006 (the "Senior Notes") were issued in
February 1996 by certain subsidiaries of the Company that were affiliated with
Alamo (the "Alamo Issuers"). The Senior Notes are unsecured, joint and several
obligations of each of the Alamo Issuers and rank pari passu in right of payment
with all existing and future debt (as defined) of the Alamo Issuers. The Senior
Notes are effectively subordinated to all existing and future secured
indebtedness of each of the Alamo Issuers. In November 1996, a subsidiary of the
Company conducted a Tender Offer for all outstanding Senior Notes. Concurrently
with the Tender Offer, the Company conducted a Consent Solicitation in order to
effect certain changes to the indenture relating to the Senior Notes. Aggregate
consideration to Noteholders that tender and consent will be $1,206.25 per
$1,000 principal amount plus accrued and unpaid interest to the tender date.
Such amount consists of $1,196.25 per $1,000 principal amount plus accrued and
unpaid interest for tendered notes and, for Noteholders providing their consent
by December 10, 1996, $10 per $1,000 principal amount for their consent. The
Consent Solicitation will expire December 10, 1996 and the Tender Offer will
expire at 12:00 midnight December 23, 1996. As of December 10, 1996, virtually
all of the Senior Notes were tendered and consents were received. The Company
estimates that it will record an extraordinary charge of approximately
$20,000,000 to $25,000,000, net of tax, during the fourth quarter of 1996
related to the early extinguishment of the Senior Notes and certain other debt.
Included in the potential charge related to the early
36
<PAGE> 38
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
extinguishment of debt is the premium related to the Tender Offer and
capitalized debt costs, prepayment penalties and legal fees related to the
Tender Offer and the repayment of other debt.
In December 1995, the Company entered into a credit agreement (the "Credit
Agreement") with certain banks pursuant to which such banks have agreed to
advance the Company on an unsecured basis an aggregate of $250,000,000 for a
term of 36 months. Outstanding advances, if any, are payable at the expiration
of the 36-month term. At December 31, 1995, the Company had standby letters of
credit of $5,386,000 which reduce availability under this facility. The Credit
Agreement requires, among other items, that the Company maintain certain
financial ratios and comply with certain financial covenants. Interest is
payable monthly and generally determined using either a competitive bid feature
or a LIBOR based rate. As of December 31, 1995, no amounts were outstanding and
the Company was in material compliance with all covenants under the Credit
Agreement.
In August 1996, the Company refinanced its existing $21,000,000 vehicle
floorplan credit facility with a new $25,000,000 vehicle floorplan credit
facility. Advances under this facility bear interest at LIBOR plus 2.75% and are
secured by the Company's retail vehicle inventory. In October 1996, the Company
repaid all borrowings under this facility.
At December 31, 1995, aggregate maturities of long-term debt were as
follows:
<TABLE>
<S> <C>
1996...................................................................... $ 32,380
1997...................................................................... 6,292
1998...................................................................... 6,313
1999...................................................................... 5,193
2000...................................................................... 5,146
Thereafter................................................................ 97,729
--------
$153,053
========
</TABLE>
The Company made interest payments on revenue earning vehicle financing and
other long-term debt and notes payable of approximately $144,194,000,
$119,862,000 and $105,258,000 in 1995, 1994 and 1993, respectively.
5. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Accordingly, deferred income taxes have been
provided to show the effect of temporary differences between the recognition of
revenue and expenses for financial and income tax reporting purposes and between
the tax basis of assets and liabilities and their reported amounts in the
financial statements.
The Company files a consolidated federal income tax return which includes
the operations of businesses acquired for periods subsequent to the dates of the
acquisitions. Certain businesses acquired which were accounted for under the
pooling of interests method of accounting were subchapter S corporations for
income tax purposes prior to their acquisition by the Company. For purposes of
these Supplemental Consolidated Financial Statements, federal and state income
taxes have been provided as if these companies had filed subchapter C
corporation tax returns for the pre-acquisition periods, and the current income
tax expense is reflected as an increase to additional paid-in capital. The
subchapter S corporation status of these companies was terminated effective with
the closing date of the acquisitions.
37
<PAGE> 39
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the income tax provision related to continuing operations
for the years ended December 31 are shown below:
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- --------
<S> <C> <C> <C>
Current:
Federal................................................ $ 2,380 $ 8,026 $ 6,192
State.................................................. (267) 1,237 970
------- ------- -------
2,113 9,263 7,162
Federal and state deferred............................... (6,206) 13,338 8,125
Foreign.................................................. (1,406) (2,617) (176)
Tax reserve adjustments.................................. 763 (1,963) --
Change in valuation allowance............................ 2,351 1,375 1,418
------- ------- -------
Income tax provision (benefit)........................... $(2,385) $19,396 $ 16,529
======= ======= =======
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective tax rate for the years ended December 31 is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
----- ---- -----
<S> <C> <C> <C>
Statutory federal income tax rate............................ (35.0)% 35.0% 35.0%
Amortization of intangible assets............................ 3.8 .3 .5
Non-deductible expenses...................................... 6.1 1.6 .6
State income taxes, net of federal benefit................... (15.3) 4.6 6.6
Tax reserve adjustments...................................... 5.5 (4.1) --
Change in valuation allowance................................ 16.9 3.1 4.0
Other, net................................................... .9 (.1) .2
---- ---- -----
Effective tax rate......................................... (17.1)% 40.4% 46.9%
==== ==== =====
</TABLE>
Components of the net deferred income tax liability included in other
liabilities in the accompanying Supplemental Consolidated Balance Sheets at
December 31 are shown below:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis........................ $104,793 $124,354
Deferred costs............................................... 8,067 8,954
-------- --------
112,860 133,308
-------- --------
Deferred income tax assets:
Net operating losses......................................... (15,383) (12,162)
Deferred revenue............................................. (10,353) (11,240)
Accrued environmental and landfill costs..................... (2,842) (2,761)
Accruals not currently deductible............................ (44,546) (58,659)
-------- --------
(73,124) (84,822)
-------- --------
Valuation allowance............................................ 10,149 7,798
-------- --------
Net deferred income tax liability.............................. $ 49,885 $ 56,284
======== ========
</TABLE>
At December 31, 1995, the Company had available federal net operating loss
carryforwards of approximately $15,500,000 which begin to expire in the year
2006 and foreign net operating loss carryforwards of approximately $24,900,000
the majority of which have an indefinite carryforward. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The Company has provided a valuation allowance to offset a portion of
the federal and foreign net operating loss carryforwards due to uncertainty
surrounding the future
38
<PAGE> 40
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
realization of such deferred tax assets. The Company adjusts the valuation
allowance in the period management determines it is more likely than not that
deferred tax assets will or will not be realized.
The Company made income tax payments of approximately $5,077,000,
$2,280,000 and $4,215,000 in 1995, 1994 and 1993, respectively.
6. SHAREHOLDERS' EQUITY
In November 1996, the Company sold approximately 12,080,000 shares of
Common Stock in a private placement transaction resulting in net proceeds of
approximately $353,000,000.
In May 1996, the Company sold 9,878,400 shares of Common Stock in a private
placement transaction resulting in net proceeds of approximately $197,583,000.
In May 1996, the Board of Directors declared a two-for-one split of the
Company's Common Stock in the form of a 100% stock dividend, payable June 8,
1996, to holders of record on May 28, 1996. As a result, $790,000 (par value of
shares outstanding at December 31, 1995) has been transferred from additional
paid-in capital to common stock.
In May 1996, the Company's Certificate of Incorporation was amended to
increase the number of authorized shares of Common Stock from 350,000,000 shares
to 500,000,000 shares.
In August 1995, the Company sold an aggregate of 16,700,000 shares of
Common Stock and warrants to purchase an additional 33,400,000 shares of Common
Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda corporation
controlled by Michael G. DeGroote, former Chairman of the Board, President and
Chief Executive Officer of Republic), Harris W. Hudson, and certain of their
assigns for an aggregate purchase price of $37,500,000. Mr. Huizenga is the
Chairman of the Board and Chief Executive Officer of the Company; Mr. DeGroote
is the Vice Chairman of the Board of the Company and Mr. Hudson is President and
a Director of the Company. The warrants are exercisable at prices ranging from
$2.25 to $3.50 per share. In August 1995, the Company issued and sold an
additional 2,000,000 shares of Common Stock each to Mr. Huizenga and John J.
Melk (a Director of the Company) for $6.63 per share for aggregate proceeds of
approximately $26,500,000.
In July 1995, the Company sold 10,800,000 shares of Common Stock in a
private placement transaction for $6.63 per share, resulting in net proceeds of
approximately $69,000,000 after deducting expenses, fees and commissions. In
September 1995, the Company sold 10,000,000 shares of Common Stock in an
additional private placement transaction for $10.13 per share resulting in net
proceeds of approximately $99,000,000.
The Company has 5,000,000 authorized shares of preferred stock par value,
$.01 per share, none of which are issued or outstanding. The Board of Directors
has the authority to issue the preferred stock in one or more series and to
establish the rights, preferences and dividends.
7. STOCK OPTIONS AND WARRANTS
The Company has various stock option plans under which shares of Common
Stock may be granted to key employees and directors of the Company. Options
granted under the plans are non-qualified and are granted at a price equal to
the fair market value of the Common Stock at the date of grant.
39
<PAGE> 41
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of stock option and warrant transactions for the following
periods is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------
1995 1994 1993
--------------- -------------- --------------
<S> <C> <C> <C>
Options and warrants outstanding at
beginning of period.................... 6,786 6,394 14,854
Granted.................................. 44,874 752 2,034
Exercised................................ (2,804) -- --
Canceled................................. (322) (360) (664)
Expired.................................. -- -- (9,830)
--------------- -------------- --------------
Options and warrants outstanding at end
of period.............................. 48,534 6,786 6,394
============= ============ ============
Average price of options and warrants
exercised.............................. $4.02 $ -- $ --
Average price of options and warrants
outstanding at end of period........... $4.77 $3.80 $3.99
Prices of options and warrants
outstanding at end of period........... $1.05 to $15.50 $1.05 to $7.25 $1.05 to $7.25
Vested options and warrants at end of
period................................. 39,038 3,656 2,800
Options available for future grants at
end of period.......................... 4,344 5,698 5,690
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
Legal Proceedings. On May 3, 1991, the Company filed an action against
G.I. Industries, Inc. ("GI"), Manuel Asadurian, Sr. and Mike Smith in the United
States District Court for the Central District of California (the "Court"). The
Company requested a declaratory judgment that it did not anticipatorily breach a
merger agreement (the "Merger Agreement") between the Company and GI and that
the Merger Agreement had been properly terminated. The Company also sought to
recover $600,000 from GI, plus interest and costs, with respect to a certain
financial guaranty provided by the Company in 1990 for the benefit of GI. In
response to the Company's action, GI filed a counterclaim alleging that the
Company breached the Merger Agreement and that it had suffered damages in excess
of $16,000,000. In August 1993, the Court rendered a ruling favorable to the
Company which GI appealed. In March 1995, the United States Court of Appeals for
the Ninth Circuit vacated the August 1993 decision and remanded the case for
further proceedings. The Court has commenced proceedings that may lead to a
trial on damages. Subsequent to the commencement of the Company's litigation in
this matter, GI filed for protection under Chapter 11 of the Bankruptcy Code.
Western Waste Industries, Inc. ("Western") filed an action against the
Company and others on July 20, 1990 alleging various causes of action including
interference with business relations and seeks $24,000,000 in damages. The
lawsuit stems from Western's attempts to acquire Best Pak Disposal, Inc. This
case was scheduled for trial in May 1996, but by stipulation of the parties the
trial date has been postponed pending the outcome of settlement discussions. By
mutual agreement of the parties, the litigation was settled and the matter was
dismissed with prejudice in October 1996. Such settlement had no material impact
of the Company's consolidated financial position, results of operations or cash
flows.
The Company's solid waste and environmental services activities are
conducted in the context of a developing and changing statutory and regulatory
framework, aggressive government enforcement and a highly visible political
environment. Governmental regulation of the waste management industry requires
the
40
<PAGE> 42
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company to obtain and retain numerous governmental permits to conduct various
aspects of its operations. These permits are subject to revocation, modification
or denial. The costs and other capital expenditures which may be required to
obtain or retain the applicable permits or comply with applicable regulations
could be significant.
In 1992, the Company received notices from Imperial County, California (the
"County") and the California Department of Toxic Substances Control ("DTSC")
that spent filter elements (the "Filters") from geothermal power plants, which
had been deposited at the Company's Imperial Landfill for approximately five
years, were classified as hazardous waste under California environmental
regulations. Under United States EPA regulations, the Filters are not deemed
hazardous waste as they are associated with the production of geothermal energy.
The Company is currently conducting active discussions with all appropriate
California regulatory agencies in order to obtain a variance under California
regulations to reclassify the Filters as a special waste so they may be left in
the landfill. If this occurs, the State, regional and local regulatory agencies
may nevertheless require that the affected area of the landfill be capped and
closed. In the event that the variance is not granted, remedial measures may be
required based on the Filters' classification as a California hazardous waste.
One of those measures could include the removal of the Filters or the closure of
a portion of the landfill.
Management is currently unable to determine (i) whether the waste will
ultimately be classified as hazardous, (ii) if so, what action, if any, will be
required as a result of this issue or (iii) what liability, if any, the Company
will have as a result of this inquiry. In January 1994, the Company filed suit
against the known past and present owners and operators of the geothermal power
plants for all losses, fines and expenses the Company incurs associated with the
resolution of this matter, including loss of airspace at the landfill, in the
United States District Court for the Southern District of California, alleging
claims for CERCLA response costs recovery and intentional misrepresentation
among other claims. This suit was settled in November 1996 without material
impact on the Company's Supplemental Consolidated financial position, results of
operations or cash flows.
While the results of the legal and environmental proceedings described
above and other proceedings which arose in the normal course of business cannot
be predicted with certainty, management believes that losses, if any, resulting
from the ultimate resolution of these matters will not have a material adverse
effect on the Company's consolidated results of operations, consolidated cash
flows or consolidated financial position. However, unfavorable resolution of
each matter individually or in the aggregate could affect the consolidated
results of operations or cash flows for the quarterly periods in which they are
resolved.
Lease Commitments. The Company and its subsidiaries lease real property,
equipment and software under various operating leases with terms from 1 to 20
years. The Company has also entered into various airport concession and permit
agreements which generally provide for payment of a percentage of revenue from
vehicle rentals with a guaranteed minimum.
Expenses under real property, equipment and software leases and airport
concession agreements (excluding amounts charged through to customers) for the
years ended December 31, 1995, 1994 and 1993 were as follows:
41
<PAGE> 43
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Real property................................................... $ 21,127 $ 20,043 $20,668
Equipment and software.......................................... 21,961 21,152 20,097
Airport concession and permit fees:
Minimum fixed obligations..................................... 46,061 36,328 27,912
Additional amounts, based on revenue from vehicle rentals..... 28,397 27,617 24,766
-------- -------- -------
Total.................................................... $117,546 $105,140 $93,443
======== ======== =======
</TABLE>
Future minimum lease obligations under noncancelable real property and
equipment leases and airport agreements with initial terms in excess of one year
at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
REAL PROPERTY,
EQUIPMENT AND AIRPORT
SOFTWARE AGREEMENTS TOTAL
-------------- ---------- --------
<S> <C> <C> <C>
Year ending December 31:
1996.................................................. $ 43,380 $ 36,865 $ 80,245
1997.................................................. 15,629 26,833 42,462
1998.................................................. 10,626 21,446 32,072
1999.................................................. 7,306 14,151 21,457
2000.................................................. 6,079 10,685 16,764
Thereafter............................................ 17,913 14,270 32,183
-------------- ---------- --------
$100,933 $124,250 $225,183
============= ========== ========
</TABLE>
The Company has options to acquire or extend its leases through the year
2002 on certain properties and has rights of first refusal on certain other
properties it currently leases.
In August 1995, the Company entered into a ten-year lease agreement from an
unrelated party for Alamo's Fort Lauderdale, Florida corporate headquarters
facility. The lease agreement provides for minimum monthly lease payments of
approximately $227,000 payable from October 1995 through September 2005. The
lease agreement contains an option to purchase the property over the lease term
for a base amount plus the outstanding balance on the lessor's mortgage loan, as
defined in the lease agreement. At the end of the lease term, the Company must
either purchase the property for $17,400,000 or terminate the lease upon payment
to the lessor of approximately $10,000,000. Under certain conditions, if the
lease is terminated and the property is sold, all or a portion of the
$10,000,000 payment may be refunded to the Company. In addition, the Company has
guaranteed a portion of the lessor's mortgage loan, which guarantee totaled
$19,700,000 at December 31, 1995.
9. EARNINGS (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Earnings (loss) per common and common equivalent share are based on the
combined weighted average number of common shares and common share equivalents
outstanding which include, where appropriate, the assumed exercise or conversion
of warrants and options. In computing earnings per common and common equivalent
share, the Company utilizes the modified treasury stock method. For the nine
months ended September 30, 1995 and for the year ended December 31, 1995, common
stock equivalents have been omitted since they are anti-dilutive.
42
<PAGE> 44
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of fully diluted earnings (loss) per share, which is
substantially the same as the computation used to calculate primary earnings per
share, for the following periods is presented below:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- -------------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Common shares outstanding...... 213,152 181,951 183,945 118,580 118,906
Common equivalent shares....... 52,540 -- -- 166 320
Weighted average treasury
shares purchased............ (12,682) -- -- 298 --
Effect of using weighted
average common and common
equivalent shares
outstanding................. (12,218) (49,520) (37,318) -- --
-------- ------- ------- ------- -------
240,792 132,431 146,627 119,044 119,226
======== ======= ======= ======= =======
</TABLE>
10. DISCONTINUED OPERATIONS
In 1994, the Company announced the contemplation of a plan to spin-off
RESI, its hazardous waste services segment. This segment of the Company's
business has been accounted for as a discontinued operation and, accordingly,
the Company restated its Consolidated Financial Statements presented prior to
that date to report separately the operating results of these discontinued
operations. In April 1995, Republic shareholders received one share of common
stock of RESI for every ten shares of Common Stock of Republic owned on April
21, 1995 in connection with the spin-off of RESI. Approximately 5,400,000 RESI
shares were distributed to Republic shareholders (the "Distribution"). Revenue
of the discontinued operations of RESI was $12,148,000, $46,599,000 and
$61,617,000 in 1995, 1994 and 1993, respectively. The net income (loss) of the
discontinued operations of RESI was ($293,000), $2,684,000 and ($14,579,000) in
1995, 1994 and 1993, respectively.
In connection with the Distribution, the Company entered into a
distribution agreement with RESI which sets forth the terms of the Distribution.
Under this agreement, Republic contributed the intercompany balance to RESI's
equity at the date of the Distribution. In April 1995, Republic contributed
approximately $2,500,000 to RESI to repay RESI's indebtedness and to provide
working capital to RESI. Additionally, the Company reclassified approximately
$36,300,000 to retained earnings from additional paid-in capital to effect the
spin-off under Delaware law. As a result of these transactions, the Company's
equity at the date of the Distribution was reduced by approximately $23,600,000.
11. RESTRUCTURING AND UNUSUAL CHARGES
During the three months ended December 31, 1993, the Company recorded
restructuring and unusual charges of $10,040,000 based on the Company's
reevaluation of each of its solid waste operations. As a result of this
reevaluation, the Company decided to close one of its facilities due to low
waste volumes and abandon its permitting effort at another facility because of
limited market opportunity in that area and delays in the permitting process. In
accordance with industry standards, the Company provides for closure and
post-closure over the life of a facility. Accordingly, the Company fully
provided for these costs on the closed facility. The provision for closure and
post-closure and the write-off of property and equipment and accumulated
permitting costs associated with these facilities totaled $6,600,000. In
conjunction with the reevaluation, the Company also decided to terminate certain
contracts and employees. Costs related to employee relocations and terminations
and other contract terminations totaled $1,200,000. In addition, the Company
also reevaluated its
43
<PAGE> 45
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
exposure related to litigation and environmental matters and provided additional
accruals aggregating $2,200,000 for the costs to defend or settle certain
litigation and environmental matters.
12. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, investments, receivables,
other assets (excluding goodwill, intangibles and deferred costs), accounts
payable, accrued expenses (nonderivatives) and customer deposits, approximates
fair value because of the short maturity of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore cannot be determined with precision. The assumptions
used have a significant effect on the estimated amounts reported.
The Company has interest protection agreements with several counterparties
to manage the impact of interest rate changes. The estimated fair values of the
interest protection agreements were determined from dealer quotations and
represent the discounted future cash flows through maturity or expiration using
current rates, and are effectively the amounts the Company would pay or receive
to terminate the agreements. The estimated fair values of the interest rate
protection agreements at December 31, 1995 and 1994 was a net payable position
of $(3,479,000) and $(2,247,000), respectively.
The estimated fair value of the Company's secured notes payable at December
31, 1995 and 1994 was $440,506,000 and $401,885,000, respectively. The carrying
amount was $445,500,000 for each period. The estimated fair value of mortgages
payable to GMAC at December 31, 1995 and 1994 was $109,000,000 and $70,368,000
respectively. Estimated fair values were derived by discounting expected cash
flows at the rates currently offered to the Company for debt of similar terms
and remaining maturities. The carrying amount of the remaining debt approximates
fair value because interest rates are variable and, accordingly, approximate
current market rates.
13. BUSINESS AND CREDIT CONCENTRATIONS
Automotive Rental Industry Segment
At December 31, 1995 the Company had 133 corporate owned vehicle rental
facilities at airport, near-airport and downtown locations throughout the United
States. The Company also had 28 corporate owned vehicle rental facilities in the
United Kingdom, 22 in Germany, 4 in Switzerland, 2 in Canada, 1 in Belgium, 1 in
The Netherlands and 1 in Austria. In addition to its corporate owned locations,
the Company's licensee network operates 102 locations throughout Europe,
including 86 locations in Germany. The automobile rental industry in which the
Company operates is highly seasonal.
Trade receivables at December 31, 1995 and 1994 include $57,207,000 and
$39,681,000, respectively from travel agents and tour operators. Of the travel
agent and tour operator receivable balances, $24,208,000 and $16,975,000 at
December 31, 1995 and 1994, respectively are maintained outside the United
States. The Company holds minimum collateral in the form of cash, letters of
credit or insurance from most of these vendors. The Company continually
evaluates the credit risk of these customers and believes that the allowance for
doubtful accounts relative to its trade receivables is adequate. At December 31,
1995 and 1994, the Company had vehicle receivables from manufacturers of
$65,015,000 and $90,615,000, respectively. Of the receivable balances from
manufacturers, $12,701,000 and $7,785,000 are maintained outside the United
States. Vehicle receivables also include amounts due from renters for damages
incurred on revenue earning vehicles.
44
<PAGE> 46
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company enters into vehicle repurchase programs with one principal
vehicle manufacturer, as well as other vehicle manufacturers. During model year
1995, the Company purchased 68% of its vehicle fleet under repurchase programs
with one vehicle manufacturer.
Automotive Retailing, Solid Waste Services and Electronic Security Services
Industry Segments
Concentrations of credit risk with respect to trade receivables related to
the Company's automotive retailing, solid waste services and electronic security
services segments are limited due to the wide variety of customers and markets
in which the Company's products are sold and services are provided as well as
their dispersion across many different geographic areas in the United States. As
a result, at December 31, 1995, the Company does not consider itself to have any
significant concentrations of credit risk in the automotive retailing, solid
waste services and electronic security services segments.
14. RELATED PARTY TRANSACTIONS
The Company purchased approximately $351,755,000, $551,157,000 and
$576,895,000 of revenue earning vehicles from a group of dealerships owned
primarily by a former director of Alamo during the years ended December 31,
1995, 1994 and 1993, respectively. Pursuant to an automobile purchase agreement
which expired on December 31, 1995, the Company agreed to purchase and/or lease
a minimum number of vehicles and pay to these dealerships a specific amount (in
addition to the manufacturer's sales price) for each vehicle purchased. Although
the Company does not expect to renew this agreement to purchase and/or lease a
minimum number of vehicles, it intends to purchase vehicles on an annual basis
from these dealerships, and to continue its agreement to pay these dealerships a
specified amount (in addition to the manufacturer's sales price) for any vehicle
purchased.
Included in other current assets at September 30, 1996 are approximately
$112,900,000 in advances made to AutoNation during the nine months ended
September 30, 1996. Such advances were made pursuant to a loan agreement whereby
the Company has agreed to provide advances at an interest rate of LIBOR plus 2%
to fund AutoNation's cash flow requirements until consummation of the
acquisition of AutoNation. Such advances mature on June 30, 1997 and are secured
primarily by the common stock of AutoNation's principal operating subsidiary,
all trademarks and other intellectual property of AutoNation and, until
consummation of the Company's merger with AutoNation, AutoNation's remaining
shareholder subscription commitments which commitments approximate $28,000,000.
Interest income recognized on such advances was approximately $1,296,000 for the
nine months ended September 30, 1996.
15. OPERATIONS BY INDUSTRY SEGMENT
The Company is a holding company with major business segments in automotive
rental and retailing, solid waste collection, disposal and recycling services
and electronic security services for commercial and residential use. The Company
operates primarily in the United States.
45
<PAGE> 47
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present financial information regarding the Company's
different industry segments as of and for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Automotive rental................................ $1,391,654 $1,312,922 $1,149,198
Solid waste services............................. 245,339 176,260 146,107
Electronic security services..................... 49,826 41,913 36,388
Automotive retailing............................. 73 -- --
-------- -------- --------
$1,686,892 $1,531,095 $1,331,693
======== ======== ========
Operating income (loss):
Automotive rental................................ $ (42,552) $ 30,283 $ 40,418
Solid waste services............................. 31,687 23,201 4,224
Electronic security services..................... 8,255 2,352 114
Automotive retailing............................. (4,063) -- --
-------- -------- --------
$ (6,673) $ 55,836 $ 44,756
======== ======== ========
Depreciation and amortization:
Automotive rental................................ $ 422,614 $ 372,544 $ 289,616
Solid waste services............................. 17,727 15,414 13,238
Electronic security services..................... 4,946 4,111 2,353
Automotive retailing............................. -- -- --
-------- -------- --------
$ 445,287 $ 392,069 $ 305,207
======== ======== ========
Capital expenditures, purchases of revenue earning
vehicles and investment in subscriber accounts:
Automotive rental................................ $2,346,632 $3,347,988 $2,887,785
Solid waste services............................. 51,436 22,620 12,243
Electronic security services..................... 17,459 18,275 10,643
Automotive retailing............................. 10,015 -- --
-------- -------- --------
$2,425,542 $3,388,883 $2,910,671
======== ======== ========
Assets:
Automotive rental................................ $2,000,745 $2,310,448 $1,942,217
Solid waste services............................. 514,220 202,468 179,837
Electronic security services..................... 43,834 34,447 20,678
Automotive retailing............................. 24,412 -- --
Net assets of discontinued operations............ -- 20,292 16,872
-------- -------- --------
$2,583,211 $2,567,655 $2,159,604
======== ======== ========
</TABLE>
46
<PAGE> 48
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The automotive rental industry in which the Company operates, particularly
the leisure travel segment, is highly seasonal. The Company's third quarter,
which includes the peak summer travel months, has historically been the
strongest quarter of the year. During the peak season the Company increases
their fleet and workforce to accommodate increased rental activity. The
Company's results during the first and fourth quarters are generally their
weakest, when there is limited leisure family travel and a greater potential for
adverse weather conditions. Many of the Company's operating expenses such as
rent, general insurance and administrative personnel are fixed and cannot be
reduced during periods of decreased rental demand.
The fourth quarter of 1995 included the recognition of approximately
$2,600,000 of losses originally attributable to the minority shareholder of a
business acquired in 1994.
The following is an analysis of certain items in the Supplemental
Consolidated Statements of Operations by quarter for 1995 and 1994.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................................ 1995 $363,444 $409,499 $505,105 $ 408,844
1994 $320,296 $366,765 $470,072 $ 373,962
Gross profit........................... 1995 $194,366 $218,145 $274,992 $ 212,755
1994 $193,678 $212,349 $284,291 $ 200,814
Income (loss) from continuing
operations........................... 1995 $(15,014) $ (5,804) $ 18,942 $ (9,663)
1994 $ 2,396 $ 5,724 $ 22,398 $ (1,865)
Net income (loss)...................... 1995 $(14,506) $ (5,804) $ 18,942 $ (10,464)
1994 $ 2,250 $ 6,551 $ 23,386 $ (850)
Earnings (loss) per share from
continuing operations................ 1995 $ (.13) $ (.05) $ .11 $ (.05)
1994 $ .02 $ .05 $ .19 $ (.02)
</TABLE>
47
<PAGE> 49
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of AutoNation Incorporated:
We have audited the accompanying consolidated balance sheet of AutoNation
Incorporated and subsidiaries (a Florida corporation in the development stage)
as of December 31, 1995, and the related consolidated statements of operations,
shareholders' equity and cash flows for the period from inception (September 12,
1995) to December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of AutoNation Incorporated and
subsidiaries as of December 31, 1995, and the results of their operations and
their cash flows for the period from inception (September 12, 1995) to December
31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
January 26, 1996 (except with respect to the matters
discussed in Note 10, as to which the date is November 4, 1996).
48
<PAGE> 50
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents........................................... $ 8,598,870 $ 11,486,865
Vehicle inventories............................................ 40,769,257 --
Accounts receivable............................................ 6,266,234 --
Other current assets........................................... 166,551 --
------------ ------------
TOTAL CURRENT ASSETS................................... 55,800,912 11,486,865
SITE COSTS....................................................... 127,968,962 1,395,407
PROPERTY AND EQUIPMENT, net...................................... 6,404,235 444,480
------------ ------------
TOTAL ASSETS........................................... $190,174,109 $ 13,326,752
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Loan payable to related party.................................. $112,900,000 $ --
Accounts payable............................................... 13,073,934 741,230
Accrued liabilities............................................ 4,247,682 44,754
Vehicle financing with related party........................... 29,218,219 --
------------ ------------
TOTAL CURRENT LIABILITIES.............................. 159,439,835 785,984
COMMITMENTS AND CONTINGENCIES (Note 9 and 10)
SHAREHOLDERS' EQUITY:
Common stock, par value $.001 per share; 200,000,000 shares
authorized; 80,200,000 (unaudited) and 79,300,000 shares
issued and outstanding as of September 29, 1996 and
December 31, 1995, respectively............................. 80,200 79,300
Additional paid-in capital..................................... 80,119,800 79,220,700
Deficit accumulated during the development stage............... (21,395,726) (3,063,732)
------------ ------------
58,804,274 76,236,268
Less: Subscription receivable.................................. (28,070,000) (63,695,500)
------------ ------------
30,734,274 12,540,768
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $190,174,109 $ 13,326,752
============ ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
49
<PAGE> 51
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(SEPTEMBER 12, INCEPTION
NINE MONTHS THREE MONTHS 1995) TO (SEPTEMBER 12,
ENDED ENDED DECEMBER 31, 1995) TO
SEPTEMBER 29, 1996 SEPTEMBER 29, 1996 1995 SEPTEMBER 29, 1996
------------------ ------------------ -------------- ------------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUE................................... $ 9,190,184 $ 5,814,931 $ -- $ 9,190,184
----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Cost of revenues........................ 11,637,767 7,467,557 -- 11,637,767
Store operating expenses................ 2,659,956 1,690,115 -- 2,659,956
General and administrative.............. 7,750,029 3,597,827 886,978 8,637,007
Information systems development......... 1,541,862 -- 816,649 2,358,511
Marketing, market research and store
design............................... 2,637,018 1,129,013 1,360,105 3,997,123
Interest expense........................ 1,295,546 1,135,251 -- 1,295,546
----------- ----------- ----------- ------------
Total costs and expenses........ 27,522,178 15,019,763 3,063,732 30,585,910
----------- ----------- ----------- ------------
NET LOSS.................................. $(18,331,994) $ (9,204,832) $ (3,063,732) $ (21,395,726)
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
50
<PAGE> 52
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996 (UNAUDITED) AND
FOR THE PERIOD FROM INCEPTION (SEPTEMBER 12, 1995) TO DECEMBER 31, 1995
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
-------------------- PAID-IN DEVELOPMENT SUBSCRIPTION
NUMBER AMOUNT CAPITAL STAGE RECEIVABLE TOTAL
---------- ------- ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
INITIAL CAPITALIZATION,
September 12, 1995............... 79,300,000 $79,300 $79,220,700 $ -- $(79,300,000) $ --
CAPITAL CONTRIBUTIONS,
September 22, 1995............... -- -- -- -- 3,000,000 3,000,000
CAPITAL CONTRIBUTIONS, December 1,
1995............................. -- -- -- -- 12,604,500 12,604,500
NET LOSS........................... -- -- -- (3,063,732) -- (3,063,732)
---------- ------- ----------- ------------ ------------ -----------
BALANCE, December 31, 1995......... 79,300,000 79,300 79,220,700 (3,063,732) (63,695,500) 12,540,768
ADDITIONAL CAPITALIZATION,
January 3, 1996 (unaudited)...... 900,000 900 899,100 -- (900,000) --
CAPITAL CONTRIBUTIONS,
January 3, 1996 (unaudited)...... -- -- -- -- 16,475,500 16,475,500
CAPITAL CONTRIBUTIONS, March 1,
1996 (unaudited)................. -- -- -- -- 20,050,000 20,050,000
NET LOSS (unaudited)............... -- -- -- (18,331,994) -- (18,331,994)
---------- ------- ----------- ------------ ------------ -----------
BALANCE, September 29, 1996
(unaudited)...................... 80,200,000 $80,200 $80,119,800 $(21,395,726) $(28,070,000) $30,734,274
========== ======= =========== ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
51
<PAGE> 53
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD PERIOD
FROM INCEPTION FROM INCEPTION
NINE (SEPTEMBER 12, (SEPTEMBER 12,
MONTHS ENDED 1995) TO 1995) TO
SEPTEMBER 29, 1996 DECEMBER 31, 1995 SEPTEMBER 29, 1996
------------------ ----------------- -------------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................... $ (18,331,994) $ (3,063,732) $ (21,395,726)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization............ 300,578 -- 300,578
Increase in vehicle inventories.......... (40,769,257) -- (40,769,257)
Increase in accounts receivable.......... (6,266,234) -- (6,266,234)
Increase in other current assets......... (166,551) -- (166,551)
Increase in accounts payable............. 12,332,704 741,230 13,073,934
Increase in accrued liabilities.......... 4,202,928 44,754 4,247,682
----------- ----------- -----------
Net cash used in operating
activities........................ (48,697,826) (2,277,748) (50,975,574)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of land sites and associated
development costs........................ (126,573,555) (1,395,407) (127,968,962)
Purchases of property and equipment......... (6,260,333) (444,480) (6,704,813)
----------- ----------- -----------
Net cash used in investing
activities........................ (132,833,888) (1,839,887) (134,673,775)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loan payable to related
party.................................... 112,900,000 -- 112,900,000
Capital contributions....................... 36,525,500 15,604,500 52,130,000
Increase in vehicle financing with related
party.................................... 29,218,219 -- 29,218,219
----------- ----------- -----------
Net cash provided by financing
activities........................ 178,643,719 15,604,500 194,248,219
----------- ----------- -----------
Net (decrease) increase in cash and
equivalents....................... (2,887,995) 11,486,865 8,598,870
----------- ----------- -----------
CASH AND EQUIVALENTS, beginning of period..... 11,486,865 -- --
----------- ----------- -----------
CASH AND EQUIVALENTS, end of period........... $ 8,598,870 $ 11,486,865 $ 8,598,870
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
52
<PAGE> 54
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE PERIODS ENDED SEPTEMBER 29, 1996 IS UNAUDITED)
1. ORGANIZATION AND DEVELOPMENT STAGE ACTIVITIES
AutoNation Incorporated and subsidiaries (collectively the "Company") is a
Florida corporation in the development stage. AutoNation Incorporated was
incorporated on September 12, 1995 ("Inception") and was formed pursuant to a
Shareholders' Agreement among the Company, H. Wayne Huizenga ("Huizenga"), JM
Family Enterprises, Inc. ("Enterprises") and Steven R. Berrard ("Berrard"),
collectively, the "Shareholders", and certain subscribers discussed further in
Note 5. The Company plans to develop, establish and operate a nationwide chain
of retail stores to purchase, recondition, sell, finance and service new and
used vehicles.
Since Inception, the Company has been principally engaged in organizational
and business activities associated with the opening of several retail stores in
the future, the first of which opened in October 1996. In connection with these
activities, the Company has purchased or has options to purchase certain land
sites which will serve as locations for future retail stores and
reconditioning centers. Such costs, including associated development and
construction costs, are reflected as Site Costs in the accompanying
consolidated balance sheets.
The Deficit Accumulated During the Development Stage of $21,395,726 and
$3,063,732 represents the net loss from Inception to September 29, 1996 and
from Inception to December 31, 1995, respectively. The net loss consists
primarily of expenses incurred during the development stage for general and
administrative expenses, information systems development, market research and
store design. While the Company has generated insignificant revenue during
1996, planned principal operations have not yet commenced.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
AutoNation Incorporated and its wholly owned subsidiaries, AutoNation USA
Corporation, Courtesy Wholesale Corporation and Car Stop Corporation. All
significant intercompany balances have been eliminated in consolidation.
VEHICLE INVENTORIES
Vehicle inventories are stated at the lower of cost or market, on a
specific unit basis.
SITE COSTS
Site costs consist primarily of the cost to purchase land sites and costs
associated with the development of the site, including construction in progress,
related architectural and design costs, systems development and implementation
costs, permits, taxes, fees and other costs.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
53
<PAGE> 55
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments primarily consist of cash, contracts
in-transit, accounts receivable, accounts payable, accrued liabilities and
vehicle financing with related party, each of which approximates fair market
value due to their short-term nature.
INTERIM FINANCIAL STATEMENTS
The accompanying consolidated balance sheet as of September 29, 1996 and
the related statements of operations, shareholders' equity and cash flows for
the three months and nine months ended September 29, 1996 and for the period
from Inception to September 29, 1996 are unaudited and, in the opinion of
management, include all material adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of results for the interim
period. The results of operations for the three months and nine months ended
September 29, 1996 are not necessarily indicative of results to be expected for
the entire year.
NEW ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation", which requires adoption in 1996. SFAS No. 123 requires that the
Company's financial statements include certain disclosures about stock-based
employee compensation arrangements and permits the adoption of a change in
accounting for such arrangements. Changes in accounting for stock-based
compensation are optional and the Company plans to adopt only the disclosure
requirements in 1996.
PRESENTATION OF FISCAL PERIODS
The Company's fiscal year ends on the Sunday nearest December 31. Fiscal
year 1995 ended on December 31 and fiscal year 1996 will end on December 29.
STATEMENTS OF CASH FLOWS
For purposes of the statement of cash flows, the Company considers
contracts in-transit to be cash equivalents. Additionally, the net change in
vehicle financing is reflected as a financing activity.
3. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Site costs................................................. $1,114,287 $ --
Property and equipment..................................... 204,405 --
Costs of operations........................................ 605,231 --
General and administrative................................. 931,460 44,754
Marketing and store design................................. 267,200 --
Interest................................................... 1,125,099 --
---------- -------
$4,247,682 $ 44,754
========== =======
</TABLE>
4. CAPITALIZATION
Pursuant to the Shareholders' Agreement and related subscription agreements
discussed in Note 5, the Board of Directors (the "Board") of the Company
determines the amount of capital required by the Company
54
<PAGE> 56
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to commence operations. The Shareholders and the Subscribers (the "Investors")
are obligated to make capital contributions not to exceed $80,200,000 in the
aggregate, consistent with the business plan budgets adopted by the
Shareholders.
The Board is required to provide the Investors with written notice,
specifying the time or times when such amounts shall be deposited into the
account of the Company. The Board will also determine, by unanimous vote, what
portion of such capital contributions shall be classified as equity and what
portion shall be classified as debt, and the terms of such debt.
For capital contributions classified as debt, the Company shall issue and
deliver a promissory note in the original principal amount equal to the amount
of such contribution classified as debt. Such promissory note shall accrue
interest at a rate established by the Board, based on then prevailing market
rates.
In the event any Investor fails to make any additional capital
contributions described above (the "Defaulting Investor"), the Shareholders
(other than a Shareholder which is a Defaulting Investor) shall have the right,
but not the obligation, to contribute, in proportion to their respective common
shares or as they may otherwise mutually agree, the additional funds required to
be contributed by the Defaulting Investor.
If such default occurs when the total capital of the Company contributed by
the Investors is less than $80,200,000 (and with respect to all required
additional capital up to $80,200,000), all funds then contributed to the Company
by the contributing Investors shall be treated as equity and/or debt, as
determined by the Board.
If such default occurs when the total capital of the Company contributed by
the Investors is between $80,200,000 and $100,000,000 (and with respect to all
required additional capital above $80,200,000 and less than $100,000,000),
notwithstanding the Board's classification of such capital contributions as
equity or debt, all funds then contributed to the Company by the contributing
Investors shall be treated as loans to the Company, which loans shall bear
interest at a rate per annum equal to the Investors' cost of funds (as such rate
may change from time to time) plus one percent (1%), and which loans shall be
repayable from the cash flow of the Company prior to the making of additional
distribution or dividends to the Investors.
If such default occurs when the total capital of the Company contributed by
the Investors is in excess of $100,000,000 (and with respect to all required
capital above $100,000,000), notwithstanding the Board's classification of such
capital contributions as equity or debt, the contributing Investors shall have
the option of treating all funds then contributed to the Company by them as
additional contributions to equity capital or as loans to the Company.
The Company has legally issued 80,200,000 and 79,300,000 shares of common
stock which are outstanding at September 29, 1996 and December 31, 1995,
respectively; 58,195,000 of such issued and outstanding shares have been
delivered to the Investors; 7,701,750 and 17,939,250 at September 29, 1996 and
December 31, 1995, respectively, of such issued and outstanding shares are being
held in escrow pursuant to subscription agreements and are released from escrow
to the respective Subscribers (see Note 5) as payments are made.
Since Inception to December 31, 1995, the Investors have made capital
contributions of $15,604,500 all of which were classified by the Board as
equity, $3,165,750 of those capital contributions were made pursuant to
subscription agreements, and accordingly, the Company has released the related
shares from escrow. For the nine months ended September 29, 1996, the Board
called for additional capital contributions of $36,525,500, all of which was
paid by September 29, 1996 and all of which were classified by the Board as
equity. The Investors are committed to make additional capital contributions
of at least $28,070,000 in the future.
The Company is required to release from escrow shares paid for by the
Subscribers and any shares remaining are released from escrow upon the first to
occur of the following events: (i) payment in full by the Shareholders and
Subscribers of their commitments; (ii) a determination by the Board that the
Company will
55
<PAGE> 57
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
not require from the Investors all of the capital agreed to be contributed by
such Investors pursuant to their commitments, and that all shares in escrow
should be released; (iii) the consummation by the Company of an initial public
offering ("IPO") of its common stock registered under the Securities Act of
1933; or (iv) December 1, 2001. Upon release of the last remaining shares held
in escrow, Subscribers shall be released from any further liability to the
Company to pay any remaining unpaid portion of their commitments.
Each Shareholder has the right to transfer ownership of common shares to a
corporation or other entity controlled by such Shareholder or any other person
("Transferee") provided that the Shareholder maintains direct voting control
over the common shares and the Transferee agrees in writing to hold such shares
pursuant to the Shareholders' Agreement and any amendments thereof. Each
Shareholder also has the right to transfer ownership of common shares to any of
Huizenga, Enterprises or Berrard. The right of each Shareholder to transfer
ownership of common shares is also subject to certain other restrictions on
transfers to third parties, including certain co-sale rights and rights of first
refusal available to the Shareholders, all subject to the terms and conditions
of the Shareholders' Agreement. Additionally, until the consummation of an IPO
the Shareholders may implement a mandatory buy-sell procedure whereby the
Shareholder may, upon compliance with certain provisions and conditions,
purchase the common stock of the other Shareholder(s) or sell his common shares
to the other Shareholder(s).
At any time prior to the fifth anniversary date after an IPO of the
Company's common stock registered under the Securities Act of 1933, the
Investors have certain "piggyback" registration rights under which, subject to
certain terms and conditions, the Investors may register a portion or all of
their common shares.
5. CAPITAL SUBSCRIPTION COMMITMENTS
The Shareholders of the Company have assigned to certain subscribers a
portion of their rights to acquire shares of the Company's common stock at the
same price being paid by the assigning Shareholder. In addition to these
subscribers, certain key executive officers, management and consultants
(collectively, the "Subscribers") have signed Subscription Agreements to acquire
shares of the Company's common stock.
As of September 29, 1996 and December 31, 1995, the Subscribers had
subscription commitments for 22,005,000 and 21,105,000 shares, respectively,
and were required to pay 15% of the commitment at the time the Subscription
Agreement was finalized. At September 29, 1996 and December 31, 1995, all
Subscription Agreements have been signed and the Company has received
$14,303,250 and $3,165,750, respectively.
As discussed in Note 4, in the event the Company requires additional
capital, the Board will provide written notice specifying the amount of capital
to be contributed by each Investor and whether it will be classified as debt or
equity.
6. STOCK OPTION PLAN
The Company has adopted the 1995 Employee Stock Option Plan (the "Plan")
which is a qualified, incentive stock option plan offering certain present and
future key employees and officers and independent contractors an opportunity to
become shareholders of the Company. The Board is responsible for the
administration of the Plan and may grant options to purchase shares of the
Company's common stock and issue shares upon exercise of such options as
provided in the Plan.
The Board may grant options to purchase up to 3,200,000 shares of common
stock. The maximum number of shares subject to option that can be granted to any
executive officer is 1,000,000 during the first ten years after the effective
date of the Plan and 500,000 shares per year thereafter. The Plan also provides
that the option price will not be less than the fair market value at the time
the option is granted.
56
<PAGE> 58
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Each option shall have a term of not less than five nor more than ten years
and shall become exercisable with respect to 25% of the total number of shares
subject to the option twelve months after the date of its grant and with respect
to each additional 25% at the end of each twelve month period thereafter during
the succeeding three years. The Board, in its discretion may (i) specifically
provide for another time or times of vesting or exercise; (ii) accelerate the
exercisability of any option subject to such terms and conditions as the Board
deems necessary and appropriate; or (iii) at any time prior to the expiration or
termination of any option previously granted, extend the term of any option
(including such options held by officers or directors) for such additional
period as the Board in its discretion shall determine. In no event, however,
shall the aggregate option period with respect to any option, including the
original term of the option and any extensions thereof, exceed ten (10) years.
In the event of a change in control as defined in the Plan following an
IPO, all outstanding options become exercisable immediately. Each officer or
director holding such options has the right to require the Company to purchase
from him any option granted under the Plan at a purchase price equal to the
excess of the fair market value per share over the option price multiplied by
the number of option shares specified for purchase.
For the period from Inception to December 31, 1995, the Company granted
options to acquire 1,105,000 shares of common stock at an exercise price of
$1.00 per share, representing the fair market value at the date of the grant, as
determined by the Board of Directors, all of which were outstanding at December
31, 1995. The Company has 2,095,000 options available for grant under the Plan
at December 31, 1995.
For the nine months ended September 29, 1996, the Company granted options
to acquire 1,202,130 shares of common stock at exercise prices ranging from
$1.00 to $6.07 per share, representing the fair market value at the respective
dates of the grants, as determined by the Board of Directors, all of which were
outstanding at September 29, 1996. The Company has 892,870 options available
for grant under the Plan at September 29, 1996.
7. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". As of December 31, 1995 the Company has a net
operating loss ("NOL") carryforward for Federal income tax purposes of
approximately $820,000, which is available to offset future taxable income
through 2010. A valuation allowance has been provided for the deferred tax asset
generated by the NOL due to the present development stage of the Company and
accordingly, no income tax benefit has been recorded in the accompanying
consolidated statements of operations.
8. RELATED PARTY TRANSACTIONS
Enterprises is a diversified automotive corporation engaged in the
distribution of Toyota vehicles in the southeastern United States and
other automotive related services, including retail automobile leasing, retail
installment lending, wholesale floor plan and commercial lending, third-party
servicing, warranty and maintenance contracts, direct write and reinsurance of
credit life and accident and health policies. Pursuant to the Shareholders'
Agreement discussed in Note 1 and the Merger Agreement discussed in Note 10,
Enterprises, or its affiliates, has a two year arrangement to be the
"preferred" provider and servicer to the Company of all retail finance
products, vehicle service contracts and insurance products sold by or through
the Company and the preferred provider of wholesale inventory financing to the
Company. Enterprises and its affiliates will continue to be the preferred
provider of those products and services so long as such products and services
are provided on terms which are competitive with those of third-party providers.
Through December 31, 1995, Enterprises had not provided to the Company any
of the products or services described above. During the nine month period ended
September 29, 1996, the Company entered into a financing arrangement with World
Omni Financial Corp., a wholly owned subsidiary of Enterprises. The financing
arrangement provides for up to $50 million in financing at LIBOR plus 2.75% to
be used to finance vehicle inventory and is required to be repaid within a
maximum of 120 days. At September 29, 1996, the Company has borrowed
$29,218,219 under this arrangement and for the nine month period ended September
29, 1996, the
57
<PAGE> 59
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company has incurred $461,283 of interest expense under this financing
arrangement which is included in Cost of Operations in the accompanying
consolidated financial statements.
Prior to the formation and capitalization of the Company, Huizenga and
Enterprises incurred direct expenses in connection with the development of the
business. Such expenses of $774,663 have been reimbursed by the Company and are
included in the accompanying consolidated financial statements.
9. COMMITMENTS AND CONTINGENCIES
LEASE AGREEMENTS
As part of its development stage operations, the Company has entered into
various lease agreements for its planned operating locations and corporate
office. Aggregate future minimum lease payments under these leases as of
September 29, 1996 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 391,717
1997........................................................ 2,051,668
1998........................................................ 2,078,128
1999........................................................ 2,059,471
2000........................................................ 1,903,012
Thereafter.................................................. 6,885,051
-----------
$15,369,047
===========
</TABLE>
Rent expense for the nine months ended September 29, 1996 is $445,092.
LAND PURCHASE AGREEMENTS
The Company has entered into commitments to purchase land sites. At
September 29, 1996 these commitments are as follows:
<TABLE>
<S> <C>
1996 $ 45,850,711
1997 78,759,384
------------
$124,610,095
------------
</TABLE>
LITIGATION
The Company is involved in certain lawsuits arising since the Company's
Inception. In the opinion of management, the Company is not a party to any
litigation, the probable outcome of which, would have a material adverse effect
upon the Company's financial condition or results of operations.
10. SUBSEQUENT EVENTS
In May 1996, the Company and the Shareholders entered into a definitive
Merger Agreement (the "Agreement") with Republic Industries, Inc. ("Republic")
and a wholly owned subsidiary of Republic. Republic's Chairman and Chief
Executive Officer and certain other officers and directors of Republic are
shareholders of the Company. Consummation of the transaction is subject to the
final approval of Republic's shareholders and other customary conditions,
including regulatory approvals. Pursuant to the Agreement, an aggregate of
17,467,248 shares of common stock, $.01 par value per share, of Republic will be
issued in exchange for all of the issued and outstanding shares of common stock
of the Company. Based on 80,200,000 shares of the Company's common stock issued
and outstanding as of the Closing, each share of the Company's common stock will
be converted into a 0.217796 fractional share of Republic common stock.
In connection with the Plan of Merger, the Company has entered into a Loan
Agreement with Republic to provide advances to the Company up to the amounts
specified in a cash flow needs projection delivered by the Company to Republic.
Such advances carry an interest rate of LIBOR plus 2%. The advances will be
collateralized by the common stock of AutoNation USA Corporation pledged by the
Company to Republic, all trademarks and other intellectual property of the
Company, and the Company's subscription commitments discussed in Notes 4 and 5.
If the merger transaction is consummated, these subscription commitments will no
longer be required. The advances pursuant to the Loan Agreement mature on June
30, 1997. At September 29, 1996, the Company had outstanding $112,900,000
pursuant to the Loan Agreement and has incurred $1,295,546 of interest expense
since inception of the Loan Agreement.
On October 24, 1996, the Company repaid $40,309,941 to World Omni
Financial Corp., the entire amount due under their vehicle financing
arrangement as of that date. This financing arrangement has been terminated and
the Company intends to finance its vehicle inventory through the Republic Loan
Agreement discussed above.
Pursuant to a management agreement with Republic, the Company manages the
operations of CarChoice, Inc. ("CarChoice") a subsidiary of Republic engaged
in developing and operating used car superstores. In connection with Republic's
acquisition of CarChoice, Republic entered into a Management Agreement with
the Company to manage and operate CarChoice and use the CarChoice facilities
for certain developmental activities until the acquisition of CarChoice was
consummated. Also pursuant to the Management Agreement, the Company is required
to absorb certain expenses relating to the operations of CarChoice. For the
three months ended September 29, 1996, the Company earned $100,000 in
management fees from Republic and absorbed $623,000 of expenses from CarChoice.
The accounts receivable balance of $6,266,234 included in the accompanying
consolidated balance sheet primarily represents amounts due from CarChoice.
Such amounts result from the procurement of vehicles on behalf of CarChoice in
the ordinary course of business.
58
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Continental Waste Industries, Inc.:
We have audited the accompanying consolidated balance sheets of CONTINENTAL
WASTE INDUSTRIES, INC. (a Delaware corporation) and SUBSIDIARIES as of December
31, 1995 and 1994, and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995, as restated-see Note 1. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Continental
Waste Industries, Inc. and Subsidiaries as of December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995 in conformity with generally accepted
accounting principles.
ARTHUR ANDERSEN LLP
Chicago, Illinois,
February 20, 1996 (except with
respect to the matter discussed
in Note 1, as to which the
date is December 11, 1996)
59
<PAGE> 61
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
------------ -----------
(RESTATED-SEE NOTE 1)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.................................................. $ 3,483,154 $ 4,677,237
Accounts receivable, net................................................... 8,169,121 5,295,770
Prepaid expenses........................................................... 2,458,141 3,214,902
Deferred income taxes...................................................... 377,447 523,752
------------ -----------
Total current assets................................................ 14,487,863 13,711,661
------------ -----------
Property and Equipment, at cost:
Land, landfill sites and improvements...................................... 59,427,605 48,472,232
Buildings and improvements................................................. 4,423,169 2,426,922
Vehicles and equipment..................................................... 32,827,833 19,127,148
Office furniture and equipment............................................. 618,413 692,514
------------ -----------
97,297,020 70,718,816
Less -- Accumulated depreciation and amortization.......................... 14,215,696 7,941,916
------------ -----------
Net property and equipment.......................................... 83,081,324 62,776,900
------------ -----------
Other Assets:
Excess cost over fair value of net assets acquired, net.................... 14,614,475 6,471,632
Agreements not to compete, net............................................. 1,164,493 1,245,368
Cash held in escrow........................................................ 3,749,038 1,121,220
Land purchase option....................................................... 1,000,000 1,000,000
Other...................................................................... 6,124,138 2,551,247
------------ -----------
Total other assets.................................................. 26,652,144 12,389,467
------------ -----------
$124,221,331 $88,878,028
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes payable.............................................................. $ 2,117,500 $ --
Current maturities of long-term debt....................................... 2,528,741 856,731
Accounts payable........................................................... 2,543,768 2,908,686
Income taxes payable....................................................... 3,244,662 1,454,678
Other accrued liabilities.................................................. 6,042,677 3,338,848
------------ -----------
Total current liabilities........................................... 16,477,348 8,558,943
------------ -----------
Long-Term Liabilities:
Long-term debt, less current maturities.................................... 20,774,991 24,491,315
Deferred income taxes...................................................... 7,160,625 8,432,804
Accrued landfill closure costs, less current portion....................... 6,748,474 6,647,577
Other long-term liabilities................................................ 2,788,640 3,722,788
------------ -----------
Total long-term liabilities......................................... 37,472,730 43,294,484
------------ -----------
Commitments and Contingencies:
Stockholders' Equity:
Common stock, $.0006 par value, 40,000,000 and 16,666,666 shares authorized
in 1995 and 1994, respectively, 14,089,742 and 10,335,540 shares issued
in 1995 and 1994, respectively........................................... 8,454 6,201
Additional paid-in capital................................................. 63,063,241 32,455,361
Retained earnings.......................................................... 7,671,657 4,669,588
Treasury stock (79,375 and 18,450 common shares at cost in 1995 and 1994,
respectively)............................................................ (472,099) (106,549)
------------ -----------
Total stockholders' equity.......................................... 70,271,253 37,024,601
------------ -----------
$124,221,331 $88,878,028
============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these balance sheets.
60
<PAGE> 62
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
(RESTATED-SEE NOTE 1)
<S> <C> <C> <C>
Revenue................................................. $47,815,275 $28,728,298 $16,203,848
Costs and Expenses:
Operating expenses.................................... 22,181,707 13,421,788 8,603,304
General and administrative expenses................... 7,915,790 4,736,856 2,066,668
Depreciation and amortization......................... 6,863,120 3,802,461 2,605,576
Office closing charge................................. 3,264,000 -- --
----------- ----------- -----------
Income from operations............................. 7,590,658 6,767,193 2,928,300
----------- ----------- -----------
Other Income (Expenses):
Interest expense...................................... (2,658,912) (1,881,173) (1,303,110)
Other, net............................................ 205,006 (125,878) 48,671
----------- ----------- -----------
Other income (expense), net........................ (2,453,906) (2,007,051) (1,254,439)
----------- ----------- -----------
Income before income taxes and extraordinary
gain............................................. 5,136,752 4,760,142 1,673,861
Provision for Income Taxes.............................. (2,134,683) (2,131,659) (721,070)
----------- ----------- -----------
Income before extraordinary gain...................... 3,002,069 2,628,483 952,791
Extraordinary Gain, net of $280,280 of income taxes..... -- 356,720 --
----------- ----------- -----------
Net income.................................... $ 3,002,069 $ 2,985,203 $ 952,791
=========== =========== ===========
Earnings Per Share:
Primary:
Income before extraordinary gain................... $ 0.25 $ 0.39 $ 0.21
Extraordinary gain................................. -- 0.05 --
----------- ----------- -----------
Net income.................................... $ 0.25 $ 0.44 $ 0.21
=========== =========== ===========
Fully diluted:
Income before extraordinary gain................... $ 0.25 $ 0.34 $ 0.19
Extraordinary gain................................. -- 0.05 --
----------- ----------- -----------
Net income.................................... $ 0.25 $ 0.39 $ 0.19
=========== =========== ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
61
<PAGE> 63
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
SERIES A SERIES B ADDITIONAL
PREFERRED PREFERRED COMMON PAID-IN RETAINED TREASURY
STOCK STOCK STOCK CAPITAL EARNINGS STOCK
----------- ----------- ------ ----------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992......... $ 2,642,120 $ 2,379,000 $2,178 $ 664,595 $ 861,584 $ --
Net income....................... -- -- -- -- 952,791 --
Preferred stock dividends
declared....................... -- -- -- -- (129,990) --
Finet Acquisition................ -- -- 267 698,225 -- --
Exchange of common stock for
preferred stock................ (243,992) -- 43 243,949 -- --
Additional common stock issued in
Finet Acquisition.............. -- -- 133 745,447 -- --
Issuance of common stock......... -- -- 44 244,001 -- --
----------- ----------- ------ ----------- ---------- ---------
Balance, December 31, 1993......... 2,398,128 2,379,000 2,665 2,596,217 1,684,385 --
Net income (Restated-See Note
1)............................. -- -- -- -- 2,985,203 --
Issuance of common stock, net of
offering costs................. -- -- 2,184 16,517,493 -- --
Conversion of preferred stock
into common stock.............. (2,398,128) -- 425 2,397,703 -- --
Redemption of preferred stock.... -- (2,379,000) -- -- -- --
Warrants exercised for common
stock.......................... -- -- 137 1,233,673 -- --
Victory Waste Acquisition........ -- -- 746 9,230,769 -- --
Issuance of warrants and options
as obligation settlements...... -- -- -- 165,000 -- --
Purchase of treasury stock....... -- -- -- -- -- (106,549)
Common stock issued for acquired
businesses..................... -- -- 44 314,506 -- --
----------- ----------- ------ ----------- ---------- ---------
Balance, December 31, 1994
(Restated-See Note 1)............ -- -- 6,201 32,455,361 4,669,588 (106,549)
Net income (Restated-See Note
1)............................. -- -- -- -- 3,002,069 --
Issuance of common stock, net of
offering costs................. -- -- 2,007 30,376,294 -- --
Common stock issued for acquired
businesses and investment...... -- -- 99 1,099,671 -- --
Cancellation of previously
recorded stock options......... -- -- -- (2,016,000) -- --
Issuance of common stock and
warrants as obligation
settlements.................... -- -- 108 925,193 -- --
Purchase of treasury stock....... -- -- -- -- -- (365,550)
Warrants and options exercised
for common stock............... -- -- 39 222,722 -- --
----------- ----------- ------ ----------- ---------- ---------
Balance, December 31, 1995
(Restated-See Note 1)............ $ -- $ -- $8,454 $63,063,241 $7,671,657 $(472,099)
=========== =========== ====== =========== ========== =========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
62
<PAGE> 64
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -----------
(RESTATED-SEE NOTE 1)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income.................................................... $ 3,002,069 $ 2,985,203 $ 952,791
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation................................................ 6,219,778 3,418,506 2,336,288
Amortization................................................ 643,342 383,955 269,288
Office closing charge....................................... 3,264,000 -- --
Extraordinary gain, net of income taxes..................... -- (356,720) --
Provision (benefit) for deferred income taxes............... (1,218,365) 845,404 552,786
Compensatory options, warrants and common shares............ 1,063,819 364,836 --
Changes in operating assets and liabilities, net of effect
of business acquisitions:
Accounts receivable, net.................................. (2,261,776) (1,283,722) (891,621)
Prepaid expenses.......................................... (1,406,557) (289,984) (116,310)
Other assets.............................................. (1,208,643) (480,112) (207,065)
Accounts payable.......................................... (829,354) 483,638 656,657
Income taxes payable...................................... 1,789,984 650,544 68,797
Accrued landfill closure costs............................ (1,302,103) 712,941 129,586
Other accrued liabilities................................. 834,240 (2,229,541) (14,543)
------------ ------------ -----------
Net cash provided by operating activities.............. 8,590,434 5,204,948 3,736,654
------------ ------------ -----------
Cash Flows from Investing Activities:
Capital expenditures.......................................... (19,680,791) (12,826,591) (3,485,177)
Landfill development project additions........................ (296,937) (1,514,547) --
Cash paid for businesses and investment, net of cash
acquired.................................................... (6,664,520) (475,000) (18,087)
Cash paid for common and preferred stock of minority
interest.................................................... (948,482) -- --
Cash acquired in businesses purchased with stock.............. -- 323,633 699,707
(Increase) decrease in cash held in escrow, net of effect of
business acquisitions....................................... (2,627,818) (483,873) 324,410
------------ ------------ -----------
Net cash used in investing activities.................. (30,218,548) (14,976,378) (2,479,147)
------------ ------------ -----------
Cash Flows from Financing Activities:
Net (payments) borrowings under revolving lines of credit..... 16,400,000 (240,000) (160,000)
Issuance of long-term debt.................................... 782,000 13,496,468 4,030,355
Payments on long-term debt.................................... (26,074,009) (14,659,801) (5,105,108)
Issuance of common stock, net of offering costs............... 30,378,301 16,369,800 64,015
Deferred financing costs paid................................. (909,472) (119,946) (133,565)
Redemption of Series B preferred stock........................ -- (2,379,000) --
Preferred stock dividends paid................................ -- (208,164) (44,620)
Warrants and options exercised for common stock............... 222,761 1,233,810 --
Purchase of treasury stock.................................... (365,550) (106,549) --
------------ ------------ -----------
Net cash provided by (used in) financing activities.... 20,434,031 13,386,618 (1,348,923)
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents... (1,194,083) 3,615,188 (91,416)
Cash and Cash Equivalents, beginning of year.................... 4,677,237 1,062,049 1,153,465
------------ ------------ -----------
Cash and Cash Equivalents, end of year.......................... $ 3,483,154 $ 4,677,237 $ 1,062,049
============ ============ ===========
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these statements.
63
<PAGE> 65
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
1. ORGANIZATION
BASIS OF PRESENTATION
On September 9, 1993, Continental Waste Industries, Inc. ("Former
Continental") was acquired by (the "Finet Acquisition") Finet, Inc. ("Finet").
Finet was a public corporation which had no operations. The acquisition has been
recorded in accordance with generally accepted accounting principles as a
reverse acquisition under the purchase method. The consolidated financial
statements presented herein for the year ended December 31, 1993, include only
the financial results of Former Continental through September 8, 1993, with all
Former Continental share and per share information being adjusted by the
conversion rate at which such shares were converted into Finet shares. The
consolidated financial information for the periods subsequent to September 8,
1993 include the results of both Continental Waste Industries, Inc. and Finet in
their consolidated form. As part of the acquisition, Finet changed its name to
Continental Waste Industries, Inc. (the "Company"). The Company changed its
state of incorporation from New York to Delaware on February 28, 1994.
On December 28, 1995, the Company effected a 5 for 3 stock split of its
common stock. All common share information has been restated for all periods to
reflect the 5 for 3 stock split. As a result of the restatement, presented per
share and weighted average share information is not comparable to amounts
disclosed in documents previously filed with the Securities and Exchange
Commission. The Company's $.0006 par value common stock is hereinafter referred
to as Shares.
The Company's previously filed 1995 and 1994 consolidated financial
statements have been restated herein to reflect certain costs as compensatory
rather than as consideration paid in a business combination. The income
statement effect of this restatement was as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
AS PREVIOUSLY AS PREVIOUSLY
FILED AS RESTATED FILED AS RESTATED
------------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
General and administrative expenses...... $ 6,882,790 $7,915,790 $ 4,484,856 $4,736,856
Office closing charge.................... $ 1,500,000 $3,264,000 -- --
Income from operations................... 10,387,658 7,590,658 7,019,193 6,767,193
Income before income taxes and
extraordinary gain..................... 7,933,752 5,136,752 5,012,142 4,760,142
Net income............................... 4,636,636 3,002,069 3,124,357 2,985,203
Primary earnings per share............... 0.38 0.25 0.45 0.44
Fully-diluted earnings per share......... 0.38 0.25 0.41 0.39
</TABLE>
The restatement's effect on total stockholders' equity was a decrease of
$1,773,721 to $70,271,253 as of December 31, 1995 and a decrease of $121,154 to
$37,024,601 as of December 31, 1994.
In addition to the above restatement, the Company also reclassified certain
landfill cell development costs which were previously reflected as a component
of prepaid expenses into land, landfill site and improvements. Such amounts were
$4,420,587 and $3,763,908 as of December 31, 1995 and 1994.
OPERATIONS
The Company provides integrated solid waste management services to
residential, commercial and industrial customers concentrated primarily in the
eastern half of the United States. These services include non-hazardous landfill
disposal, solid waste collection, transfer station operations and recycling
programs. The Company also provides solid waste management services in Costa
Rica.
64
<PAGE> 66
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company conducts its domestic solid waste operations in Indiana,
Michigan, Missouri, Illinois, Kentucky, Tennessee, South Carolina, Mississippi
and West Virginia. The Company operates primarily in smaller metropolitan
markets and in rural areas, although some sites are economically accessible from
Chicago and other large cities. At December 31, 1995, the Company owned and
operated a total of nine landfills, eight waste collection operations, thirteen
transfer stations and three municipal recycling facilities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its majority-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
CASH EQUIVALENTS
The Company considers those investments which are highly liquid in nature
and have an original maturity of three months or less at the date of purchase to
be cash equivalents.
REVENUE AND RECEIVABLES
The Company recognizes revenue upon receipt of waste at the Company's
facilities. Landfill revenues are reported net of certain governmental taxes
which are collected from customers and remitted to the governments primarily to
assure proper closure and post-closure of the landfill sites. The Company grants
credit to the majority of its customers on terms which range from fifteen to
forty days. Potential loss amounts associated with the granting of credit are
included in management's estimate of the allowance for doubtful accounts. It is
not the policy of the Company to require collateral from its customers in order
to obtain credit.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation and
amortization. Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives as follows:
<TABLE>
<CAPTION>
ESTIMATED
ASSET DESCRIPTION USEFUL LIVES
---------------------------------------------------------------------- --------------
<S> <C>
Buildings and improvements............................................ 19 to 32 Yrs.
Vehicles and equipment................................................ 2 to 12 Yrs.
Office furniture and equipment........................................ 5 to 7 Yrs.
</TABLE>
Repairs and maintenance costs are expensed as incurred, while major
renewals and betterments are capitalized. Repair and maintenance costs in 1995,
1994 and 1993 were $2,091,625, $1,046,946 and $569,480, respectively. Gains or
losses on retirements and disposals of property and equipment are reflected in
current operations.
Landfill sites represent costs to develop individual landfill cells for
usage which are capitalized as incurred and are amortized as the airspace in
each cell is consumed. Fully amortized cells are written off in the period in
which the cell accepts its last receipt of waste. Landfill site improvement
costs include design, licensing and construction costs necessary to make the
cell ready for receipt of waste. Pursuant to current Subtitle D Regulations
which govern the construction of landfills, such costs, and their related
amortization, continue to grow. Interest costs are also capitalized while
development activities are undertaken to prepare cells for their intended use.
Interest costs capitalized in 1995, 1994 and 1993 were $457,250, $224,345 and
$114,240, respectively.
65
<PAGE> 67
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
The excess cost over the fair value of net assets acquired ("goodwill") is
amortized on a straight-line basis over twenty-five to thirty years. Such costs
are reflected net of accumulated amortization of $1,395,054 and $831,642 at
December 31, 1995 and 1994, respectively. Amortization expense was $563,412,
$317,026 and $255,428 in 1995, 1994 and 1993, respectively. Should events or
circumstances occur subsequent to the acquisition of a business which bring into
question the realizable value or impairment of the related goodwill, the Company
will evaluate the remaining useful life and balance of goodwill and make
appropriate adjustments. The Company's principal considerations in determining
impairment include the strategic benefit to the Company of the particular
business and the current and expected future operating income levels of that
particular business.
AGREEMENTS NOT TO COMPETE
Agreements not to compete represent the cost of obtaining such agreements
pursuant to various business acquisitions. Such costs are amortized over the
term of the related agreement, typically five to ten years. Some such terms do
not commence until after certain consulting arrangements have terminated. Such
costs are reflected net of amortization of $250,758 and $204,205 at December 31,
1995 and 1994, respectively. Amortization expense in 1995, 1994 and 1993 was
$55,248, $57,899 and $64,674, respectively.
LANDFILL CLOSURE COSTS
It is the policy of the Company to accrue the estimated landfill closure
and post-closure maintenance costs expected to be incurred upon and subsequent
to the closing of existing operating landfill areas ratably in relation to the
airspace consumed. Such costs will principally include costs for the final cap
and cover of the landfill area, management of leachate, groundwater monitoring
and general area maintenance.
The Company constructs landfill cells with an average useful disposal life
of two to three years. This construction policy usually results in partial or
total cell closure within two to five years of a cell first accepting waste.
Closure requirements and post-closure care requirements are governed by various
state regulatory agencies and are typically a component of the landfill's
operating permit. All of the Company's operating landfills are required to
provide 30 years of post-closure care. Closure costs are determined by many
factors including total acreage to be closed, composition of the closure cap,
on-site availability of materials and others. While management estimates such
future costs for each landfill site, such estimates of the amount and timing
of such costs are fixed or reliably determinable. Accordingly, the Company's
estimate of these costs in current dollars is inflated at a rate of 4% until
the expected time of payment and then discounted to present value at 8%.
The Company provides for such discounted costs ratably as the airspace in
each cell is consumed. The resulting accrued landfill closure costs are not
reduced by funds set aside by the Company, either voluntarily or by statute, to
pay for such costs. Such funding, if appropriate, is recorded as a long-term
asset. Had the Company not discounted this liability, the amounts recorded would
have been increased by approximately $12.8 million as of December 31, 1995.
Total estimated closure and post-closure costs to be spent after December 31,
1995, inflated as described above, are approximately $50.4 million of which
approximately $1.6 million, on average, is expected to be expended each year
over the next five years.
TRANSLATION OF FOREIGN CURRENCY
The Company translates the financial statements of its foreign subsidiaries
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 52,
"Foreign Currency Translation." The cumulative translation adjustment and
translation loss were immaterial to the consolidated financial statements.
66
<PAGE> 68
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LAND PURCHASE OPTION
The $1,000,000 land purchase option is an option to purchase 200 acres of
land adjacent to the Company's Forest Lawn Landfill in Three Oaks, Michigan.
Forty acres of the 200 acres have already been approved by Berrien County for
landfill use and 110 acres have been similarly approved for composting of waste
and various other related activities. The expiration date of the option is
October 16, 2000. The option must be exercised prior to the expiration date or
the date on which the 40 acres of the 200 acres is licensed by the State of
Michigan to receive solid waste for disposal, whichever occurs first. The
exercise price of this option is $4,250,000.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reporting amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NEW ACCOUNTING PRONOUNCEMENTS
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" was issued in March 1995 and is to be
adopted by the Company in 1996. This new pronouncement establishes standards on
when to review long-lived assets and certain identifiable intangible assets for
impairment and how to measure that impairment. Management has not determined the
impact, if any, that adoption of this standard will have on the Company's
financial position or results of operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in
October 1995 and is to be adopted by the Company in 1996. This new pronouncement
establishes financial accounting and reporting standards for stock-based
employee compensation plans and requires a fair value based method to determine
the compensation cost of such plans. Management has not determined if the
Company will adopt the accounting method prescribed by the new standard or if it
will, as allowed by the standard, only provide supplemental pro forma disclosure
of the effect of such adoption. Management has not determined the effect of
adopting the prescribed accounting on the Company's financial position or
results of operations.
RECLASSIFICATIONS
Certain amounts in previously issued financial statements have been
reclassified to conform to 1995 classifications.
3. BUSINESS COMBINATIONS
In January 1993, the Company purchased a landfill disposal business from a
current stockholder and Chairman of the Company's Board of Directors, Thomas A.
Volini, for one Share and the assumption of $214,000 notes payable by Mr. Volini
to the previous business owner.
On September 9, 1993, the Company completed the Finet Acquisition. Finet
issued 3,660,050 Shares in exchange for all of Former Continental's issued and
outstanding common shares, 72,107 Shares in exchange for certain Former
Continental Series A preferred shares and 196,708 Shares and a cash payment of
$44,620 as payment of accrued dividends on Former Continental Series A preferred
shares and indebtedness to certain stockholders. Finet sold 25,000 Shares for
$.0006 per share and issued 425,200 Series A preferred shares and 118,950 Series
B preferred shares in exchange for certain issued and outstanding Former
Continental Series A and Series B preferred shares.
Former Continental common shares were converted into Finet common shares at
a 1 for 4.458705 per share conversion rate. Former Continental Series A
preferred stock was converted into Finet Series A
67
<PAGE> 69
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stock at a 1 for 2.675223 per share conversion rate. Former
Continental Series B preferred stock was converted into Finet Series B preferred
stock on a 1 for 1 basis.
In July 1994, the Company acquired approximately 73% of the issued and
outstanding stock of Victory Waste Incorporated ("Victory") for 831,425 Shares.
Since July 1994, the Company has issued 482,854 Shares and $948,482 in cash to
acquire the remaining interest in Victory and its subsidiary.
In conjunction with the Victory acquisition, two former directors and
officers of Victory entered into employment agreements with the Company which
included a provision for payment in Shares contingent upon the net income of
Victory for the year ended December 31, 1995. Based on such income, management
estimates the Company will issue 22,740 Shares to each officer. Such Shares are
reflected as outstanding as of December 31, 1995. Such deemed issuance increased
general and administrative expenses by $529,000. The officers will also receive
52,778 Shares each if certain permits are issued for a certain landfill.
These employment agreements also provided for the annual issuance of stock
options with an aggregate fair market value of $2,520,000. As these options were
contractually issuable, the Company recorded prepaid compensation costs for
their full value and an increase to additional paid-in capital as of the
acquisition date. The prepaid compensation costs were to be amortized ratably
over the five-year term of the employment agreements. In June 1995, $504,000 of
such value was granted in the form of stock options. On December 31, 1995, both
employees terminated their agreements with the Company each in exchange for
$600,000 of cash paid in January 1996 and a $500,000 non-interest bearing note
due in two installments maturing in January 1997 and 1998. The termination of
these agreements prompted the Company to close its administrative office in
Indianapolis, Indiana, and to write-off certain related Victory contracts as
described in Note 4 -- Office Closing Charge. Due to the cancellation of the
employment agreements under which the aforementioned stock options were to be
issued, the Company included the unissued value of such options as an offset to
the office closing charge and fully expensed the $1,764,000 unamortized balance
of the prepaid compensation costs in such charge.
In August 1994, for $700,000, the Company purchased the only
privately-owned, non-hazardous waste landfill operation in Costa Rica. The
definitive agreements provide for the assumption of the residential and
commercial collection contracts of certain cities. The Company paid half of the
purchase price during the first year following the acquisition with the
remainder payable over a seven year period in equal quarterly payments without
interest.
From January 1, 1995 to August 15, 1995, the Company expanded its
operations through the acquisition of six businesses engaged in waste management
operations. The aggregate of these business acquisitions was significant to the
Company. These entities included ASCO Sanitation, Inc., Larry's Disposal, Inc.,
Terre Haute Recycling, Inc., Gilliam Sanitation, Inc./Gilliam Transfer, Inc.,
Anderson Refuse Company, Inc./M.V. Dulworth, and a 72% interest in Procesa
Continental S.A., de C.V. The aggregate purchase price of these businesses was
$8.9 million, plus the assumption or refinancing of $2.1 million of debt and
$0.6 million of future contingent payments. The purchase prices were paid by
issuing 164,846 Shares with a market value of $1.1 million at the time of
issuance, paying $5.8 million of cash obtained from the Company's $45 million
credit facility (the "Credit Facility") and issuing $2.0 million of notes
payable to the sellers.
In October 1995, the Company purchased, through one of its subsidiaries, a
sanitary landfill in Richland County, South Carolina ("Richland"). The acquiring
subsidiary, which is 85% owned by the Company, was organized recently to make
acquisitions of landfills and related solid waste management operations and to
pursue privatization and public-private partnership opportunities in the
Southeastern United States. The Company has an option to acquire the remaining
15% of the subsidiary for approximately $2.4 million of common stock of the
Company. The Company, on behalf of its subsidiary, paid $2.4 million in cash and
notes, and assumed $1.1 million of debt for Richland. As a condition of the
landfill purchase, a South Carolina collection company has entered into, among
other things, a 10-year put-or-pay disposal contract with the
68
<PAGE> 70
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company to provide a minimum of 300 tons of waste per day, and a 120-day
disposal contract for 500 tons of waste per day, with a right of first refusal
to the Company for a long-term extension.
The following table summarizes the pro forma operating results in 1994 and
1993 as if Victory had been acquired as of the beginning of the applicable year
(and as if Victory acquired G.E.M. Environmental Management, Inc. ("GEM") and
GEM acquired several businesses as of January 1, 1993), and the pro forma
operating results in 1995 and 1994 as if the 1995 business acquisitions
(including the acquisition of the minority interests in Victory and GEM and
excluding Richland) occurred on January 1, 1994.
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Pro forma revenue............................... $54,167,940 $46,866,140 $28,913,757
=========== =========== ===========
Pro forma income before extraordinary gain...... $ 2,877,875 $ 2,461,386 $ 577,890
=========== =========== ===========
Pro forma net income............................ $ 2,877,875 $ 2,818,106 $ 577,890
=========== =========== ===========
Pro forma primary earnings per share before
extraordinary gain............................ $ 0.24 $ 0.36 $ 0.08
=========== =========== ===========
Pro forma fully diluted earnings per share
before extraordinary gain..................... $ 0.24 $ 0.33 $ 0.08
=========== =========== ===========
</TABLE>
The pro forma operating results include each acquiree's pre-acquisition
results of operations for the indicated years with adjustments to reflect
amortization of goodwill, additional depreciation on the increases to the fair
market value of fixed assets, interest expense on the acquisition borrowings,
the effect of income taxes thereon and the issuance of Shares in such
acquisitions. The pro forma information given above does not purport to be
indicative of the results that actually would have been obtained if the
operations were combined during the periods presented and is not intended to be
a projection of future results or trends.
Excluding the acquisitions described above, the Company also acquired in
1994 and 1993 the common stock, net assets (consisting primarily of hauling
equipment) or customer routes of various independent hauling operations for
cash, notes and Shares. The effect on consolidated operating results and
financial condition from these acquisitions was not material.
All of the above acquisitions were accounted for as purchases and,
accordingly, the purchase price, in some cases based on the estimated market
value of the Shares issued as consideration, was allocated to the related assets
acquired and liabilities assumed based upon their estimated fair values at the
date of acquisition. Those estimated fair values have been adjusted as of
December 31, 1995. Future adjustments, if any, as a result of pending analyses
of certain judgmental reserves and functionality of certain equipment will be
made prior to the one year anniversary of the related acquisition and are not
expected to be material. Operating results of acquired businesses have been
included in the consolidated financial statements from the date of acquisition.
In March 1996, the Company purchased two construction and demolition
landfills in central Florida for approximately $5.3 million.
In March 1996, the Company sold its 72% interest in Procesa Continental
S.A. de C.V., which encompassed all of the Company's Mexico City operations, for
approximately $2.6 million in cash.
4. OFFICE CLOSING CHARGE
Concurrent with the termination of the two officers' employment agreements,
the Company closed its Victory headquarters in Indianapolis, Indiana and
recorded a related $3,264,000 pretax charge for such closing. The major
components of the charge include approximately (i) $2,237,000 of severance
package costs for the two officers (including the write-off of unamortized
prepaid compensation costs and net of the reversal of
69
<PAGE> 71
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the value of previously recorded stock options to be issued pursuant to the
employment agreements), (ii) $917,000 of costs related to future contractual
payments to be made under several agreements in place at the time the Company
acquired Victory, (iii) $110,000 of the write-off of certain office equipment
and (iv) other costs, such as lease obligations and severance pay to office
employees, related to the physical closure of the office.
5. EARNINGS PER SHARE
Earnings per share information presented herein for 1993 reflect the
conversions described in Note 3 related to the Finet Acquisition and for all
years reflect the effect of the stock split described in Note 1.
Earnings per share for the years ended December 31, 1995 and 1994 were
computed based on the following weighted average common and common equivalent
shares:
<TABLE>
<CAPTION>
1995 1994
1995 1994 FULLY FULLY
PRIMARY PRIMARY DILUTED DILUTED
----------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares:
Shares outstanding.................. 11,277,572 6,275,485 11,277,572 6,275,485
Dilutive stock options, warrants and
convertible Series A preferred
stock............................ 701,828 530,918 731,735 1,197,605
Contingent shares and options
related to the Victory
acquisition...................... -- 51,347 105,556 140,031
----------- ---------- ----------- ----------
11,979,400 6,857,750 12,114,863 7,613,121
=========== ========== =========== ==========
</TABLE>
Primary earnings per share for the year ended December 31, 1993 was based
upon the weighted average number of common and common equivalent shares
outstanding during such year and income available to common stockholders. Common
equivalent shares for that year resulted from dilutive stock options and
warrants. Primary weighted average common and common equivalent shares for the
year ended December 31, 1993 was 3,950,085. Income available to common
stockholders excludes dividends declared on the Company's preferred stock. No
such dividends were declared in 1995 or 1994.
Fully diluted earnings per share for 1993 are similarly computed but
include the dilutive effect of the Company's convertible Series A preferred
stock. Fully dilutive weighted average common and common equivalent shares were
4,739,270 for the year ended December 31, 1993. The Series A preferred stock
converted into Shares in November 1994.
6. ALLOWANCE FOR DOUBTFUL ACCOUNTS
The following table reflects the activity of the allowance for doubtful
accounts for the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
CHARGED TO
BALANCE COSTS AND
BEGINNING EXPENSE BALANCE
OF YEAR ACCOUNTS DEDUCTIONS END OF YEAR
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995................ $ 360,000 $ 95,000 $ (59,000) $ 396,000
Year ended December 31, 1994................ $ 102,000 $368,000 $ (110,000) $ 360,000
Year ended December 31, 1993................ $ 77,000 $ 50,000 $ (25,000) $ 102,000
</TABLE>
70
<PAGE> 72
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. ACCRUED LIABILITIES
Current accrued liabilities as of December 31, 1995 and 1994, consisted of
the following:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accrued landfill closure costs................................ $1,769,823 $ 221,174
Accrued local landfill taxes.................................. 819,866 904,143
Unearned revenue.............................................. 1,507,019 766,423
Other accrued liabilities..................................... 1,945,969 1,447,108
---------- ----------
$6,042,677 $3,338,848
========== ==========
</TABLE>
Unearned revenue primarily represents quarterly or monthly billings in
advance of service.
8. DEBT
The $2,117,500 of notes payable as of December 31, 1995, consist of
non-interest bearing promissory notes of $1,537,000 (paid on January 1, 1996) to
the sellers of three of the 1995 acquired businesses and a $580,500 note due in
March 1996 which was assumed in one of the 1995 business acquisitions. This note
has an interest rate of 9.75%.
Long-term debt, including capital lease obligations which are not material,
at December 31, 1995 and 1994 consisted of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Credit Facility............................................. $16,400,000 $ --
Notes payable to LaSalle National Bank ("LNB").............. -- 8,843,750
Notes payable to banks and finance companies................ 2,124,370 9,107,310
Notes payable to individuals and companies.................. 4,779,362 7,396,986
----------- -----------
23,303,732 25,348,046
Less current maturities........................... 2,528,741 856,731
----------- -----------
$20,774,991 $24,491,315
=========== ===========
</TABLE>
Of the various notes payable to LNB as of December 31, 1994, the proceeds
from one such loan were used to retire $3.5 million of notes and accrued
interest due to certain individuals at a discount. This early retirement of debt
resulted in an extraordinary gain, net of related expenses and income taxes of
$356,720. Related to this transaction, the Company also issued warrants to
purchase 33,333 shares of common stock currently at a price of $5.40 per share
to the note holders. The warrants expire in 1997.
On March 28, 1995, the Company entered into the Credit Facility with LNB
which expires in March 1998. Borrowing under the Credit Facility refinanced
certain existing indebtedness and provided additional funds for the operation of
the Company. The Credit Facility has been subsequently syndicated to include the
Bank of America and the First National Bank of Boston. Borrowings under the
Credit Facility bore a weighted average interest rate of 9.18% during 1995 with
a weighted average interest rate of 9.05% on outstanding loans as of December
31, 1995.
The Company deferred approximately $909,000 of costs incurred in obtaining
the Credit Facility. Such costs are being amortized over the term of the
Facility. Such accumulated amortization was $258,000 as of December 31, 1995.
In the first quarter of 1996, the Company and the lenders amended the
Credit Facility (the "Amended Credit Facility") effective as of January 1, 1996
with covenants effective as of December 31, 1995. The Amended Credit Facility
expires in January 1999 and is secured by all corporate assets and a pledge of
the
71
<PAGE> 73
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
stock of all subsidiaries. As amended, each borrowing under the Amended Credit
Facility bears interest based on the Company's leverage ratio, as defined, of
funded debt to earnings before interest, taxes, depreciation and amortization.
If the leverage ratio is 2.0 to 1 or less, then the interest rate is, at the
Company's option, prime or LIBOR plus 1.5% and the fee on outstanding letters of
credit is .75%. If the leverage ratio falls between 2.01 to 2.5 compared to 1,
then the interest rate is prime plus 0.5% or LIBOR plus 1.75% and the fee on
outstanding letters of credit is 1.0%. If the leverage ratio falls between 2.51
and 3.0 compared to 1, then the interest rate is prime plus 1.0% or LIBOR plus
2.0% and the fee on outstanding letters of credit is 1.5%. If the leverage ratio
is greater than 3.0 to 1, then the interest rate is prime plus 1% or LIBOR plus
2.5% and the fee on outstanding letters of credit is 2.0%. The Amended Credit
Facility includes provisions for letters of credit up to $10.0 million. The
Company will also pay a 0.5% fee on the average unused portion of the Amended
Credit Facility. As of December 31, 1995, $23.6 million of unused credit under
this facility remained available.
Notes payable to banks and finance companies have principal amounts payable
monthly through May 1999, bear interest at rates from 4.8% to 26.6% and are
secured by certain land and buildings, vehicles, equipment and accounts
receivable.
Notes payable to individuals and companies have principal amounts payable
monthly, quarterly, semi-annually and annually through February 2002, bear
interest at rates from 0% to 9.75% and are secured by certain land, vehicles and
equipment.
Under the terms of the Amended Credit Facility, the Company is required to
meet certain covenants regarding, among other things, financial position and
results of operations. Based on the Company's December 31, 1995 financial
position and results of operations, the Company was in compliance with such
covenants. The terms of the Amended Credit Facility impose restrictions that
affect, among other things, the Company's ability to (i) incur additional
indebtedness, (ii) create liens on assets, (iii) sell assets, (iv) engage in
mergers, acquisitions or consolidations, (v) make investments, (vi) pay
dividends or make distributions and (vii) engage in certain transactions with
affiliates and subsidiaries.
The Amended Credit Facility also contains subjective covenants providing
that the Company would be in default if, in the judgment of the lenders, there
is a material adverse change in the financial condition of the Company.
Management is not aware of, nor does it anticipate, any facts, events or
occurrences which could reasonably be expected to have a material adverse effect
on the operations of the Company that would cause the lenders to demand
repayment of the amounts borrowed under the Amended Credit Facility prior to its
termination.
Principal payments on long-term debt, based on scheduled maturities after
the amendment described above, are due as follows during the years ending
December 31:
<TABLE>
<S> <C>
1996.................................................................... $ 2,528,741
1997.................................................................... 2,362,055
1998.................................................................... 1,134,542
1999.................................................................... 16,832,576
2000.................................................................... 231,005
After 2001.............................................................. 214,813
-----------
$23,303,732
===========
</TABLE>
9. COMMON STOCK
In June 1993, Former Continental issued 12,988 Shares with an aggregate
value of $6,236 in settlement of outstanding liabilities and sold 17,593 Shares
to current stockholders for $64,000.
72
<PAGE> 74
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 12, 1993, as a result of the Finet Acquisition, the Company
issued 4,398,310 Shares in replacement of previously outstanding Finet common
shares, including the 3,953,865 Shares issued to Former Continental stockholders
in the Finet Acquisition. Subsequent to the Finet Acquisition in 1993, an
additional 43,217 Shares with an aggregate value of $173,810 were issued as
settlement of outstanding liabilities. Pursuant to the 5 for 3 stock split, on
December 28, 1995 the Company's authorized Shares were increased to 40,000,000
from 10,000,000 (unadjusted).
In November 1994, the Company and certain stockholders completed a public
offering of 2,556,027 Shares (2,333,333 Shares were sold by the Company and
222,694 Shares were sold by certain stockholders of the Company). The Company
received approximately $11.6 million of net proceeds from the sale of which
approximately $3.1 million was used to redeem all of the outstanding Series B
preferred shares and pay related accrued interest and dividends. The remaining
$8.5 million became available for general corporate purposes.
Concurrent with the public offering, in order to eliminate the accrual of
any further dividends on the Series A preferred stock, the Series A preferred
stockholders agreed to and have converted the 425,200 Series A preferred shares
into 708,667 Shares. The Company, in consideration of the conversion, issued
warrants to purchase 71,093 Shares at an exercise price of $5.70 to the holders
of the Series A preferred shares. The warrants expire in 1999.
Had this public offering, the redemption of the Series B preferred shares
and payment of related accrued interest and dividends and the conversion of the
Series A preferred stock and related issuance of warrants occurred on January 1,
1994, earnings per share after the extraordinary gain in 1994 would have been
$0.38. Only the portion of the public offering (605,373 Shares) which was
necessary to fund the redemption and related payment was considered for purposes
of this pro forma earnings per share disclosure.
During 1995 and 1994, the Company issued 179,448 Shares and 1,308,203
Shares, respectively, in private placements or in settlement of certain
compensation, debt or service fee obligations. The aggregate value of such
issuances was $925,301 in 1995 and $4,919,946 in 1994. In 1995, the Company
issued 164,846 Shares as consideration paid in two business acquisitions and an
investment purchase with an aggregate value of $1,099,770. In 1994, the Company
also issued 72,458 Shares as consideration paid in two business acquisitions
with an aggregate value of $314,550. The value of such issuances was determined
based on the quoted market price on or near the date of the respective
transactions.
See Note 3 for a description of the Victory Waste acquisition and the
resulting 1,314,279 Shares issued at an aggregate value of $6,696,999 over 1995
and 1994.
In October 1995, the Company and certain of its stockholders completed a
public offering of 3,780,680 Shares (3,292,760 Shares were sold by the Company
and 487,920 Shares were sold by certain stockholders of the Company). The
Company received approximately $30.1 million of net proceeds from the sale. The
proceeds were used to reduce the outstanding indebtedness under the Credit
Facility which provided the Company with renewed borrowing capacity under the
Credit Facility for future acquisitions, capital expenditures and general
corporate purposes. Had this public offering and reduction in outstanding
indebtedness occurred on January 1, 1995, earnings per share would have been
$0.38.
10. PREFERRED STOCK
On October 27, 1993, as a result of the Finet Acquisition, the Company
authorized 644,200 new shares of preferred stock of which 425,200 of such shares
were designated as Series A preferred stock with a par value of $5.64 per share,
119,000 of such shares were designated as Series B preferred stock with a par
value of $20.00 per share, and 100,000 of such shares were designated as
additional preferred stock with a par value of $.001 per share. The 425,200
shares of Series A preferred stock and 118,950 shares of Series B preferred
stock were issued in replacement of the then outstanding shares of Former
Continental Series A and Series B preferred stock, respectively. By agreement of
the holders of the preferred stock, dividends on such stock had been
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<PAGE> 75
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
suspended since April 1, 1993. None of the 100,000 shares of additional
preferred stock has been issued as of December 31, 1995.
In November 1994, all of the Series A preferred stock was converted into
Shares and all of the Series B preferred stock, including related accrued
interest and dividends, were retired with a portion of the proceeds from the
public offering described in Note 9.
11. STOCK OPTIONS AND WARRANTS
INCENTIVE STOCK OPTIONS
Prior to June 1995, the Board of Directors adopted a policy of issuing
annual stock options to selected employees. The issuance and amount of such
stock option grants were reviewed annually by the Board of Directors and such
grants were solely in its discretion. Options were granted at an exercise price
equal to the then prevailing market value as determined by the Board of
Directors. Granted options vest in equal percentages over a three year period
commencing on the date of the grant and expire five years from such date. No
future options will be granted under this arrangement.
In June 1995, the Company adopted a 1995 Employee Stock Option Plan (the
"1995 Plan") for all officers and employees. The 1995 Plan provides for the
granting of options to purchase not more than an aggregate of 166,667 Shares.
The 1995 Plan is administered by the Stock Option Committee appointed by the
Board of Directors. Upon granting options under the 1995 Plan, the Stock Option
Committee, at its discretion, determines the type of option (incentive or
non-qualified), the exercise price (not less than 100% of the fair market value
for incentive stock options), the vesting period and manner, and the expiration
(not to exceed five years from the date of grant) of such option. As of December
31, 1995, no options have been granted under the 1995 Plan.
DIRECTOR STOCK OPTIONS
Prior to December 31, 1995, the Board of Directors adopted a policy of
issuing stock options to certain directors. Granted options vest immediately and
expire from 5 to 10 years from date of grant. The options were granted at an
exercise price equal to the then prevailing market value as determined by the
Board of Directors except for certain issuances in May 1994 which were granted
at less than market value and resulted in a $57,150 charge.
In December 1995, the Company adopted a 1995 Stock Option Plan for Outside
Directors (the "Director Plan"). The Director Plan provides for the granting of
options to purchase not more than an aggregate of 166,667 Shares. Upon election
to the Company's Board of Directors, each new outside director will receive an
option to purchase 8,334 Shares. Upon adoption of the Director Plan, all three
outside directors received an option to purchase an additional 8,334 Shares.
Three days following the date of each Annual Meeting of the Stockholders of the
Company, each outside director will receive an option to purchase an additional
8,334 Shares. Options are granted at an exercise price equal to the then
prevailing market value. All options vest after one year from the date of grant
and expire on the earlier of 10 years from such date or 1 year from the date the
director ceases to be an outside director of the Company. As of December 31,
1995, there were 141,665 Shares available under this plan.
74
<PAGE> 76
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes certain information regarding stock options
during the years ended December 31, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
EMPLOYEE PLANS DIRECTOR PLANS
-------------------------- ---------------------------
SHARES PRICE RANGE SHARES PRICE RANGE
UNDER OPTION PER SHARE UNDER OPTION PER SHARE
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1992.................. 31,367 $1.12 2,230 $3.38
Granted................................... 98,086 $1.34 319,752 $2.36-$3.38
Cancelled................................. (2,969) $1.12-$1.34 --
------ ---------- ------- ----------
Balance, December 31, 1993.................. 126,484 $1.12-$1.34 321,982 $2.36-$3.38
Granted................................... 77,340 $4.50-$5.40 25,000 $6.15
Cancelled................................. (6,756) $1.34-$4.50 --
------ ---------- ------- ----------
Balance, December 31, 1994.................. 197,068 $1.12-$5.40 346,982 $2.36-$6.15
Granted................................... 25,000 $5.70 25,000 $11.14
Exercised................................. (14,842) $1.12-$1.34 --
Cancelled................................. (1,237) $1.34-$4.50 --
------ ---------- ------- ----------
Balance, December 31, 1995.................. 205,989 $1.12-$5.70 371,982 $2.36-$11.14
====== ========== ======= ==========
Vested options:
December 31, 1993........................... 54,812 321,982
====== =======
December 31, 1994........................... 106,760 346,982
====== =======
December 31, 1995........................... 155,453 371,982
====== =======
</TABLE>
WARRANTS
In connection with the Finet initial public offering, Finet sold detachable
redeemable warrants to purchase up to 333,333 Shares. A majority of those
warrants were exercised in the fourth quarter of 1994 or the first quarter of
1995. Remaining warrants have expired.
Also in connection with the Finet initial public offering, Finet sold to
its underwriter, for $20.00, warrants to purchase from Finet an aggregate of
33,333 Shares. These warrants are exercisable at a price of $3.60 per share for
a four-year period which commenced in October 1992. During 1995, 26,667 warrants
have been exercised into 26,667 Shares. As of December 31, 1995, 6,666 warrants
remain outstanding.
In January 1994, the Company issued warrants to purchase 33,333 Shares at
an exercise price of $5.40 per share. See Note 8 for further description. No
such warrants have been exercised or cancelled.
In November 1994, the Company issued warrants to purchase 71,093 Shares at
an exercise price of $5.70 per share. See Note 9 for further description. No
such warrants have been exercised or cancelled.
In November 1994, the Company issued warrants to its primary underwriter in
connection with the public offering described in Note 9. The warrants allow for
the purchase of 83,334 Shares at an exercise price of $7.98 per share and expire
in 1999. No such warrants have been exercised or cancelled.
During 1994, the Company issued warrants to certain officers as
consideration for compensatory services, as settlement of outstanding debt and
as payment for certain equipment purchases. The warrants issued in 1994 allow
for the purchase of an aggregate of 92,593 Shares at an exercise price of $2.36
per share and expire in 1999. Compensation expense of $30,819 and $12,850 was
recorded as these warrants vested in 1995 and 1994, respectively. No such
warrants have been exercised or cancelled.
75
<PAGE> 77
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. LANDFILL DEVELOPMENT PROJECT
In March 1994, the Company purchased from WPP Services, Inc. a landfill
development project located in Gila Bend, Arizona. This development project
currently involves, among other things, various geological studies on the site
and work on permitting portions of the site. In connection with this project,
the Company has obtained: (i) an option to purchase approximately 1,200 acres of
land to construct a solid waste landfill; (ii) an annexation agreement for the
option land with the City of Gila Bend; and (iii) a Host Community Agreement
with the City of Gila Bend. Upon final permitting of the landfill project, the
Company has a put option to sell the project to USA Waste Services, Inc. ("USA")
for the sum of $5.0 million plus reimbursement for land purchase costs.
13. INCOME TAXES
The Company, except for its two-thirds owned subsidiary, Prichard Landfill
Corporation ("Prichard"), reports taxes on a consolidated basis for federal tax
purposes and by legal entity for state income tax purposes. Income taxes are
provided at statutory rates based on income reported for financial statement
purposes. A summary of income tax expense is shown below:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Taxes currently payable:
Federal........................................... $2,604,903 $1,052,016 $125,884
State............................................. 748,145 234,239 42,400
Prepaid and deferred taxes.......................... (1,218,365) 845,404 552,786
---------- ---------- --------
$2,134,683 $2,131,659 $721,070
========== ========== ========
</TABLE>
The table below reconciles the differences between the statutory federal
income tax rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- --------
<S> <C> <C> <C>
Statutory federal income tax........................ $1,746,496 $1,657,983 $559,861
State income taxes, net of the federal income tax
benefit........................................... 304,088 290,188 76,865
Nondeductible amortization.......................... 146,741 90,331 73,619
Change in valuation allowance....................... 39,807 (25,020) 47,165
Others, net......................................... (102,449) 118,177 (36,440)
---------- ---------- --------
Reported provision for income taxes................. $2,134,683 $2,131,659 $721,070
========== ========== ========
</TABLE>
Deferred tax benefits and obligations result from the differences in the
timing of the recognition of certain income and expense items for financial and
tax accounting purposes. The sources of these differences and the related tax
effects were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------ -------------------------
BENEFITS OBLIGATIONS BENEFITS OBLIGATIONS
---------- ----------- ---------- ------------
<S> <C> <C> <C> <C>
Property basis differences........... $ -- $(9,547,449) $ -- $(10,736,103)
Reserves for landfill site closure
costs.............................. 1,928,361 -- 1,976,134 --
Office closing charge accrual........ 409,365 -- -- --
Credit carryforwards................. 92,930 -- 175,543 --
Nondeductible bonus accruals......... 68,163 -- 136,325 --
Other nondeductible accruals......... 372,716 -- 524,509 --
Other, net........................... -- (107,264) 14,539 --
---------- ---------- ---------- ----------
Total...................... $2,871,535 $(9,654,713) $2,827,050 $(10,736,103)
========== ========== ========== ==========
</TABLE>
76
<PAGE> 78
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In the consolidated balance sheets, these deferred benefits and deferred
obligations are classified as deferred income tax assets or deferred income tax
liabilities based on the classification of the related asset or liability for
financial reporting. A deferred tax liability or asset that is not related to an
asset or liability for financial reporting, including deferred tax assets
related to carryforwards, are classified according to the expected reversal date
of the temporary difference. Credit carryforwards primarily consist of net
operating losses subject to various limitations under the current tax laws.
Credit carryforwards as of December 31, 1995 expire, if unused, in 2008.
Valuation allowances of $139,094 and $99,287 as of December 31, 1995 and
1994, respectively, have been recorded to offset credit carryforwards and the
entire net deferred tax assets related to Prichard. As of December 31, 1995, no
other valuation allowances are deemed necessary as management expects to be able
to benefit from all other recognizable future tax deductions.
14. COMMITMENTS AND CONTINGENCIES
The Company is subject to extensive and evolving environmental and land use
laws and regulations which have become increasingly stringent in recent years as
a result of greater public interest in protecting the environment. These laws
and regulations affect the Company's business in many ways and will continue to
impose substantial costs on the Company. Such laws and regulations dictate
extensive permitting, landfill design, operation and closure requirements,
impose civil or criminal penalties on the Company for violations thereof, impose
liability on the Company for environmental damage caused by the Company and in
certain circumstances, limit the type, quantity and source of the waste streams
that the Company manages. Additionally, any reduction in enforcement or
relaxation of environmental regulations could have a material adverse effect on
the Company's business and financial condition.
The Company is sometimes required to post bid and/or performance bonds in
connection with contracts or projects with government entities and, to a lesser
extent, private sector customers. In addition to bid and performance bond
requirements, existing legislation in various jurisdictions requires or will
require the posting of substantial bonds or the provision of other financial
assurances covering the closure, post-closure monitoring and corrective
activities of certain waste disposal facilities. In this respect, the Company
has various performance bonds and letters of credit outstanding as of December
31, 1995, aggregating to $6.0 million. These instruments are not reflected in
the accompanying consolidated financial statements.
The Company also maintains five separate escrow funds to accumulate money
necessary to pay for estimated future closure and post-closure costs. These
funds are reflected as long-term assets on the accompanying consolidated balance
sheets. In some cases, a regulatory agency controls the escrow account and will
release withdrawals to the Company upon written evidence of permitted closure or
post-closure or of expenditures paid in such an effort. In the fourth quarter of
1995, the Company recorded $460,000 of revenue at its Forest Lawn Landfill in
Three Oaks, Michigan upon receiving clarification of certain state regulations.
The State of Michigan will return to the Company half of the dump taxes
collected upon the Company fulfilling all closure and post-closure requirements.
These costs were previously subtracted from revenue.
A local citizens' group has filed objections to issuance of a renewal
permit for the Company's United Refuse landfill near Fort Wayne, Indiana. The
Company believes the objections are without merit and intends to vigorously
defend the permit. However, if the Company is not successful in such defense, it
could result in revocation or adverse modification of the permit, and this could
have a material adverse effect on the Company's business and financial
condition.
The Company is involved in various legal proceedings and litigation arising
in the ordinary course of business. In the opinion of the Company's management
and legal counsel, the outcome of such proceedings and litigation will not
materially affect the Company's financial position or results of operations.
77
<PAGE> 79
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company does not carry, and does not expect to carry for the
foreseeable future, significant insurance coverage for environmental liability
because the Company believes that the cost for such insurance is not economical.
Accordingly, if the Company were to incur liability for environmental damage,
its financial condition could be materially adversely affected.
Rental expense amounted to $692,794, $503,005 and $168,325 in 1995, 1994
and 1993, respectively. Future minimum payments under noncancellable leases are
less than $250,000 annually. The Company's Union City, Tennessee collection and
hauling business property was purchased for $450,000 in April 1995 from Obion
Realty, Inc. ("Obion"). The Company leased this property on a month-to-month
basis, at the rate of $3,100 per month prior to purchasing it. Obion is owned
primarily by certain officers of the Company.
The Company purchases material from Mid-America Lining Co. which is
partially owned by certain officers of the Company. Such purchases aggregated
$1,755,091 in 1995 and $391,278 in 1994.
15. SUPPLEMENTAL CASH FLOWS AND NON-CASH TRANSACTIONS DISCLOSURE
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Cash paid during year for:
Interest, net of interest capitalized.................. $ 2,440,379 $ 1,969,891 $1,308,792
Income taxes........................................... 1,218,011 441,105 46,206
=========== =========== ==========
Business acquisitions and investment (excluding Finet):
Shares issued.......................................... $ 1,099,770 $ 6,476,049 $ --
Issuable common stock and options...................... -- 550,008 --
Notes and other payables issued to sellers............. 3,796,240 1,222,500 290,091
Receivables forgiven................................... -- 100,000 --
Cash paid.............................................. 6,664,520 475,000 81,846
----------- ----------- ----------
Total consideration paid............................ 11,560,530 8,823,557 371,937
Assets received..................................... 17,518,297 33,658,649 1,108,784
----------- ----------- ----------
Liabilities assumed................................. $ 5,957,767 $24,835,092 $ 736,847
=========== =========== ==========
Conversion of Series A preferred stock into shares....... $ -- $ 2,398,128 $ --
=========== =========== ==========
Shares and warrants issued in settlement of certain
obligations............................................ $ 925,301 $ 314,885 $ 180,000
=========== =========== ==========
Property received in settlement of accounts receivable... $ -- $ -- $ 716,000
=========== =========== ==========
Finet Acquisition:
Cash acquired.......................................... $ -- $ -- $ 856,212
Shares issued in replacement of preferred stock........ -- -- 243,992
Shares issued in settlement of amounts due to certain
stockholders........................................ -- -- 750,000
=========== =========== ==========
</TABLE>
78
<PAGE> 80
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
Unless otherwise indicated below, the fair value of the Company's financial
instruments approximates their carrying value. No quoted market values are
available unless otherwise indicated.
<TABLE>
<CAPTION>
ESTIMATED FAIR
DESCRIPTION MARKET VALUE CARRYING VALUE
- ------------------------------------------------------------------ -------------- --------------
<S> <C> <C>
Investment in unaffiliated company................................ $ 597,750 $ 561,382
Cash held in escrow............................................... 3,749,038 3,749,038
Land purchase option -- Francis Property.......................... 1,000,000 1,000,000
Option to acquire remaining 15% of South Carolina subsidiary...... -- --
Notes payable..................................................... (2,117,500) (2,117,500)
Long-term debt, with current maturities........................... (23,303,732) (23,303,732)
</TABLE>
The estimated fair market value of (i) the investment in unaffiliated
company is based on that company's quoted market price per share, (ii) the cash
held in interest-bearing escrow accounts is based on current rates of interest
available to the Company for similar cash investments on similar terms, (iii)
the land purchase option is based on management's estimate of the current value
of similar land in similar geographical areas and (iv) debt is based on
borrowing rates currently available to the Company for borrowings with similar
terms and maturities.
The option to acquire the remaining 15% of the South Carolina subsidiary
was granted to the Company in conjunction with the original formation of such
subsidiary. As the option price approximates the value of the remaining 15%
interest (estimated by management), no market value is assigned to the option.
17. SUBSEQUENT EVENT (UNAUDITED)
During June 1996, the Company entered into an Agreement and Plan of Merger
with Republic Industries, Inc. (Republic), pursuant to which the parties will
enter into a business combination for which each share of the Company's common
stock will be exchanged for 0.8 shares of Republic's common stock. The proposed
transaction, which is intended to be accounted for as a pooling-of-interests
business combination, is subject to the approval of regulators and Company
shareholders and other customary terms and conditions.
79
<PAGE> 81
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(UNAUDITED)
(RESTATED-
SEE NOTE 1)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................... $ 1,601,079 $ 3,483,154
Accounts receivable -- net.................................... 11,881,059 8,169,121
Other current assets.......................................... 3,871,616 2,835,588
------------ ------------
Total current assets.................................. 17,353,754 14,487,863
Landfill sites, property and equipment -- net................... 110,029,274 83,081,324
Excess cost over the fair value of net assets acquired -- net... 23,526,951 14,614,475
Other assets.................................................... 12,585,432 12,037,669
------------ ------------
Total assets.......................................... $ 163,495,411 $124,221,331
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term debt........ $ 5,198,782 $ 4,646,241
Accounts payable.............................................. 3,089,624 2,543,768
Other accrued liabilities..................................... 11,945,405 9,287,339
------------ ------------
Total current liabilities............................. 20,233,811 16,477,348
Long-term debt, less current maturities......................... 45,096,996 20,774,991
Accrued landfill closure costs, less current portion............ 7,369,475 6,748,474
Other long-term liabilities..................................... 15,251,684 9,949,265
Stockholders' equity:
Common stock, $.0006, authorized 40,000,000 shares, 15,428,210
and 14,089,742 shares issued in 1996 and 1995,
respectively............................................... 9,257 8,454
Additional paid-in capital.................................... 74,808,221 63,063,241
Retained earnings............................................. 1,198,066 7,671,657
Treasury stock (79,375 common shares at cost)................. (472,099) (472,099)
------------ ------------
Total stockholders' equity............................ 75,543,445 70,271,253
------------ ------------
Total liabilities and stockholders' equity............ $ 163,495,411 $124,221,331
============ ============
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these balance sheets.
80
<PAGE> 82
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1995
------------ -----------
(UNAUDITED)
(RESTATED-
SEE NOTE 1)
<S> <C> <C>
Revenue............................................................ $ 20,899,082 $12,964,500
Costs and expenses:
Operating expenses............................................... 18,027,449 5,974,828
General and administrative expenses.............................. 3,377,587 2,085,693
Depreciation and amortization.................................... 3,045,930 1,807,220
Special charge................................................... 7,623,124 --
----------- -----------
Income (loss) from operations...................................... (11,175,008) 3,096,759
----------- -----------
Other income (expenses):
Interest expense................................................. (1,166,738) (913,875)
Other, net....................................................... 779,672 72,653
----------- -----------
Other income (expenses), net.................................. (387,066) (841,222)
----------- -----------
Income before income taxes......................................... (11,562,074) 2,255,537
(Provision) benefit for income taxes............................... 1,946,029 (885,893)
----------- -----------
Net income (loss).................................................. $ (9,616,045) $ 1,369,644
=========== ===========
Earnings (loss) per share.......................................... $ (0.63) $ 0.12
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
81
<PAGE> 83
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
(UNAUDITED)
(RESTATED-
SEE NOTE 1)
<S> <C> <C>
Revenue........................................................... $53,708,980 $33,442,798
Costs and expenses:
Operating expenses.............................................. 36,049,688 15,351,100
General and administrative expenses............................. 7,489,697 5,586,128
Depreciation and amortization................................... 8,080,115 4,566,201
Special charge.................................................. 7,623,124 --
----------- -----------
Income (loss) from operations..................................... (5,533,644) 7,939,369
----------- -----------
Other income (expenses):
Interest expense................................................ (2,293,831) (2,126,457)
Other, net...................................................... 1,129,655 (13,005)
----------- -----------
Other income (expenses), net................................. (1,164,176) (2,139,462)
----------- -----------
Income (loss) before income taxes................................. (6,697,820) 5,799,907
Provision for income taxes........................................ (207,711) (2,394,206)
----------- -----------
Net income (loss)................................................. $(6,905,531) $ 3,405,701
=========== ===========
Earnings (loss) per share......................................... $ (0.45) $ 0.30
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
82
<PAGE> 84
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
----------- -----------
(UNAUDITED)
(RESTATED-
SEE NOTE 1)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................. $(6,905,531) $ 3,405,701
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation................................................... 7,489,064 4,125,948
Amortization................................................... 986,659 440,253
Non-cash components of special charge.......................... 6,298,735 --
Changes in operating assets and liabilities, net of effect of
acquired businesses:
Accounts receivables, net...................................... (1,351,477) (1,281,920)
Other current assets........................................... (523,307) (261,326)
Accounts payable............................................... (327,991) 324,631
Other current liabilities...................................... (1,559,313) (674,713)
Other long-term liabilities.................................... 2,810,986 31,413
Other long-term assets......................................... (417,316) (897,088)
----------- -----------
Net cash provided by operating activities................. 6,500,509 5,212,899
----------- -----------
Cash flows from investing activities:
Proceeds from sale of Mexico operations........................... 2,574,089 --
Capital expenditures.............................................. (19,043,729) (15,412,583)
Cash paid for businesses, net of cash acquired.................... (11,139,535) (5,328,309)
Cash paid for common and preferred stock of minority interest..... -- (1,219,739)
Increase in cash held in escrow................................... (662,080) (1,901,355)
----------- -----------
Net cash used in investing activities..................... (28,271,255) (23,861,986)
----------- -----------
Cash flows from financing activities:
Net borrowings under revolving line of credit..................... 22,200,000 41,550,000
Issuance of long-term debt........................................ 4,078,716 262,968
Payments on long-term debt........................................ (6,991,746) (24,767,867)
Deferred financing costs paid..................................... (90,505) (607,877)
Issuance of common stock.......................................... 80,930 305,479
Purchase of treasury stock........................................ -- (365,550)
Exercise of warrants for common stock............................. 688,997 218,715
Other............................................................. (77,721) --
----------- -----------
Net cash provided by financing activities................. 19,888,671 16,595,868
----------- -----------
Net decrease in cash and cash equivalents........................... (1,882,075) (2,053,219)
Cash and cash equivalents, beginning of year........................ 3,483,154 4,677,237
----------- -----------
Cash and cash equivalents, end of period............................ $ 1,601,079 $ 2,624,018
=========== ===========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements
are an integral part of these statements.
83
<PAGE> 85
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and Article
10 of Regulation S-X. Accordingly, they do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments considered
necessary for a fair presentation (consisting of normal recurring accruals) have
been included. Operating results for the three and nine months ended September
30, 1996 are not necessarily indicative of the results that may be expected for
the year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in Continental Waste
Industries, Inc.'s (the "Company") Form 10-KSB for the year ended December 31,
1995.
On December 28, 1995, the Company effected a 5 for 3 stock split of its
common stock (the "Shares"). All common share information has been restated for
all periods to reflect the 5 for 3 stock split. The Company's $0.0006 par value
common stock is hereinafter referred to as Shares.
On June 27, 1996, the Company signed a definitive agreement to be acquired
by Republic Industries, Inc. ("Republic"). Under the terms of the agreement,
each Share of the Company's common stock would be converted into .8 of a share
of Republic's common stock.
The proposed transaction would be accounted for on a pooling of interests
basis and is subject to final approval by the stockholders of the Company, the
filing and clearance of the Republic registration statement and the Company's
related proxy statement by the Securities and Exchange Commission. The Company
anticipates that the merger with Republic will be consummated in the fourth
quarter of 1996.
Certain amounts in previously issued financial statements have been
reclassified to conform to 1996 classifications.
The Company's previously filed consolidated balance sheet as of December
31, 1995 and condensed consolidated statements of income and cash flows for
the nine months ended September 30, 1995 have been restated herein to reflect
certain costs as compensatory rather than as consideration paid in a business
combination. The income statement effect of this restatement was as follows:
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
-----------------------------
AS PREVIOUSLY
FILED AS RESTATED
------------- -----------
<S> <C> <C>
General and administrative expenses..................... $ 4,811,381 $5,586,128
Income from operations.................................. 8,714,116 7,939,369
Net income.............................................. 3,858,463 3,405,701
Earnings per share...................................... 0.34 0.30
</TABLE>
The restatement's effect on total stockholders' equity was a decrease of
$1,773,721 to $70,271,253 as of December 31, 1995.
In addition to the above restatement, the Company also reclassified certain
landfill cell development costs which were previously reflected as a component
of prepaid expenses into land, landfill site and improvements. Such costs were
$4,048,465 and $4,420,587 as of September 30, 1996 and December 31, 1995,
respectively.
2. BUSINESS COMBINATIONS AND DISPOSITIONS
From January 1, 1995 to August 15,1995, the Company expanded its operations
through the acquisition of six businesses engaged in waste management
operations. The aggregate of these business acquisitions (the "1995
Acquisitions") was significant to the Company. These entities included ASCO
Sanitation, Inc., Larry's
84
<PAGE> 86
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Disposal, Inc., Terre Haute Recycling, Inc., Gilliam Sanitation, Inc./Gilliam
Transfer, Inc., Anderson Refuse Company, Inc./M.V. Dulworth, and a 72% interest
in Procesa Continental S.A., de C.V. The aggregate purchase price of these
businesses was $8.9 million, plus the assumption or refinancing of $2.1 million
of debt and $0.6 million of future contingent payments. The purchase prices were
paid by issuing 164,846 Shares with a market value of $1.1 million at the time
of issuance, paying $5.8 million of cash obtained from the Company's credit
facility (the "Credit Facility") with LaSalle National Bank ("LNB") and issuing
$2.0 million of notes payable to the sellers.
In October 1995, the Company purchased, through one of its subsidiaries, a
sanitary landfill in Richland County, South Carolina ("Richland"). The acquiring
subsidiary, which is 85% owned by the Company, was organized recently to make
acquisitions of landfills and related solid waste management operations and to
pursue privatization and public-private partnership opportunities in the
Southeastern United States. The Company has an option to acquire the remaining
15% of the subsidiary for approximately $2.4 million of common stock of the
Company. The Company, on behalf of its subsidiary, paid $2.4 million in cash and
notes, and assumed $1.1 million of debt for Richland. As a condition of the
landfill purchase, a South Carolina collection company has entered into, among
other things, a 10-year put-or-pay disposal contract with the Company to provide
a minimum of 300 tons of waste per day.
In March 1996, the Company purchased two construction and demolition
landfills in central Florida for approximately $2.1 million in Shares (195,864
Shares) and $2.3 million in cash.
In March 1996, the Company sold its 72% interest in Procesa Continental
S.A., de C.V., which encompassed all of the Company's Mexico City operations,
for approximately $2.6 million in cash resulting in a pre-tax gain of
approximately $500,000 which was recorded in the first quarter of 1996.
In March 1996, the Company ceased operations at its West Virginia landfill.
The site had been experiencing declining volumes and was not in a position to
effectively compete with two Kentucky landfills which were less than 25 miles
away. Management began an evaluation of the sale of the assets or the marketing
of special waste into the facility to allow for reopening. As a result of the
suspension, the Company recorded an approximate $500,000 charge. The charge
consisted primarily of costs to place a temporary cap on the active cell and
identified severance and miscellaneous costs. During the third quarter of 1996,
the Company completed its evaluation and recorded additional charges related to
the suspension of this operation. See Note 4 for a description of these
additional charges.
In May 1996, the Company purchased a residential and commercial collection
business for $1.2 million in cash, which was combined into the Company's Jamax
division in Terre Haute, Indiana.
On July 1, 1996, the Company completed its acquisition of Statewide
Environmental Contractors, Inc. and its affiliated companies, Recycling
Industries, Inc. and Lomac Realty (collectively, "Statewide"). These three
companies are engaged in the waste management business in central New Jersey.
The purchase price of Statewide was $18.6 million and consisted of $7.5 million
in cash, 555,512 Shares (valued at $8.1 million based on the quoted market price
as of the date of the definitive letter of intent to acquire Statewide) and $3.0
million in notes payable to the sellers. The cash portion of the purchase price
was financed from borrowings under the Company's Credit Facility. The total
purchase price of Statewide was allocated to various assets and liabilities
based on management's best estimate using the latest information as possible.
The major categories of the purchase price are as follows:
<TABLE>
<S> <C>
Property and equipment.......................................... $12,315,000
Accounts receivable............................................. 1,546,000
Goodwill........................................................ 8,680,000
Other insignificant assets...................................... 1,030,000
Accruals........................................................ (4,971,000)
-----------
$18,600,000
==========
</TABLE>
All of the business acquisitions described above were accounted for under
the purchase method.
85
<PAGE> 87
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following summarizes the pro forma operating results of the Company for
the nine months ended September 30, 1996 and 1995 as if the 1995 Acquisitions
(for 1995) and the Statewide acquisition had occurred at the beginning of the
applicable period:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------
1996 1995
------- -------
(IN 000'S)
<S> <C> <C>
Pro forma revenue.................................................. $59,799 $49,011
======= =======
Pro forma net income (loss)........................................ $(7,245) $ 3,745
======= =======
Pro forma earnings (loss) per share................................ $ (0.46) $ 0.50
======= =======
</TABLE>
The pro forma operating results include each acquiree's pre-acquisition
results of operations for the indicated periods with adjustments to reflect
amortization of goodwill, additional depreciation on the increases to the fair
market value of fixed assets, interest expense on the acquisition borrowings,
the effect of income taxes thereon and the effect of the issuance of Shares.
Future adjustments, if any as a result of pending analyses of certain judgmental
reserves and functionality of certain equipment, will be made prior to the one
year anniversary of the related acquisition and are not expected to be material.
Operating results of acquired businesses have been included in the condensed
consolidated financial statements from the date of acquisition. The pro forma
information given above does not purport to be indicative of the results that
actually would have been obtained if the operations were combined during the
periods presented and is not intended to be a projection of future results or
trends.
On September 13, 1996, the Company acquired Reliable Disposal, Inc.,
Reliable Recycle (a partnership) and various properties owned by certain
shareholders of Reliable Disposal, Inc. or their wholly-owned partnership
(collectively, "Reliable"). All entities and properties of Reliable were
commonly owned and integral to the Reliable business. The Company exchanged
457,001 Shares for all of the outstanding shares and interests and for the
properties of Reliable. The acquisition was accounted for as a pooling of
interests. Accordingly, Continental's historical statement of income for the
nine months ended September 30, 1996 includes the operating results of Reliable
for the entire nine month period. The acquisition of Reliable was not
significant and, as a consequence, prior period financial statements were not
restated. Separate financial data of the Company and Reliable for the nine
months ended September 30, 1996 are as follows:
<TABLE>
<CAPTION>
CONTINENTAL RELIABLE TOTAL
----------- -------- -------
(IN 000'S, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Revenue................................................... $48,791 $4,918 $53,709
Net loss.................................................. (6,880) (25) (6,905)
Loss per share............................................ (0.45) -- (0.45)
</TABLE>
3. EARNINGS PER SHARE
Earnings per share for the three and nine months ended September 30, 1996
and 1995 was based on the following:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------------- -------------------------
9/30/96 9/30/95 9/30/96 9/30/95
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Weighted average common and common
equivalent shares:
Shares outstanding................ 15,297,000 10,612,000 14,819,000 10,462,000
Dilutive stock options and
warrants....................... -- 687,000 398,000 751,000
----------- ----------- ----------- -----------
15,297,000 11,299,000 15,217,000 11,213,000
=========== =========== =========== ===========
</TABLE>
86
<PAGE> 88
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SPECIAL CHARGE
The Company recorded a $7.6 million charge during the third quarter of 1996
for costs related to (a) the pending purchase of the Company by Republic, (b)
the suspended operations at the Company's West Virginia landfill and (c) an
impaired agreement not to compete.
The costs related to Republic's acquisition of the Company ($1.3 million)
primarily relate to obtaining an opinion from the Company's financial advisor
regarding the fairness of the consideration offered by Republic for the
Company's Shares and various legal, accounting and printing fees incurred in
filing the required information regarding the Republic transaction with the
Securities and Exchange Commission. In addition to this $1.3 million, the
Company expects to incur another $1.1 million in completing the Republic deal in
the fourth quarter of 1996. The majority of such additional costs relate to a
fee payable at closing to a significant shareholder of the Company for services
related to the deal.
As described in Note 2, during the first quarter of 1996, the Company
ceased operations at its West Virginia landfill and began evaluating its options
regarding the facility. The evaluation was completed in the third quarter of
1996 after a critical analysis of current and expected future market conditions
and various failed attempts to sell the facility. Accordingly, management
decided to write-off the Company's investment in the facility which consisted
primarily of land, unamortized landfill costs and equipment. Additionally, since
a sale was no longer being considered, the Company recorded the full amount of
the estimated closure and post-closure costs related to the facility. The total
charge related to this matter amounted to $5.3 million.
The remaining portion of the special charge ($1.0 million) related to the
write-off of the unamortized costs of an agreement not to compete entered into
with the prior owner of a previously-acquired business. With the acquisitions
completed during the third quarter of 1996, the Company believes that any new
competition in the area covered by the agreement not to compete is remote.
Of the $7.6 million charge, $6.3 million represents the non-cash write-off
of assets and accrual of closure/post-closure costs. The remaining $1.3 million
(the Republic deal costs) have been spent or will be spent as the related
invoices become due during the fourth quarter of 1996.
5. SUPPLEMENTAL CASH FLOWS DISCLOSURE
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
----------- ----------
<S> <C> <C>
Cash paid during the period for:
Interest, net of interest capitalized.............................. $ 1,684,663 $2,069,170
=========== ==========
Income taxes....................................................... $ 2,820,215 $1,233,011
=========== ==========
Business acquisitions:
Shares issued................................................... $10,212,351 $ 496,688
Notes issued to sellers......................................... 3,000,000 2,034,284
Cash paid....................................................... 11,228,806 5,328,309
----------- ----------
Total consideration paid................................... 24,441,157 7,859,281
Assets received............................................ 34,149,798 10,789,901
----------- ----------
Liabilities assumed........................................ $ 9,708,641 $2,930,620
=========== ==========
</TABLE>
87
<PAGE> 89
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. OTHER INFORMATION
Selected balance sheet account disclosures follow:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Allowance for doubtful accounts............................. $ 1,102,575 $ 396,000
=========== ===========
Accumulated depreciation and amortization of property and
equipment................................................. $ 19,883,121 $ 14,215,696
=========== ===========
Accumulated amortization of excess cost over the fair value
of net assets acquired.................................... $ 1,898,171 $ 1,395,054
=========== ===========
</TABLE>
7. DEBT
In the first quarter of 1996, the Company and its lenders amended the
Credit Facility effective as of January 1, 1996. As amended, each borrowing
under the Credit Facility bears interest based on the Company's leverage ratio,
as defined, of funded debt to earnings before interest, taxes, depreciation and
amortization. If the leverage ratio is 2.0 to 1 or less, then the interest rate
is, at the Company's option, prime or LIBOR plus 1.5% and the fee on outstanding
letters of credit is .75%. If the leverage ratio falls between 2.01 to 2.5
compared to 1, then the interest rate is prime plus 0.5% or LIBOR plus 1.75% and
the fee on outstanding letters of credit is 1.0%. If the leverage ratio falls
between 2.51 and 3.0 compared to 1, then the interest rate is prime plus 1.0% or
LIBOR plus 2.0% and the fee on outstanding letters of credit is 1.5%. If the
leverage ratio is greater than 3.0 to 1, then the interest rate is prime plus 1%
or LIBOR plus 2.5% and the fee on outstanding letters of credit is 2.0%. The
Company and its lenders amended the Credit Facility again during the second
quarter of 1996 to increase the line of credit from $45 million to $70 million.
The Credit Facility now expires in June 1999 and is secured by all corporate
assets and a pledge of the stock of all subsidiaries. The Credit Facility
includes provisions for letters of credit up to $15.0 million. The Company will
also pay a 0.5% fee on the average unused portion of the Credit Facility. As of
September 30, 1996, $23.3 million of unused credit under this facility remained
available. Borrowings under the Credit Facility bore a weighted average interest
rate of 7.0% on outstanding loans as of September 30, 1996.
In April 1996, the Company entered into a $10.0 million facility ("Lease
Agreement") with B.A. Leasing and Capital Corporation which has provided funds
for capital expenditures. The capital equipment financed must be delivered to
and accepted by the Company no later than December 31, 1997. As of September 30,
1996, $6.3 million of unused credit under this facility remained available. Each
lease the Company enters into has a term of six years. Such borrowings will bear
interest at the prevalent market rates. As of September 30, 1996, the
outstanding borrowings bore a weighted average interest rate of 8.51%.
Under the Credit Facility and the Lease Agreement, the Company is required
to meet certain financial covenants. As of September 30, 1996, the Company was
in violation of such covenants. LNB and B.A. Leasing and Capital Corporation
have issued waivers of non-compliance regarding these covenant violations.
8. EXCESS COST OVER THE FAIR VALUE OF NET ASSETS ACQUIRED
Prior to 1996, the excess cost over the fair value of assets acquired
("goodwill") was amortized on a straight-line basis over twenty-five to thirty
years. In the first quarter of 1996, the Company changed the amortization period
for goodwill generated from all non-landfill acquisitions to 40 years consistent
with industry trend and due to the life of operating conditions at such
businesses not being dependent on the capacity of available landfill airspace.
This change in accounting estimate is applied prospectively from January 1, 1996
for non-landfill acquisitions through that date. The effect of the change in the
third quarter and first nine months of 1996 was to decrease amortization expense
by approximately $59,000 and $177,000, respectively.
88
<PAGE> 90
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Addington Resources, Inc.:
We have audited the accompanying consolidated balance sheets of Addington
Resources, Inc. (a Delaware corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Addington Resources, Inc.
and subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Louisville, Kentucky,
February 29, 1996.
89
<PAGE> 91
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
--------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................................. $ 3,387 $ 2,719
Short-term investments................................................ -- 1,474
Accounts receivable, net of allowance for doubtful accounts of $1,100
and $358 for 1995 and 1994, respectively........................... 9,090 7,011
Prepaid expenses and other............................................ 2,626 193
Deferred tax benefits................................................. 620 --
-------- --------
Total current assets.......................................... 15,723 11,397
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost.................................. 119,414 89,537
Less accumulated depreciation......................................... (13,667) (8,020)
-------- --------
105,747 81,517
-------- --------
PROPERTY, PLANT AND EQUIPMENT and other long-term assets of discontinued
operations, net....................................................... -- 91,490
DEFERRED TAX BENEFITS................................................... 4,922 --
RESTRICTED CASH......................................................... 40 4,348
OTHER................................................................... 1,850 5,569
-------- --------
Total Assets.................................................. $128,282 $194,321
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................................... $ 4,743 $ 3,183
Current portion of long-term debt..................................... 1,823 880
Accrued expenses and other............................................ 3,504 5,386
Net current liabilities of discontinued operations.................... -- 689
-------- --------
Total current liabilities..................................... 10,070 10,138
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion.................................. 14,407 32,767
Accrued closure and post-closure costs................................ 5,168 2,784
Other long-term liabilities........................................... 7,451 2,981
Deferred income taxes................................................. -- 566
Long-term liabilities of discontinued operations...................... -- 24,864
-------- --------
Total non-current liabilities................................. 27,026 63,962
-------- --------
COMMITMENTS AND CONTINGENCIES (Note 11)
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000 shares authorized,
16,054,301 shares and 15,852,851 shares outstanding at December 31,
1995 and 1994, respectively........................................ 16,054 15,853
Paid-in capital....................................................... 85,934 83,789
Retained earnings..................................................... 2,823 20,579
Less treasury stock; 1,000,000 shares in 1995, at cost................ (13,625) --
-------- --------
Total stockholders' equity.................................... 91,186 120,221
-------- --------
Total liabilities and stockholders' equity.................... $128,282 $194,321
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these balance sheets.
90
<PAGE> 92
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1995 1994 1993
-------- ------- --------
<S> <C> <C> <C>
REVENUES........................................................ $ 56,739 $36,057 $ 22,600
COSTS AND EXPENSES:
Cost of operations............................................ 30,574 19,665 10,966
Provision for asset write-down................................ -- 670 5,122
Depreciation and amortization................................. 7,506 4,133 2,728
Selling, general and administrative........................... 6,631 7,119 6,503
-------- ------- --------
44,711 31,587 25,319
-------- ------- --------
INCOME (LOSS) FROM OPERATIONS................................... 12,028 4,470 (2,719)
-------- ------- --------
INTEREST AND OTHER INCOME (EXPENSE):
Interest income............................................... 444 772 --
Interest expense.............................................. (955) (277) --
Other, net.................................................... (17) (7,775) (5,790)
-------- ------- --------
(528) (7,280) (5,790)
-------- ------- --------
Income (loss) before income tax provision (benefit)........... 11,500 (2,810) (8,509)
INCOME TAX PROVISION (BENEFIT).................................. 4,426 (1,124) (3,233)
-------- ------- --------
Net income (loss) from continuing operations.......... 7,074 (1,686) (5,276)
-------- ------- --------
DISCONTINUED OPERATIONS:
Income (loss) from operations of discontinued segment (less
applicable income taxes (benefit) of $1,899, $(2,660) and
$(3,184) for 1995, 1994 and 1993, respectively)............ 5,707 (5,448) (10,913)
Loss on disposal of segment (less applicable income tax
benefit of $10,000)........................................ (30,537) -- --
-------- ------- --------
Loss from discontinued operations............................. (24,830) (5,448) (10,913)
-------- ------- --------
NET LOSS.............................................. $(17,756) $(7,134) $(16,189)
======== ======= ========
EARNINGS PER SHARE:
Income (loss) from continuing operations...................... $ 0.45 $ (0.11) $ (0.34)
Income (loss) from discontinued operations.................... 0.36 (0.34) (0.70)
Loss on disposal of segment................................... (1.94) -- --
-------- ------- --------
Net loss per share............................................ $ (1.13) $ (0.45) $ (1.04)
-------- ------- --------
Equivalent shares of stock outstanding........................ 15,748 15,798 15,563
======== ======= ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
91
<PAGE> 93
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------------------
SHARES
------------------- PAID-IN RETAINED TREASURY
AUTHORIZED ISSUED AMOUNT CAPITAL EARNINGS STOCK TOTAL
---------- ------ ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992... 30,000 15,241 $15,241 $77,668 $ 43,902 $ -- $136,811
Issuance of common stock upon
exercise of stock options.. -- 434 434 3,877 -- -- 4,311
Net loss..................... -- -- -- -- (16,189) -- (16,189)
------ ------ ------- ------- -------- -------- --------
Balance, December 31, 1993... 30,000 15,675 $15,675 $81,545 $ 27,713 $ -- $124,933
Issuance of common stock upon
exercise of stock options.. -- 29 29 312 -- -- 341
Issuance of common stock upon
acquisition of subsidiary.. -- 149 149 1,932 -- -- 2,081
Net loss..................... -- -- -- -- (7,134) -- (7,134)
------ ------ ------- ------- -------- -------- --------
Balance, December 31, 1994... 30,000 15,853 $15,853 $83,789 $ 20,579 $ -- $120,221
Issuance of common stock upon
exercise of stock options.. -- 75 75 645 -- -- 720
Issuance of common stock upon
exercise of stock grants... -- 126 126 1,500 -- -- 1,626
Treasury stock received upon
disposal of subsidiary..... -- -- -- -- -- (13,625) (13,625)
Net loss..................... -- -- -- -- (17,756) -- (17,756)
------ ------ ------- ------- -------- -------- --------
Balance, December 31, 1995... 30,000 16,054 $16,054 $85,934 $ 2,823 $(13,625) $ 91,186
====== ====== ======= ======= ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
92
<PAGE> 94
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss..................................................... $(17,756) $ (7,134) $(16,189)
-------- -------- --------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.............................................. 11,178 7,535 28,469
Amortization.............................................. 886 1,398 2,089
Loss (gain) on sale of assets............................. 544 (166) (630)
Asset write-downs......................................... -- 10,495 19,111
(Gain) loss on sale of subsidiaries....................... -- 6,157 --
Loss on disposal of discontinued operations.............. 30,537 -- --
Change in assets and liabilities, net of effects from
acquisitions and disposals --
(Increase) decrease in --
Cash held for disposal.................................. (91) -- (103)
Accounts receivable..................................... (867) (11,466) (11,899)
Inventories............................................. (489) 379 (6,358)
Prepaid expenses and other.............................. (2,331) 4,053 (5,271)
Deferred income taxes................................... (6,200) (3,149) (4,510)
Other assets............................................ (1,297) (2,656) 560
Increase (decrease) in --
Accounts payable........................................ 5,891 8,291 5,406
Accrued expenses and other liabilities.................. 11,465 (15,371) 12,081
-------- -------- --------
Total adjustments.................................... 49,226 5,500 38,945
-------- -------- --------
Net cash provided by (used in) operating activities.. 31,470 (1,634) 22,756
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of disposal costs.......... 10,017 1,120 3,846
Proceeds from sale of discontinued operations, net of
disposal costs............................................ 34,286 181,641 --
(Increase) decrease in --
Other assets............................................ 4,308 (4,000) --
Short-term investments.................................. (2,426) (8,474) --
Advance royalties....................................... 1,134 -- --
Additions to property, plant and equipment................... (56,819) (63,158) (51,245)
Acquisition of environmental companies, net of cash
acquired.................................................. -- (1,863) --
-------- -------- --------
Net cash (used in) provided by investing activities.. (9,500) 105,266 (47,399)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt................................... 16,676 27,620 10,388
Repayments of long-term debt................................. (36,773) (3,743) (7,147)
Repayments on revolving line of credit....................... (2,400) (8,321) (1,593)
Retirements of senior secured notes, including
redemption premium........................................ -- (129,287) --
Issuance of common stock..................................... 720 341 4,311
Financing costs incurred..................................... (275) (517) (527)
-------- -------- --------
Net cash provided by (used in) financing
activities......................................... (22,052) (113,907) 5,432
-------- -------- --------
Decrease in discontinued operations'
cash and cash equivalents.......................... 750 12,195 19,676
-------- -------- --------
Net increase in cash and cash equivalents............ 668 1,920 465
CASH AND CASH EQUIVALENTS, beginning of year................... 2,719 799 334
-------- -------- --------
CASH AND CASH EQUIVALENTS, end of year......................... $ 3,387 $ 2,719 $ 799
======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these statements.
93
<PAGE> 95
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. FINANCIAL STATEMENT PRESENTATION AND PREPARATION
The accompanying consolidated financial statements as of December 31, 1995,
1994 and 1993 include the accounts of Addington Resources, Inc. (the Company)
and its wholly-owned subsidiary, Addington Holding Company, Inc. and its
wholly-owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated. Certain reclassifications have been made in
the accompanying financial statements to amounts as previously reported that
relate to the presentation of results of operations and cash flows for
continuing and discontinued operations, respectively. In addition, certain
1994 and 1993 amounts have been reclassified to conform to 1995 presentation
with no effect on net loss.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
B. COMPANY ENVIRONMENT AND RISKS
The Company's continuing operations are within one segment (Environmental)
and consist of providing waste collection services to residential and commercial
customers and operating landfills for waste disposal. The majority of these
operations (and revenues) are located in the Southeastern United States (U.S.),
with emphasis in Kentucky and North Carolina.
The environmental industry exposes the Company to a number of risks
including: the possibility of the termination of waste service agreements,
fluctuating market and competitive conditions, changing governmental
regulations, loss of key employees and the ability of the Company to obtain the
necessary permits to construct, expand and operate its landfills.
The Company recognizes revenue for its waste collection services as such
services are provided. Services are generally billed in advance and are recorded
as deferred revenues until services are performed. Revenues for the Company's
landfills are recognized as waste is received.
The Company grants credit to its customers based on their creditworthiness
and generally does not secure collateral for its receivables.
C. DEPRECIATION AND AMORTIZATION
Property, plant and equipment are stated at cost. Expenditures for major
additions and improvements are capitalized, while minor replacements,
maintenance and repairs are charged to operations as incurred. Depreciation and
amortization are provided using either the straight-line or units produced or
consumed methods. The following estimated useful lives are used under the
straight-line method:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Buildings and improvements........................................... 10-20
Machinery and transportation equipment............................... 3-15
Furniture, fixtures and office equipment............................. 5-10
</TABLE>
Capitalized landfill development costs (included in Property, Plant and
Equipment) are amortized as permitted airspace of the landfill or the related
cell, as applicable, is consumed. Units-of-consumption amortization rates
applicable to each of the Company's operating landfills are determined annually.
The rates are based on estimates made by Company and independent engineers,
considering the information provided by aerial surveys which are generally
performed annually.
94
<PAGE> 96
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financing costs (included in Other Assets) are being amortized using the
straight-line method, over the life of the related debt, which approximates the
effective interest rate method.
Intangible assets (included in Other Assets) primarily consist of customer
lists and covenants not to compete. These assets are amortized over their
estimated useful lives, usually no longer than twenty years and five years,
respectively, using the straight-line method.
D. RESTRICTED CASH
The Company sometimes pays amounts into escrow as required under state
regulations related to closure and post-closure costs of its landfills. The
Company also issues letters of credit as an alternative for securing funding for
the closure and post-closure costs relating to its landfills. During 1995, the
Company issued letters of credit in exchange for reducing or eliminating
virtually all of its escrow accounts.
E. ASSETS HELD FOR SALE (INCLUDED IN OTHER ASSETS)
Assets held for sale at December 31, 1994 represented the Company's
corporate jet. The net book value of the corporate jet approximated $3,200 as of
December 31, 1994. During 1995, the Company sold the corporate jet for $4,125.
F. NET INCOME (LOSS) PER SHARE
Net income (loss) per share is based on the weighted average number of
common shares and common equivalent shares outstanding, as applicable, using the
treasury stock method during the periods. The dilutive effect between primary
and fully-dilutive earning per share is less than 3% or is anti-dilutive for all
periods presented and is therefore not disclosed in the accompanying statements
of operations.
G. STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers
investments having maturities of three months or less at the time of purchase to
be cash equivalents.
The cash amounts of interest and income taxes paid by the Company in 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ -------
<S> <C> <C> <C>
Interest, net of amounts capitalized of $2,012, $1,464 and
$2,111.................................................... $ 782 $2,156 $16,434
Income taxes................................................ 1,222 785 2,281
</TABLE>
As discussed in Note 3b, during 1995 the Company sold all of its citrus
properties in exchange for 1,000 shares of common stock of the Company, valued
at $13,625. This non-cash activity has been excluded from the 1995 statement of
cash flows.
During 1995, the Company issued 126 shares of common stock upon the
exercise, by their employees, of stock grants (Note 12). This non-cash activity
has been excluded from the 1995 statement of cash flows.
During 1995, 1994 and 1993, the Company acquired certain assets, primarily
property, plant and equipment, by assuming liabilities, primarily notes and
other payables, issuing common stock, and making cash payments. The non-cash
portions of approximately $7,947, $4,440 and $14,788 for the years ended
December 31, 1995, 1994 and 1993, respectively, have been excluded from the
statements of cash flows.
During 1994, the Company wrote off certain assets of approximately
$10,275 against previously established contingency reserves and other
accruals recorded in connection with the Company's de-emphasis on its mining
operations. Such non-cash activity has been excluded from the 1994 Statement of
Cash Flows.
95
<PAGE> 97
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
H. LANDFILL CLOSURE COST
The Company estimates its future cost requirements for closure and
post-closure monitoring and maintenance for solid waste operating landfills
based on its interpretation of the technical standards of the U.S. Environmental
Protection Agency's Subtitle D regulations and the proposed air emissions
standards under the Clean Air Act as they are being applied on a state-by-state
basis. Closure and post-closure monitoring and maintenance costs represent the
cash expenditures yet to be incurred when a landfill facility ceases to accept
waste and closes. Accruals for closure and post-closure monitoring and
maintenance requirements consider final capping of the site, site inspections,
groundwater monitoring, leachate management, methane gas control and recovery,
and operation and maintenance costs to be incurred during the period after the
facility closes. The Company provides accruals for these costs as the remaining
permitted airspace of such facilities is consumed. Engineering reviews of the
future cost requirements for closure and post-closure monitoring and maintenance
for the Company's operating landfills are performed at least annually. These
engineering reviews are the basis upon which the Company's estimates of these
future costs and the related accrual rates are revised. Though it is not
expected to be significant, these estimates could change over the life of the
landfill based upon these engineering reviews.
I. INCOME TAXES
Deferred income taxes are recorded based upon temporary differences between
the financial statement and tax bases of assets and liabilities and net
operating loss carryforwards and tax credits available for income tax purposes.
2. DISCONTINUED OPERATIONS
During the third quarter of 1995, the Company implemented a formal plan to
dispose of all of its non-environmental operations. These discontinued
operations consisted primarily of the following: coal mining, mining equipment
manufacturing and licensing, citrus properties in Belize, precious and
industrial metals mining and incidental limestone properties. Accordingly, the
Company's continuing operations are comprised of integrated solid waste
management, which includes landfill operations and waste collection and
recycling services. The Company initially recorded a loss on the disposal of the
discontinued operations of approximately $30,500 (net of income tax benefits of
approximately $10,000) which represents the estimated loss on the disposal of
the non-environmental operations and a provision of approximately $2,000 for
expected operating losses through the final disposition of such operations.
Upon ultimate disposal of its discontinued operations, the Company
determined its initial estimates did not require adjustment.
As discussed in Note 3, as of December 31, 1995, the Company has sold all
of its subsidiaries included in discontinued operations, hence fully disposing
of all non-environmental operations. The recorded transactions reflect the
disposal of all of the Company's non-environmental segments and, accordingly,
the operating results of these segments have been classified as discontinued
operations for all periods presented in the
96
<PAGE> 98
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accompanying consolidated financial statements. Operating results from the
discontinued operations for the years ended December 31, were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Operating revenues..................................... $105,056 $115,099 $359,218
-------- -------- --------
Income (loss) before income taxes...................... 7,606 (8,108) (14,097)
Income tax provision (benefit)......................... 1,899 (2,660) (3,184)
-------- -------- --------
Income (loss) from discontinued operations............. $ 5,707 $ (5,448) $(10,913)
-------- -------- --------
</TABLE>
Included in income from discontinued operations for 1995 is approximately
$14,000 of revenue and $13,000 of pre-tax income from the sale of the Company's
mining technology patent rights in Australia, offset by a $5,300 disposal loss
accrual recorded for Addwest Minerals.
Included in the loss from discontinued operations in 1994 are the following
pretax items: $6,157 loss on disposal in connection with Pittston Minerals
Group, Inc. (Pittston) (Note 3e) and $3,400 loss on limestone project.
Included in the loss from discontinued operations in 1993 are the following
pretax items: $9,384 loss on sulfur project and $4,050 loss on litigation
settlements.
Most of the Company's revenues from discontinued operations have been
generated under long-term coal sales contracts with electric utilities or other
coal-related organizations located in the Eastern U.S. Revenues are recognized
on coal sales in accordance with the sales agreement, which is usually when the
coal is shipped to the customer.
The discontinued operations leased various machinery and equipment. Lease
expense for the discontinued operations was $678, $7,183 and $26,422 for 1995,
1994 and 1993, respectively.
The assets and liabilities of the discontinued operations have been
reclassified in the accompanying consolidated balance sheets from the historical
classification in order to separately identify them as net assets of
discontinued operations. These net assets consist primarily of net working
capital, tangible and intangible noncurrent assets and other long-term
liabilities.
3. SALE OF SUBSIDIARIES (INCLUDED IN DISCONTINUED OPERATIONS)
A. COAL MINING, MINING EQUIPMENT MANUFACTURING AND LICENSING
On September 22, 1995, in a related party transaction, the Company entered
into a stock purchase agreement with Addington Enterprises, Inc. (a company
f/k/a Addington Acquisition Company, Inc., owned by Larry Addington, Robert
Addington and Bruce Addington; collectively, the Addington Brothers) whereby the
Company would receive $30,000, subject to a working capital adjustment, in
exchange for all the issued and outstanding shares of common stock of its
subsidiaries, Addington Mining, Inc., Mining Technologies, Inc., Addwest Mining,
Inc. and Addington Coal Holding, Inc. This agreement closed on November 2, 1995,
at which time the proceeds received were used by the Company to pay down its
revolving line of credit. In addition, the Company retained the right to receive
certain contingent payments due under the Company's technology sale to BHP
Australia Coal Pty. Ltd. (Note 4). As of December 31, 1995, the Company
estimates such payments may aggregate $3,000.
Included in the transaction described above and pursuant to an option
agreement dated August 4, 1995, the Company sold to the Addington Brothers all
the issued and outstanding shares of common stock of its subsidiary, Tennessee
Mining, Inc. According to the terms of the option agreement, the Addington
Brothers will pay the Company a royalty based on tons of coal delivered under a
certain coal sales contract, up to a
97
<PAGE> 99
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
maximum aggregate royalty of $12,500. The Company had not received any payments
from the Addington Brothers under this agreement as of December 31, 1995. Due to
contingencies, no receivable for this royalty has been recorded.
B. CITRUS PROPERTIES
On September 22, 1995, in a related party transaction, the Company entered
into an agreement to sell all of the issued and outstanding shares of common
stock of its subsidiary, Belize River Fruit Co., to Larry and Bruce Addington in
exchange for 1,000 shares of common stock of the Company owned by Larry and
Bruce Addington. This transaction was consummated on November 2, 1995, at which
time the Company acquired the 1,000 shares valued at $13,625 (based on quoted
share market price) and recorded them, at cost, as treasury stock. The Company
retained no obligations in connection with the sale and has fully divested its
investment in citrus operations.
C. ADDWEST MINERALS, INC.
Addwest Minerals, Inc. (Addwest), a wholly-owned subsidiary of the Company,
was organized to mine, extract and market precious and industrial metals. On
November 1, 1995, the Company entered into a letter agreement, which was later
finalized as a Stock Purchase Agreement (the Agreement), that provided for the
sale to an unrelated party of all the capital stock of Addwest. On December 29,
1995, the Company consummated the Agreement to dispose of Addwest.
The terms of the Agreement required the Company to contribute additional
capital to Addwest in an amount sufficient to pay substantially all existing
liabilities of Addwest through the date of the Agreement, with the exception of
the remaining balance on the Rothschild gold loan. The proceeds received from
the sale ($3,525) were used to retire the remaining balance on the Rothschild
gold loan and the Company has been fully released from its obligations under
that loan.
In accordance with the Company's plan to dispose of Addwest, during 1995 it
closed all previously existing hedging positions (i.e. forward sales contracts
and option collars related to gold bullion). A small gain was realized upon
closing these positions and has been reflected within the discontinued
operations' disposal loss.
D. NEW RIVER LIME
On November 17, 1995, the Company sold all of the real property, as well as
all buildings, structures and improvements of its wholly-owned subsidiary, New
River Lime, Inc. (NRL), to an unrelated party for $2,500 in cash. The Company
retained no obligations in connection with the sale and has fully divested its
investment in NRL.
E. PITTSTON DISPOSAL
During September 1993, the Company entered into an agreement to sell the
stock of five of its coal subsidiaries to Pittston. This transaction was
consummated on January 14, 1994 and a loss on disposal was recorded during 1994
of $6,157. In connection with the sale, the Company provided certain guarantees
to Pittston (Note 11g).
98
<PAGE> 100
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. SALE OF AUSTRALIAN MINING TECHNOLOGY PATENT RIGHTS
During 1995, the Company entered into a mining technology exchange
agreement with BHP Australia Coal Pty Ltd. (BHPAC) whereby the Company sold its
Australian patent right on highwall mining machines and certain other related
technology. In consideration for the sale, the Company received cash during 1995
of $14,000. The agreement also provides for contingent payments to the Company
(estimated to aggregate $3,000) upon the satisfaction of certain production
requirements related to BHPAC's use of a highwall mining system incorporating
the sold technology.
The Company's subsidiary which developed the sold patent rights and
technology is one of the subsidiaries which have been sold to Addington
Acquisition Company, Inc. (see Note 3a). However, certain rights to receive
contingent payments from BHPAC under the mining technology exchange agreement
have been retained by the Company.
5. SHORT-TERM INVESTMENTS
At December 31, 1994, the Company's short-term investments, which are
deemed to be available-for-sale, consisted of investments in municipal
obligations. The fair value of these instruments approximate their cost of
$1,474 as of December 31, 1994. As the fair value approximates the cost of these
investments, there are no unrealized holding gains or losses associated with
such investments as of December 31, 1994.
During 1995, the Company sold these investments at fair value. As the fair
value of such investments approximated their cost (using the specific
identification method), there were no realized gains or losses associated with
the sale of such investments in 1995.
99
<PAGE> 101
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are summarized by major classification as
follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Land.............................................................. $ 2,713 $ 2,450
Buildings and improvements........................................ 1,121 1,073
Machinery and transportation equipment............................ 18,448 13,383
Furniture, fixtures and office equipment.......................... 505 710
Landfill and other development costs.............................. 70,867 55,881
Construction in progress.......................................... 25,760 16,040
-------- -------
$119,414 $89,537
======== =======
</TABLE>
Environmental development costs include the costs to develop landfills,
which consist of expenditures for land and related airspace, permitting costs
and preparation costs. Landfill permitting and preparation costs represent only
direct costs related to these activities, including legal, engineering,
construction of landfill improvements, cell development costs and the direct
costs of Company personnel dedicated for these purposes.
Included in property, plant and equipment as of December 31, 1995 and 1994
are approximately $25,760 and $16,040, respectively, related to start-up
development projects for which depreciation and amortization have not yet
commenced. The Company reviews the realization of these projects on a periodic
basis.
7. ACCRUED EXPENSES AND OTHER
As of December 31, 1995 and 1994, accrued expenses and other consisted of:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Payroll and employee benefits........................................ $ 697 $1,125
Workers' compensation costs.......................................... 314 477
Deferred revenue..................................................... 858 939
Property taxes....................................................... 106 224
Disposal reserves and other.......................................... 1,529 2,621
------ ------
$3,504 $5,386
====== ======
</TABLE>
8. OTHER NON-CURRENT LIABILITIES
As of December 31, 1995 and 1994, other non-current liabilities consisted
of:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ ------
(IN THOUSANDS)
<S> <C> <C>
Accrued royalties................................................... $ 600 $ 675
Accrued income taxes................................................ 3,385 616
Disposal reserves and other......................................... 3,466 1,690
------ ------
$7,451 $2,981
====== ======
</TABLE>
100
<PAGE> 102
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. CLOSURE AND POST-CLOSURE COSTS
The Company, during its normal course of business, is required to expend
funds for environmental protection and remediation. Such expenditures are not
expected to have a materially adverse effect on its financial condition or
results of operations considering its business is based upon compliance with
environmental laws and regulations and its services are priced accordingly.
As of December 31, 1995, the Company operates several solid waste
landfills. The Company is responsible for closure and post-closure monitoring
and maintenance costs at virtually all of these landfills which are currently
operating or are engaged in expansion efforts. Estimated aggregate closure and
post-closure costs are to be fully accrued for these landfills at the time that
such facilities cease to accept waste and are closed. Considering existing
accruals at the end of 1995, approximately $70 million of additional accruals
are to be provided over the remaining lives of these facilities. This estimate
is calculated with the assistance of independent engineers and is based on the
need for significant future capital costs to complete expansion efforts over the
lives of the landfills. Such additional accruals to be provided have been
estimated based on current costs and existing regulatory requirements, and
assume that the landfills will be filled to capacity. Due to uncertainties and
significant judgments used in determining this amount, the actual amount to be
expended may differ substantially.
10. DEBT
As of December 31, 1995 and 1994 the Company's debt consisted of the
following:
A. REVOLVING LINE OF CREDIT
During 1995, the Company's environmental subsidiaries amended their line of
credit agreement with a bank. This amended agreement, which is secured by
virtually all of the assets and common stock of the environmental subsidiaries,
provides for maximum borrowings of $50 million and bears interest at either a
rate driven by the bank's base rate plus 0% to .75% or the Eurodollar rate plus
1.75% to 2.75%. As of December 31, 1995, the Company had no outstanding balance
under this credit agreement. The available balance under the credit agreement is
reduced by approximately $26,474 in letters of credit issued primarily as
security for solid waste revenue bonds and the closure and post-closure
monitoring and maintenance of landfills. Accordingly, borrowings available under
the credit agreement approximated $23,526 as of December 31, 1995.
As of December 31, 1994, $21,000 was outstanding under the credit
agreement, of which $6,000 was at the bank's base driven rate (9.25%) and
$15,000 was at the Eurodollar rate (9.125%). Since no principal payments are
required under this credit agreement until its expiration in May 1997, the
outstanding balance as of December 31, 1994, was classified as long-term. In
January 1996, the expiration was amended to July 31, 1997.
In connection with the credit agreement, which has been guaranteed by ARI,
the Company has agreed to certain restrictive covenants which, among others,
limit the amount of dividends that the Company can pay, limit its ability to
incur additional indebtedness, and require the Company to maintain certain
financial ratios. The Company is in compliance with these covenants as of
December 31, 1995.
B. REVENUE BONDS
In June, 1994, one of the Company's environmental subsidiaries, Broadhurst
Environmental, Inc., together with the Wayne County Solid Waste Management
Authority, issued $7,400 of tax exempt revenue bonds to finance the construction
and development of a landfill in Wayne County, Georgia. These bonds mature on
July 1, 2014 and bear interest at a rate that floats on a weekly basis, with a
maximum interest rate of 12% per annum. The interest rate as of December 31,
1995 and 1994 was 5.55% and 5.95% per annum, respectively. The bonds are
supported by an irrevocable letter of credit issued under the Company's credit
101
<PAGE> 103
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
agreement (see Note 10a). The fee charged for the letter of credit as of
December 31, 1995 is 1.75% per annum.
C. LONG-TERM DEBT
As of December 31, 1995 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
(IN THOUSANDS)
Solid waste revenue bonds, see Note 10b............................ $ 7,400 $ 7,400
Note Payable, revolving line of credit, see Note 10a............... -- 21,000
Various capital leases, secured by equipment, bearing interest
ranging from 8.4% to 9.6%, maturing through 2002, see Note 11a... 8,389 --
Note payable, secured by aircraft, bearing interest at 6%, retired
in 1995.......................................................... -- 3,346
Note payable, unsecured, with annual payments of $180,000,
non-interest bearing (imputed at 7%), maturing June 12, 1997..... 338 472
Various other notes payable, bearing interest ranging from 7.5% to
21%.............................................................. 103 1,429
------- -------
$16,230 $33,647
Less-current portion............................................... 1,823 880
------- -------
$14,407 $32,767
======= =======
</TABLE>
Principal payments required for long-term debt after December 31, 1995 are
as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
--------------------------------------------------------------- --------------
(IN THOUSANDS)
<S> <C>
1996........................................................... $ 192
1997........................................................... 185
1998........................................................... 18
1999........................................................... 19
2000........................................................... 21
Thereafter..................................................... 7,406
------
Total.......................................................... $7,841
======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
A. LEASES
The Company has various operating and capital leases for transportation and
other equipment. Lease expense for continuing operations for the years ending
December 31, 1995, 1994 and 1993 was approximately $2,552, $1,738 and $1,078
respectively. Property under capital leases, included with property, plant and
equipment in the accompanying consolidated balance sheet at December 31, 1995
was $6,174, less accumulated depreciation of $667. Depreciation of assets under
capital leases is included in depreciation expense.
102
<PAGE> 104
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Approximate noncancelable future minimum payments are as follows:
<TABLE>
<CAPTION>
YEAR OPERATING CAPITAL
------------------------------------------------------------------ --------- -------
(IN THOUSANDS)
<S> <C> <C>
1996.............................................................. $ 1,834 $ 2,350
1997.............................................................. 1,629 2,350
1998.............................................................. 979 2,181
1999.............................................................. 564 1,675
2000.............................................................. 213 889
Thereafter........................................................ -- 1,124
--------- -------
Total minimum lease payments............................ $ 5,219 $10,569
=======
Less -- amount representing interest.............................. 2,180
-------
Present value of minimum lease payments (Note 10c)................ 8,389
Less -- current portion........................................... 1,631
-------
$ 6,758
=======
</TABLE>
B. LEGAL MATTERS
The Company is named as defendant in various actions in the ordinary course
of its business. These actions generally involve disputes related to contract
performance, personal injuries, as well as other civil actions that could result
in additional litigation or other adversary proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not have
a materially adverse effect upon the consolidated financial position of the
Company.
C. ENVIRONMENTAL SERVICE CONTRACTS
The Company has commitments (primarily with municipalities) to operate
landfills and provide waste hauling services under various contracts for terms
of up to 40 years. Revenues for such contracts are generally at stated rates but
may be adjusted periodically for inflation.
D. ENVIRONMENTAL PROCEEDINGS
The Company is involved in various environmental matters and proceedings,
including permit application proceedings, in connection with the establishment,
operation and expansion activities of certain landfill facilities, as well as
other matters or claims that could result in additional environmental
proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not have
a material adverse effect upon the consolidated financial position of the
Company.
E. ENVIRONMENTAL INSURANCE
In order to meet existing government requirements, the Company has obtained
environmental impairment liability insurance coverage for certain environmental
risks arising from the operation of their landfill facilities. However, if an
environmental impairment was of a magnitude that exceeded the Company's
coverage, it could have a material adverse effect on the Company's business or
its financial condition and results of operations.
103
<PAGE> 105
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
F. EMPLOYMENT CONTRACTS
The Company has employment contracts with certain members of management
which include termination benefits based on the occurrence of certain events.
G. SALE OF CERTAIN SUBSIDIARIES
During January 1994, the Company sold the stock of five of its coal
subsidiaries to Pittston. In connection with the sale, the Company provided
certain guarantees of indemnification to Pittston. In connection with the sale
of coal subsidiaries to the Addington Brothers (see Note 3a), the Company
received indemnification related to its guarantees to Pittston as well as other
matters, including its guaranty of certain mineral lease royalty obligations and
workers' compensation benefits.
In connection with the sale of Addwest (Note 3c), the Company agreed to
remain liable for the performance of an Addwest obligation for $175. Certain
royalty rights are being held in escrow until the buyers pay the Addwest
obligation.
12. STOCK OPTION AND STOCK GRANT PLANS
The Company has a non-qualified stock option plan pursuant to which 1,500
shares of common stock were reserved for issuance and may be granted to
officers, directors, and key employees of the Company and to key independent
contractors of the Company in amounts and upon terms and conditions to be
determined from time to time by the Compensation Committee of the Board of
Directors. Stock options generally are exercisable either three years or five
years from the date of issuance and have historically been issued with an
exercise price equal to fair market value. The following stock options have
been issued, exercised or canceled as of December 31:
<TABLE>
<CAPTION>
1995 1994 1993
------------- ------------- -------------
<S> <C> <C> <C>
Outstanding at beginning of year........ 685 490 924
Issued................................ 220 282 --
Canceled.............................. (369) (58) --
Exercised............................. (75) (29) (434)
---------- ---------- ----------
Outstanding at end of year.............. 461 685 490
========== ========== ==========
Exercisable at end of year.............. 187 101 278
Available for future grants at end of
year.................................. 482 276 500
Price range per share:
Issued................................ $ 9.50 $ 9.75 $ --
Canceled.............................. 7.50 -- 14.75 7.50 -- 9.63 --
Exercised............................. 7.50 -- 9.75 9.75 -- 14.75 9.75 -- 14.75
Outstanding at end of year............ 7.50 -- 14.75 7.50 -- 14.75 7.50 -- 14.75
</TABLE>
In connection with the sale of subsidiaries discussed in Note 3, the
Company terminated all non-vested stock options previously granted under its
stock option plan to individuals who ceased being employees of the Company as a
result of the transactions.
In 1994, options for a total of 59 shares of the Company's common stock
previously granted to eleven employees were terminated. The Company compensated
each of these employees in the amount of the number of options held by each
employee multiplied by the difference between the per share option exercise
price and $16. The total cost for such terminations was approximately $416.
The Company also has a non-qualified stock grant plan pursuant to which 500
shares of common stock were reserved for issuance to employees of the Company,
except that officers, directors and owners of more than 10% of the Company's
common stock are not eligible to receive stock grants. All stock grants issued
to
104
<PAGE> 106
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date specify that the recipient of the stock grant must remain employed by the
Company for 5 years from the date of grant in order to exercise the grant. As of
December 31, the following stock grants were issued or canceled:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year................................. 161 174 193
Issued......................................................... -- -- --
Canceled....................................................... -- (13 ) (19 )
Exercised...................................................... (126) -- --
---- ---- ----
Outstanding at end of year....................................... 35 161 174
==== ==== ====
Available for issue at year end.................................. 339 339 326
==== ==== ====
</TABLE>
In connection with the transaction discussed in Note 3e, the Company has
amended the stock grant plan to provide, among other things, that service by an
employee with Pittston or an affiliate as a result of the transaction will be
counted toward the time of service required under the stock grants. Employees
holding stock grants for a total of 92 shares of common stock became employees
of Pittston as a result of the transaction. The Company has included the
compensation related to this matter in its measurement of the loss on the
Pittston transaction (see Note 3e).
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS 123), issued in October 1995 and effective for
fiscal years beginning after December 15, 1995, encourages, but does not
require, a fair value based method of accounting for employee stock options or
similar equity instruments. It also allows an entity to elect to continue to
measure compensation cost under Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB No. 25), but requires proforma
disclosures of net income and earning per share as if the fair value based
method of accounting had been applied. The Company expects to adopt SFAS 123 in
1996. While the Company is still evaluating SFAS 123, it currently expects it
will continue to measure compensation cost under APB No. 25 and comply with the
pro forma disclosure requirements.
13. INCOME TAXES
The Company follows the accounting for income taxes under SFAS No.
109 -- "Accounting for Income Taxes". A requirement of SFAS No. 109 is that
deferred income tax liabilities or assets at the end of each period will be
determined using the tax rate expected to be in effect when taxes are actually
paid or recovered. Accordingly, income tax provisions will increase or decrease
in the same period in which a change in tax rates is enacted.
105
<PAGE> 107
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The income tax provision (benefit) for the years ended December 31, 1995,
1994, and 1993 consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................................. $(1,901) $ 1,926 $ (285)
State................................................... 393 683 34
------- ------- -------
(1,508) 2,609 (251)
------- ------- -------
Deferred:
Federal................................................. 5,745 (850) (506)
State................................................... 189 (163) (272)
------- ------- -------
5,934 (1,013) (778)
------- ------- -------
$ 4,426 $ 1,596 $(1,029)
======= ======= =======
</TABLE>
The following is a reconciliation (in thousands) of the income tax
provision (benefit) at the statutory tax rate of 35% to the Company's effective
rate for the years ended December 31, 1995, 1994 and 1993.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------
1995 1994 1993
---------------- ---------------- -----------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal taxes at statutory rate......... $4,025 35.0% $ (984) (35.0)% $(2,978) (35.0)%
Other, net.............................. 17 0.1 101 3.6 238 2.8
State taxes, net of Federal tax
benefit............................... 384 3.4 (241) (8.6) (493) (5.8)
------ ------- ------- ----- ------- ------
$4,426 38.5% $(1,124) (40.0)% $(3,233) (38.0)%
====== ===== ======= ===== ======= ======
</TABLE>
Deferred tax assets and liabilities as of December 31, 1995 and 1994
consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credits.................................. $ 8,062 $ 7,662
Accrued expenses and reserves.................................... 2,807 491
Contingent royalty receivable.................................... 4,560 --
Other............................................................ -- 375
------- -------
15,429 8,528
Valuation allowance.............................................. (4,000) (3,600)
------- -------
Total deferred tax assets................................ 11,429 4,928
------- -------
Deferred tax liabilities:
Property, plant and equipment.................................... (5,887) (5,494)
------- -------
Total deferred tax liabilities........................... (5,887) (5,494)
------- -------
Net deferred tax asset (liability)............................... $ 5,542 $ (566)
======= =======
</TABLE>
The alternative minimum tax credits and their accompanying valuation
allowance (described above) were generated by the Company's discontinued
operations and, accordingly, they have no effect on the income tax provision
(benefit) from continuing operations. In connection with the disposal
transactions described in
106
<PAGE> 108
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Note 3, however, the Company retained this deferred tax asset and it will be
available for future use by the continuing operations. The increase (decrease)
in the valuation allowance for the years ended December 31, 1995, 1994 and 1993
was $400, $(198) and $3,788, respectively, and is included in discontinued
operations.
As of December 31, 1995 and 1994, the Company's alternative minimum tax
credit carryforwards have an unlimited carryforward period. A valuation
allowance is provided when it is more likely than not that some portion of the
deferred tax asset will not be realized. The Company has recorded a valuation
allowance against these credits due to uncertainties in realization using the
"more likely than not" valuation method.
As of December 31, 1995, the Company has Federal alternative minimum tax
net operating loss carryforwards of $4,700, which if not utilized will expire in
2008.
14. 401(K) SAVING PLAN
The Company has a qualifying 401(k) savings plan covering substantially all
employees. Under this plan, the Company matches (up to a maximum of 6% gross
wages) 50% of the employee's contributions. The Company's expense under this
plan was approximately $70 and $18 for 1995 and 1994, respectively.
15. PROVISION FOR ASSET WRITE-DOWNS AND OTHER CHARGES
During 1994 and 1993, the Company recorded certain provisions for asset
write-downs and other one-time charges. These charges are reflected in the
Company's 1994 and 1993 consolidated statement of operations as follows:
(a) During 1994, the Company wrote off approximately $670 associated
with certain environmental projects as they were no longer being pursued by
the Company.
(b) During 1994, the Company wrote off approximately $1,200 associated
with the Company's investment in a recycling technologies company. The
Company wrote off its entire investment in this company in 1994 (included
in other expense) due to the investee experiencing substantial financial
difficulties.
(c) During 1993 the Company wrote off approximately $5,122 of assets
relating to experimental composting and recycling technology.
(d) During April, 1992, the Company sold all of the outstanding stock
of one of its subsidiaries, Southern Illinois Mining Company, Inc.
("SIMC"), to Marion Mining Corporation ("Marion") for $1,000 in cash and
an approximately $10,400 promissory note (the "SIMC Note"). On February 1,
1993, both Marion and SIMC filed bankruptcy. On November 5, 1993, the
Company filed a foreclosure action in state court in Illinois to foreclose
the security interest in the real property and personal property of SIMC.
SIMC subsequently filed an adversary proceeding against the Company.
During 1993, the Company established a $5,800 reserve for the SIMC
assets. Such valuation was determined considering the estimated ultimate
realizable value of the mining assets that would be recovered from
bankruptcy. During the third quarter of 1994, the Company determined that
the net value of the assets to be recovered from bankruptcy would be
substantially less than previously expected. Accordingly, the Company
fully reserved for these assets and reserved for certain other costs to
be incurred in connection with bringing the bankruptcy proceeding to a
conclusion (total charge of $6,800).
On November 14, 1994, the U.S. Bankruptcy Court approved a settlement
of all issues between the Company and SIMC. Rights to any property or
proceeds to be received from this settlement were included with the sale
of the coal mining, mining equipment manufacturing and licensing operation
as described in Note 3a.
16. RELATED PARTY TRANSACTIONS
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders/officers in common or because they
are controlled by stockholders/officers or by relatives of stockholders/officers
of the Company. The Company recorded various expenses (included in discontinued
operations) to related parties consisting of approximately $3,809, $7,517 and
$19,296 for trucking services, office rent, flight fees and royalties for the
years ended December 31, 1995, 1994 and 1993, respectively.
The Company had amounts receivable from related parties of $5 as of
December 31, 1995 and amounts payable to related parties of $134 as of December
31, 1994. (See Note 3 for additional related-party transactions).
17. ACQUISITIONS
A. MID STATE ENVIRONMENTAL, INC.
During 1994, one of the Company's subsidiaries, Mid State Environmental,
Inc., acquired a landfill near Macon, Georgia. The purchase price included 149
shares of Addington Resources, Inc. stock, cash of approximately $1,453, future
royalties based on revenue generated from the landfill operations and a
contingent payment of approximately $3,600 upon receipt of a permit allowing the
landfill to accept municipal and solid waste. This acquisition was accounted for
as a purchase.
107
<PAGE> 109
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The landfill, at the date of acquisition, was permitted to accept
construction and demolition waste and certain industrial waste. In October,
1995, a permit allowing the landfill to accept municipal and solid waste became
final and nonappealable. Accordingly, the Company made the $3,600 payment due to
the seller.
During 1995, the seller requested that the Company register the 149 shares
for resale. The sales agreement provided that under certain conditions the
Company is obligated to the seller for the difference, if any, between the per
share market price on the date of receipt of the seller's request for
registration (approximately $13.75 per share) and the per share market price on
the date immediately preceding the effective date of the registration statement
for resale. The Company has not yet filed the requested registration statement.
B. DOZIT COMPANY, INC.
During 1994, one of the Company's subsidiaries, Addington Environmental,
Inc., acquired all of the outstanding stock of Dozit Company, Inc. for
approximately $330, as well as future royalty payments based primarily on tons
of waste received at the landfill. This acquisition was accounted for as a
purchase.
The landfill is located in Union County, Kentucky. The acquisition included
a newly issued contained landfill construction permit. The new facility is
located adjacent to the existing landfill, was built to current federal and
state landfill standards, and opened in November, 1994.
18. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosures of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosure about Fair Value of Financial Instruments". The Company has used the
following methods and assumptions to estimate the fair value of each class of
financial instrument:
A. CASH AND CASH EQUIVALENTS
The fair value approximates the carrying amount due to the short maturity
(three months or less) of the instruments.
B. SHORT-TERM INVESTMENTS
The fair value is based on quoted market prices for the same or similar
financial instruments.
C. RESTRICTED CASH
The estimated fair value of financial instruments that reprice or mature in
less than three months approximates the carrying amount due to the short
maturities of the instruments. The fair value of financial instruments with
maturities greater than three months are estimated based on quoted market prices
for the same or similar financial instruments.
D. LONG-TERM DEBT
The fair value of the Company's debt maturing within one year approximates
the carrying amount due to the short-term maturities involved.
The fair value of the solid waste revenue bonds approximates the carrying
amount, as the interest rates on the bonds are reset weekly based on the rate of
interest that competitive securities would bear having similar credit and
maturity characteristics.
108
<PAGE> 110
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fair value of the other debt is estimated by discounting future cash
flows using an interest rate considered market for borrowings of similar credit
quality and maturity.
The carrying and estimated fair values of the Company's financial
instruments are as follows (in thousands):
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------
1995 1994
--------------------- ---------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents..................... $ 3,387 $ 3,387 $ 2,719 $ 2,719
Short-term investments........................ -- -- 1,474 1,474
Restricted cash............................... 40 40 4,348 4,348
Long-term debt (including current portion).... (16,230) (16,230) (33,647) (33,647)
</TABLE>
The fair value estimates are made at discrete points in time based on
relevant market information and information about the financial instruments.
These estimates may be subjective in nature and involve uncertainties and
matters of significant judgment and, therefore, cannot be determined with
precision.
In the normal course of business, the Company has letters of credit,
performance bonds and other guarantees which are not reflected in the
accompanying consolidated balance sheets. In the past, no significant claims
have been made against these financial instruments. Management believes that the
likelihood of performance under these financial instruments is minimal and
expects no material losses to occur in connection with these financial
instruments.
109
<PAGE> 111
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
19. QUARTERLY FINANCIAL DATA (UNAUDITED -- IN THOUSANDS OF DOLLARS EXCEPT PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER QUARTER QUARTER YEAR
- ------------------------------------------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Net revenues............................... $10,748 $14,253 $ 16,578 $15,160 $ 56,739
------- ------- -------- ------- --------
Income from operations..................... 1,511 3,195 3,309 4,013 12,028
Net income from continuing operations...... 1,077 1,926 1,899 2,172 7,074
Income from discontinued operations........ 863 3,066 1,778 -- 5,707
Loss on disposal of segment................ -- -- (30,537)(3) -- (30,537)(3)
------- ------- -------- ------- --------
Net income (loss)................ $ 1,940 $ 4,992 $(26,860) $ 2,172 $(17,756)
======= ======= ======== ======= ========
Earnings per share (1):
Income (loss) from continuing
operations............................ $ 0.07 $ 0.12 $ 0.12 $ 0.14 $ 0.45
Income (loss) from discontinued
operations............................ 0.05 0.19 0.11 -- 0.36
Loss on disposal......................... -- -- (1.91) -- (1.94)
------- ------- -------- ------- --------
Net income (loss)................ $ 0.12 $ 0.31 $ (1.68) $ 0.14 $ (1.13)
======= ======= ======== ======= ========
1994
Net revenues............................... $ 6,851 $ 8,867 $ 9,942 $10,397 $ 36,057
------- ------- -------- ------- --------
Income from operations..................... 1,094 1,121 674 1,581 4,470
Net income (loss) from continuing
operations............................... 525 1,022 (4,324)(2) 1,091 (1,686)(2)
Income (loss) from discontinued
operations............................... 2,344 521 (7,495) (818) (5,448)
------- ------- -------- ------- --------
Net income (loss)................ $ 2,869 $ 1,543 $(11,819) $ 273 $ (7,134)
======= ======= ======== ======= ========
Earnings per share (1):
Income (loss) from continuing
operations............................ $ 0.03 $ 0.07 $ (0.28) $ 0.07 $ (0.11)
Income (loss) from discontinuing
operations............................ 0.15 0.03 (0.47) (0.05) (0.34)
------- ------- -------- ------- --------
Net income (loss)................ $ 0.18 $ 0.10 $ (0.75) $ 0.02 $ (0.45)
======= ======= ======== ======= ========
</TABLE>
- ---------------
(1) Quarters may not add to annual net income (loss) per share due to changes in
shares outstanding
(2) Includes the asset write-downs and other charges described in Note 15
(3) Represents sale of discontinued operations as described in Note 2
20. SUBSEQUENT EVENT (UNAUDITED)
During June 1996, the Company entered into an Agreement and Plan of Merger
with Republic Industries, Inc. (Republic), pursuant to which the parties will
enter into a business combination for which each share of the Company's common
stock will be exchanged for 0.9 shares of Republic's common stock. The proposed
transaction, which is intended to be accounted for as a pooling-of-interests
business combination, is subject to the approval of regulators and Company
shareholders and other customary terms and conditions.
110
<PAGE> 112
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.................................. $ 1,165 $ 3,387
Accounts receivable, net................................... 8,567 9,090
Prepaid expenses and other................................. 2,882 3,246
-------- --------
Total current assets............................... 12,614 15,723
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost....................... 140,611 119,414
Less accumulated depreciation.............................. (18,563) (13,667)
-------- --------
122,048 105,747
-------- --------
OTHER........................................................ 7,109 6,812
-------- --------
Total assets....................................... $ 141,771 $128,282
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable........................................... $ 3,788 $ 4,743
Current portion of long-term debt.......................... 2,710 1,823
Accrued expenses and other................................. 5,920 3,504
-------- --------
Total current liabilities.......................... 12,418 10,070
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion....................... 17,073 14,407
Accrued closure and post-closure costs..................... 6,738 5,168
Other long-term liabilities................................ 7,544 7,451
-------- --------
Total non-current liabilities...................... 31,355 27,026
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000 shares
authorized, 16,194,034 shares and 16,054,301 shares
outstanding at September 30, 1996 and December 31, 1995,
respectively............................................ 16,194 16,054
Paid-in capital............................................ 87,187 85,934
Retained earnings.......................................... 8,242 2,823
Less treasury stock; 1,000,000 shares, at cost............. (13,625) (13,625)
-------- --------
Total stockholders' equity......................... 97,998 91,186
-------- --------
Total liabilities and stockholders' equity......... $ 141,771 $128,282
======== ========
</TABLE>
111
<PAGE> 113
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUES............................................. $16,317 $ 16,578 $46,012 $ 41,579
------- -------- ------- --------
COSTS AND EXPENSES:
Cost of operations................................. 9,174 9,377 26,680 23,370
Depreciation and amortization...................... 1,873 2,081 5,752 5,272
Selling, general and administrative................ 1,939 1,811 4,100 4,922
------- -------- ------- --------
12,986 13,269 36,532 33,564
------- -------- ------- --------
Income from operations............................. 3,331 3,309 9,480 8,015
------- -------- ------- --------
INTEREST AND OTHER INCOME (EXPENSE):
Interest income.................................... 11 82 38 366
Interest expense................................... (487) (210) (629) (384)
Other, net......................................... (569) (16) (777) 171
------- -------- ------- --------
(1,045) (144) (1,368) 153
------- -------- ------- --------
Income before income tax provision................. 2,286 3,165 8,112 8,168
INCOME TAX PROVISIONS:
Federal............................................ 960 1,076 2,191 2,777
State.............................................. 160 190 502 490
------- -------- ------- --------
1,120 1,266 2,693 3,267
------- -------- ------- --------
Income from continuing operations.................. 1,166 1,899 5,419 4,901
------- -------- ------- --------
DISCONTINUED OPERATIONS:
Income from operations of discontinued segment
(less applicable income taxes of $480 and $1,899
for the three and nine months ended September
30, 1995)....................................... -- 1,778 -- 5,707
Loss on disposal of segment (less applicable income
tax benefit of $10,000)......................... -- (30,537) -- (30,537)
------- -------- ------- --------
Loss from discontinued operations.................. -- (28,759) -- (24,830)
------- -------- ------- --------
NET INCOME(LOSS)..................................... $ 1,166 $(26,860) $ 5,419 $(19,929)
======= ======== ======= ========
EARNINGS PER SHARE:
Income from continuing operations.................. $ .08 $ .12 $ .35 $ .31
Income (loss) from discontinued operations......... -- .11 -- .36
Loss on disposal of segment........................ -- (1.91) -- (1.92)
------- -------- ------- --------
Net income (loss).................................. $ .08 $ (1.68) $ .35 $ (1.25)
======= ======== ======= ========
Equivalent shares of stock outstanding............. 15,377 15,983 15,348 15,911
======= ======== ======= ========
</TABLE>
112
<PAGE> 114
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income(loss)..................................................... $ 5,419 $(19,929)
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation...................................................... 2,146 5,164
Amortization...................................................... 3,606 4,666
Loss on disposal of discontinued operations....................... -- 30,537
Loss on sale of assets............................................ -- 614
Change in assets and liabilities, net of effects from acquisitions
and disposals-
(Increase) decrease in --
Cash held for disposal.......................................... -- (91)
Accounts receivable............................................. 523 (5,661)
Inventories..................................................... -- (489)
Prepaid expenses and other...................................... 364 925
Deferred income taxes........................................... -- (858)
Other assets.................................................... (1,154) (3,051)
Increase (decrease) in --
Accounts payable................................................ (955) 5,490
Accrued expenses and other...................................... 3,397 5,310
Accrued closure and post-closure costs.......................... 1,570 --
-------- --------
Total adjustments.......................................... 9,497 42,556
-------- --------
Net cash provided by operating activities.................. 14,916 22,627
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of disposition costs............... -- 5,892
Decrease in other assets............................................. -- 1,134
Decrease in short term investments................................... -- 3,871
Additions to property, plant and equipment........................... (21,197) (43,165)
-------- --------
Net cash used in investing activities...................... (21,197) (32,268)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt........................................... -- 11,129
Repayments of long-term debt......................................... (334) (263)
Issuance of common stock............................................. 1,393 339
Borrowings (repayments) on revolving line of credit.................. 3,000 (2,400)
Financing costs incurred.............................................. -- (275)
-------- --------
Net cash provided by financing activities.................. 4,059 8,530
-------- --------
Less -- increase in discontinued operations' cash and cash
equivalents............................................. -- 692
-------- --------
Net decrease in cash and cash equivalents.................. (2,222) (1,803)
CASH AND CASH EQUIVALENTS, beginning of period......................... 3,387 2,719
-------- --------
CASH AND CASH EQUIVALENTS, end of period............................... $ 1,165 $ 916
======== ========
</TABLE>
113
<PAGE> 115
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
1. FINANCIAL STATEMENT PRESENTATION
The accompanying consolidated unaudited financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. Therefore, it is
suggested that the accompanying financial statements be read in conjunction with
the financial statements and notes thereto included in the Company's latest
annual report on Form 10-K.
The accompanying consolidated financial statements as of September 30, 1996
and 1995 include the accounts of Addington Resources, Inc. (the "Company") and
its wholly-owned direct and indirect subsidiaries.
In the opinion of management, the accompanying consolidated unaudited
financial statements include all adjustments necessary to present fairly the
Company's financial position as of September 30, 1996, and results of operations
for the three and nine months ended September 30, 1996 and 1995. All
adjustments were of a normal recurring nature except as discussed in Note 2
below. The results of operations for such interim periods are not necessarily
indicative of the results to be expected for the full year.
2. MERGER TRANSACTION
On June 25, 1996, the Company signed a definitive agreement to merge with
Republic Industries, Inc. ("Republic"). Under the terms of the merger
transaction, each outstanding share of the Company's common stock would be
converted into the right to receive .90 of a share of Republic common stock.
The merger transaction, which will be accounted for on a pooling of
interests basis, is subject to customary terms and conditions, including
compliance with covenants, accuracy of representations by the companies to the
merger agreement, approval by the stockholders of the Company, the clearance of
the Republic registration statement and the Company's related proxy statement by
the Securities and Exchange Commission and the receipt by the Company of
confirmation of the fairness opinion by Oppenheimer & Co., Inc. as of the date
the proxy statement is mailed to Company shareholders. The merger transaction
received HSR clearance on July 31, 1996.
The Company's largest stockholders, HPB Associates, L.P., and Larry, Robert
and Bruce Addington, who collectively own approximately 45% of the Company's
outstanding common stock, have agreed to vote their shares in favor of the
merger transaction, and have delivered to Republic their irrevocable proxies.
During the three and nine months ended September 30, 1996, $750 and $1,500,
respectively, is included in other expense in the accompanying September 30,
1996, Consolidated Statements of Operations in connection with professional fees
and related costs incurred by the Company related to this merger transaction.
The Company anticipates that the merger transaction will be consummated in
the fourth quarter of 1996.
3. DISCONTINUED OPERATIONS
During the third quarter of 1995, the Company implemented a formal plan to
dispose of all of its non-environmental operations. These discontinued
operations consisted primarily of the following: coal mining, mining equipment
manufacturing and licensing, citrus properties in Belize, precious and
industrial metals mining and incidental limestone properties. Accordingly, the
Company's continuing operations are comprised of integrated solid waste
management, which includes landfill operations and waste collection and
recycling services. During the quarter ended September 30, 1995 the Company
recorded a loss on the disposal of the
114
<PAGE> 116
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
discontinued operations of approximately $30,500 (net of income tax benefits of
approximately $10,000) which represents the estimated loss on the disposal of
the non-environmental operations and a provision of approximately $2,000 for
expected operating losses through the final disposition of such operations.
Upon ultimate disposal of its discontinued operations, the Company
determined its initial estimates did not require adjustment.
As discussed in Note 4, as of December 31, 1995, the Company had sold all
of its subsidiaries included in discontinued operations, hence fully disposing
of all non-environmental operations. The recorded transactions reflect the
disposal of all of the Company's non-environmental segments and, accordingly,
the operating results of these segments have been classified as discontinued
operations for all periods presented in the accompanying consolidated financial
statements. Operating results from the discontinued operations were as follows:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
THREE MONTHS ENDED SEPTEMBER 30,
SEPTEMBER 30, 1995 1995
------------------ ----------------
<S> <C> <C>
Operating revenue................................... $ 27,811 $ 92,486
------- -------
Income before income taxes.......................... 2,258 7,606
Income tax provision................................ 480 1,899
------- -------
Net income from discontinued operations............. $ 1,778 $ 5,707
======= =======
</TABLE>
Most of the Company's revenues from discontinued operations were generated
under long-term coal sales contracts with electric utilities or other
coal-related organizations located in the Eastern U.S. Revenues were recognized
on coal sales in accordance with the sales agreement, which was usually when the
coal was shipped to the customer.
4. SALE OF SUBSIDIARIES (INCLUDED IN DISCONTINUED OPERATIONS)
A. COAL MINING, MINING EQUIPMENT MANUFACTURING AND LICENSING
On September 22, 1995, in a related party transaction, the Company entered
into a stock purchase agreement with Addington Enterprises, Inc. (a company
f/k/a Addington Acquisition Company, Inc., owned by Larry Addington, Robert
Addington and Bruce Addington; collectively, the Addington Brothers) whereby the
Company would receive $30,000, subject to a working capital adjustment, in
exchange for all the issued and outstanding shares of common stock of its
subsidiaries, Addington Mining, Inc., Mining Technologies, Inc., Addwest Mining,
Inc. and Addington Coal Holding, Inc. This sale was consummated on November 2,
1995, at which time the proceeds received were used by the Company to pay down
its revolving line of credit. In addition, the Company retained the right to
receive certain contingent payments due under the Company's technology sale to
BHP Australia Coal Pty. Ltd. As of September 30, 1996, the Company estimates
such payments may aggregate $3,000.
Included in the transaction described above and pursuant to an option
agreement dated August 4, 1995, the Company sold to the Addington Brothers all
the issued and outstanding shares of common stock of its subsidiary, Tennessee
Mining, Inc. According to the terms of the option agreement, the Addington
Brothers will pay the Company a royalty based on tons of coal delivered under a
certain coal sales contract, up to a maximum aggregate royalty of $12,500.
During the nine months ended September 30, 1996, the Company has recorded
royalty income of $613 (included in other income in the accompanying September
30, 1996, Consolidated Statement of Operations) from the Addington Brothers
under this agreement.
115
<PAGE> 117
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
B. CITRUS PROPERTIES
On September 22, 1995, in a related party transaction, the Company entered
into an agreement to sell all of the issued and outstanding shares of common
stock of its subsidiary, Belize River Fruit Co., to Larry and Bruce Addington in
exchange for 1,000 shares of common stock of the Company owned by Larry and
Bruce Addington. This transaction was consummated on November 2, 1995, at which
time the Company acquired the 1,000 shares valued at $13,625 (based on quoted
share market price) and recorded them, at cost, as treasury stock. The Company
retained no obligations in connection with the sale and has fully divested its
investment in citrus operations.
C. ADDWEST MINERALS, INC.
Addwest Minerals, Inc. (Addwest), a wholly-owned subsidiary of the Company,
was organized to mine, extract and market precious and industrial metals. On
November 1, 1995, the Company entered into a letter agreement, which was later
finalized as a Stock Purchase Agreement (the Agreement), that provided for the
sale to an unrelated party of all the capital stock of Addwest. On December 29,
1995, the Company consummated the sale of Addwest.
The terms of the Agreement required the Company to contribute additional
capital to Addwest in an amount sufficient to pay substantially all existing
liabilities of Addwest through the date of the Agreement, with the exception of
the remaining balance on the Rothschild gold loan. The proceeds received from
the sale ($3,525) were used to retire the remaining balance on the Rothschild
gold loan and the Company has been fully released from its obligations under
that loan.
D. NEW RIVER LIME
On November 17, 1995, the Company sold all of the real property, as well as
all buildings, structures and improvements of its wholly owned subsidiary, New
River Lime, Inc. (NRL), to an unrelated party for $2,500 in cash. The Company
retained no obligations in connection with the sale and has fully divested its
investment in NRL.
5. COMMITMENTS AND CONTINGENCIES
A. LEGAL MATTERS
In the normal course of its operations, the Company may become involved in
a variety of legal disputes. Currently, the Company is a party to certain
litigation, including workers' compensation matters and other minor business
disputes.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not have
a material adverse effect on the consolidated financial position of the Company.
B. ENVIRONMENTAL PROCEEDINGS
The Company is involved in various environmental matters and proceedings,
including permit application proceedings, in connection with the establishment,
operation and expansion activities of certain landfill facilities, as well as
other matters or claims that could result in additional environmental
proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting period,
management believes that the ultimate disposition of these matters will not have
a material adverse effect on the consolidated financial position of the Company.
116
<PAGE> 118
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
C. ENVIRONMENTAL SERVICE CONTRACTS
The Company has commitments (primarily with municipalities) to operate
landfills and provide waste hauling services under various contracts for terms
of up to 40 years. Revenues for such contracts are generally at stated rates but
may be adjusted periodically for inflation.
D. ENVIRONMENTAL INSURANCE
In order to meet existing government requirements, the Company has obtained
environmental impairment liability insurance coverage for certain environmental
risks arising from the operation of its landfill facilities. However, if an
environmental impairment were of a magnitude that exceeded the Company's
coverage, it could have a material adverse effect on the Company's business or
its financial condition and results of operations.
E. SALE OF CERTAIN SUBSIDIARIES
During January 1994, the Company sold the stock of five of its coal
subsidiaries to Pittston Minerals Group, Inc. (Pittston). In connection with the
sale, the Company provided certain guarantees of indemnification to Pittston. In
connection with the sale of coal subsidiaries to the Addington Brothers (see
Note 4), the Company received indemnification related to its guarantees to
Pittston as well as other matters, including its guaranty of certain mineral
lease royalty obligations and workers' compensation benefits.
6. RELATED-PARTY TRANSACTIONS
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of stockholders/officers of
the Company. The Company recorded various expenses (included in results of
discontinued operations) to related parties consisting of approximately $2,895
for trucking services, office rent and flight fees for the nine months ended
September 30, 1995. There were no related party transactions during the nine
months ended September 30, 1996.
The Company had amounts receivable from related parties of $5 as of
December 31, 1995.
7. STOCKHOLDERS' EQUITY
During the nine months ended September 30, 1996, and 1995, 124 and 46
respectively, shares of common stock were issued in connection with the exercise
of stock options.
During the nine months ended September 30, 1996 and 1995, 16 and 68
respectively, shares of common stock were issued in connection with stock grants
issued to employees in 1989 and 1990. These stock grants specified that the
recipient of the stock grant remain employed by the Company for five years from
the date of the grant in order to exercise the grant.
As a result of these options and grants being exercised and shares being
issued, common stock increased $140 and $114 respectively, and paid-in capital
increased $1,253 and $1,330 respectively, during the nine months ended September
30, 1996 and 1995.
117
<PAGE> 119
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
8. STATEMENT OF CASH FLOWS
For purposes of this statement, the Company considers short-term
investments having maturation of three months or less at the time of purchase to
be cash equivalents. The cash amounts of interest and income taxes paid by the
Company during the nine months ended September 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ------
<S> <C> <C>
Interest, net of amounts capitalized of $1,133 and $1,739........... $115 $ 384
Income taxes........................................................ 375 1,093
</TABLE>
9. INCOME TAXES
During the three and nine months ended September 30, 1996, the Company
reduced its deferred tax asset valuation reserve by approximately $0 and $550
respectively. The reason for the change in the valuation allowance is due to the
Company's ongoing evaluation of the realization of its alternative minimum tax
(AMT) credit carryforwards, which are a component of deferred tax assets. A
valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has recorded
a valuation allowance against a portion of these AMT credits due to
uncertainties in realization using the "more likely than not" valuation method.
10. NEW ACCOUNTING PRONOUNCEMENTS
A. LONG LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of " (SFAS No. 121),
effective for fiscal years beginning after December 15, 1995. The new standard
requires that long-lived assets and certain identified intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing such
impairment review, companies are required to estimate the sum of future cash
flows from an asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a possible
write-down of an asset to its fair value. The Company adopted the provisions of
SFAS No. 121 as of January 1, 1996. The adoption had no effect on the results of
operations or financial position of the Company.
B. STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS No. 123), effective for fiscal years beginning after
December 15, 1995. The new standard encourages, but does not require, a fair
value based method of accounting for employee stock options or similar equity
instruments. It also allows an entity to elect to continue to measure
compensation cost under Accounting Principles Board Opinion No. 25 "Accounting
for Stock Issued to Employees" (APB No. 25), but requires pro forma disclosures
of net income and earnings per share as if the fair value based method of
accounting had been applied. The Company expects to adopt SFAS No. 123 for its
annual 1996 financial statements. In addition, the Company will elect to
continue to measure compensation cost under APB No. 25 and comply with the pro
forma disclosure requirements.
118
<PAGE> 120
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
C. ENVIRONMENTAL REMEDIATION LIABILITIES
In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, "Environmental Remediation
Liabilities," effective for fiscal years beginning after December 15, 1996.
This statement provides that environmental remediation liabilities should be
accrued when the criteria of Statement of Financial Accounting Standards (SFAS)
No. 5, "Accounting for Contingencies," are met, and it includes benchmarks to
aid in the determination of when environmental remediation liabilities should be
recognized in accordance with SFAS No. 5. SOP 96-1 also states that an accrual
for environmental liabilities should include incremental direct costs of the
remediation effort and costs of compensation and benefits for those employees
who are expected to devote a significant amount of time directly to the
remediation effort. The Company believes that implementation of SOP 96-1 will
not have a material adverse effect on its results of operations or financial
position.
119
<PAGE> 121
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Alamo Rent-A-Car, Inc. and Affiliates:
We have audited the accompanying combined balance sheets of Alamo Rent-A-Car,
Inc. and Affiliates (as defined in note 1 to the combined financial statements)
as of December 31, 1995 and 1994, and the related combined statements of
operations, equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These companies are under common ownership and
common management. These combined financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these combined financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Alamo Rent-A-Car,
Inc. and Affiliates as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
Fort Lauderdale, Florida
March 8, 1996, except as to the
second paragraph of Note 13, which
is as of April 19, 1996 and the
second paragraph of Note 18,
which is as of November 26, 1996
120
<PAGE> 122
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
----------------------------
Assets 1995 1994
------ ---- ----
<S> <C> <C>
Cash and cash equivalents $ 11,446 $ 15,698
Investments, at cost 63,133 86,243
Receivables:
Trade, less allowance for doubtful accounts of
$5,214 and $2,729 in 1995 and 1994,
respectively 67,418 54,992
Vehicle 94,408 111,519
Notes, mortgages and other due from affiliates 2,409 708
Other 7,775 25,599
---------- ----------
172,010 192,818
---------- ----------
Revenue earning vehicles, net 1,478,409 1,732,515
Property and equipment, net 213,985 210,951
Other assets 61,762 72,223
---------- ----------
$2,000,745 $2,310,448
========== ==========
Liabilities and Equity
----------------------
Notes payable and lines of credit secured by revenue
earning vehicles $1,546,122 $1,794,802
Estimated auto liability claims 112,448 125,331
Accounts payable to affiliates 1,677 --
Accounts payable 116,374 104,045
Other debt 137,266 117,263
Accrued expenses 11,050 29,112
Customer deposits 9,843 11,398
---------- ----------
Total liabilities 1,934,780 2,181,951
---------- ----------
Minority interest -- 652
Equity (note 9):
Common stock 5 4
Additional paid-in capital 9,494 8,387
Retained earnings and partners' capital 53,881 116,674
Translation adjustment 2,585 2,780
---------- ----------
Total equity 65,965 127,845
---------- ----------
Commitments and contingencies
---------- ----------
$2,000,745 $2,310,448
========== ==========
</TABLE>
See accompanying notes to combined financial statements.
121
<PAGE> 123
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED STATEMENTS OF OPERATIONS
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue:
Vehicle rentals $1,389,351 $1,311,967 $1,148,251
Interest 6,199 4,839 3,764
Other 2,303 955 947
---------- ---------- ----------
1,397,853 1,317,761 1,152,962
---------- ---------- ----------
Costs and expenses:
Vehicle depreciation 398,591 352,523 271,326
Vehicle interest 127,227 109,290 88,388
Vehicle leases 68,505 34,775 12,041
Selling, general and administrative 840,083 787,036 738,625
Other interest, net of amounts
capitalized of $808, $994 and
$223 in 1995, 1994 and 1993,
respectively 13,496 9,220 11,086
Minority interest in net loss of
consolidated subsidiaries (470) -- --
---------- ---------- ----------
1,447,432 1,292,844 1,121,466
---------- ---------- ----------
Net income (loss) $(49,579) $24,917 $31,496
========== ========== ==========
</TABLE>
See accompanying notes to combined financial statements.
122
<PAGE> 124
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED STATEMENTS OF EQUITY
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Additional
Common paid-in Partners' Retained Translation Total
Stock capital capital earnings adjustment equity
----- ------- ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992 $ 3 $6,746 $(111,107) $214,765 $3,015 $113,422
Contributions -- 590 279 -- -- 869
Dividends and distributions -- -- (1,138) (34,517) -- (35,655)
Net income (loss) -- -- (17,528) 49,024 -- 31,496
Translation adjustment -- -- -- -- 100 100
---- ------ --------- -------- ------ --------
Balance at December 31, 1993 3 7,336 (129,494) 229,272 3,115 110,232
Contributions 1 1,051 176 -- -- 1,228
Dividends and distributions -- -- (1,518) (6,679) -- (8,197)
Net income (loss) -- -- (15,277) 40,194 -- 24,917
Translation adjustment -- -- -- -- (335) (335)
---- ------ --------- -------- ------ --------
Balance at December 31, 1994 4 8,387 (146,113) 262,787 2,780 127,845
Contributions 1 1,107 -- -- -- 1,108
Dividends and distributions -- -- (1,986) (11,228) -- (13,214)
Net income (loss) -- -- (14,820) (34,759) -- (49,579)
Translation adjustment -- -- -- -- (195) (195)
---- ------ --------- -------- ------ --------
Balance at December 31, 1995 $ 5 $9,494 $(162,919) $216,800 $2,585 $ 65,965
==== ====== ========= ======== ====== ========
</TABLE>
See accompanying notes to combined financial statements.
123
<PAGE> 125
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED STATEMENTS OF CASH FLOWS
(Dollar amounts in thousands)
Years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
December 31,
------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $1,383,717 $1,297,998 $1,135,295
Cash paid to vendors and employees (872,917) (792,699) (692,632)
Interest received 4,338 4,839 3,764
Interest paid (138,300) (115,489) (102,570)
Income taxes paid, net of refunds (238) (2) (2,955)
---------- ---------- ----------
Net cash provided by operating
activities 376,600 394,647 340,902
---------- ---------- ----------
Cash flows from investing activities:
Cash received from sale of revenue
earning vehicles 2,182,698 2,673,654 2,214,528
Cash paid to third party suppliers
of revenue earning vehicles (1,961,343) (2,762,648) (2,276,065)
Cash paid to related party suppliers
of revenue earning vehicles (351,755) (551,157) (576,895)
(Purchase) sale of investments 23,110 (5,019) 13,545
Capital expenditures (33,534) (34,183) (34,825)
Proceeds from sale of property and
equipment 8,611 2,746 835
Payment for business acquired net
of cash received -- (4,683) --
---------- ---------- ----------
Net cash used in investing
activities (132,213) (681,290) (658,877)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from revenue earning
vehicle financing 2,348,791 3,348,787 3,048,121
Principal payments on revenue
earning vehicle financing (2,606,436) (3,071,250) (2,674,907)
Proceeds from other debt 54,646 18,551 7,000
Principal payments on other debt (33,615) (7,867) (24,344)
Dividends and distributions (13,214) (8,197) (35,655)
Capital contributions 1,100 1,228 869
Contributions from minority interest -- 652 --
---------- ---------- ----------
Net cash provided by (used by)
financing activities (248,728) 281,904 321,084
---------- ---------- ----------
</TABLE>
124 (Continued)
<PAGE> 126
ALAMO RENT-A-CAR, INC. AND AFFILIATES
Combined Statements of Cash Flows (Continued)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Effect of exchange rate changes on cash $ 89 $ (1,344) $ (1,243)
-------- -------- --------
Net (decrease) increase in cash and cash
equivalents (4,252) (6,083) 1,866
Cash and cash equivalents at beginning
of year 15,698 21,781 19,915
-------- -------- --------
Cash and cash equivalents at end of year $ 11,446 $ 15,698 $ 21,781
======== ======== ========
Reconciliation of net income (loss) to
net cash provided by operating activities:
Net income (loss) (49,579) 24,917 31,496
Vehicle depreciation 398,592 352,523 271,326
Property and equipment depreciation
and amortization 22,006 19,415 17,684
(Loss) on sale of property and equipment (287) (248) (122)
Amortization of intangible assets 2,016 606 606
Other (469) -- --
Bad debt expense 3,374 865 1,015
Cash flows from operating activities
affecting assets and liabilities:
Receivables 119 (20,297) (15,458)
Other assets 15,664 212 (9,534)
Estimated auto liability claims (12,871) (4,315) 23,870
Accounts payable 9,600 15,779 24,344
Accrued expenses (7,879) 3,878 (5,956)
Customer deposits (3,686) 1,312 1,631
-------- -------- --------
Net cash provided by
operating activities $376,600 $394,647 $340,902
======== ======== ========
</TABLE>
Supplemental schedule of noncash investing and financing activities (in
thousands):
In December 1994, a subsidiary of GUSA Ltd. purchased approximately
75% of the outstanding capital stock of Dose and Peters, GmbH for
approximately $13.7 million (see note 13). In conjunction with the
acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $(30,556)
Costs in excess of net assets of company acquired (13,779)
Liabilities assumed 39,652
--------
Cash paid, net of cash received $ (4,683)
========
</TABLE>
In 1994, DKBERT sold real property in exchange for $440 of trade
credits.
See accompanying notes to combined financial statements.
125 (Continued)
<PAGE> 127
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
December 31, 1995 and 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION AND PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the
accounts of the following entities, each entity affiliated
with each other as a result of common ownership and common
management: (i) Alamo Rent-A-Car, Inc. and Affiliate (Alamo),
(ii) DKBERT, Assoc., (DKBERT or the Partnership), (iii) Guy
Salmon USA, Ltd. and Subsidiaries (GUSA Ltd.), and (iv) Alamo
Rent-A-Car (Belgium), Inc. (Alamo Belgium), Alamo Rent-A-Car
(Canada), Inc. (Alamo Canada), Green Corn, Inc. (Green Corn),
Guy Salmon (USA), Inc. (GUSA Inc.), Territory Blue, Inc.
(Territory Blue), and Tower Advertising Group, Inc. (Tower)
(collectively, the Alamo Affiliated Companies). The combined
financial statements of each of the above entities
(collectively referred to as the "Companies") include the
accounts of the Companies and their respective majority-owned
subsidiaries. All significant intercompany accounts and
transactions are eliminated in combination. Following is a
description of the Companies and their majority-owned
subsidiaries:
(I) The consolidated financial statements of Alamo and
Alamo Funding, L.P. (AFL). Alamo has a 99 percent
limited partnership interest in AFL and AFL's 1
percent general partner is a corporation owned by the
shareholders of Alamo. All significant intercompany
balances and transactions have been eliminated in
consolidation. Alamo is engaged in the car rental
business throughout the United States, primarily on a
daily or weekly basis. AFL provides financing to
Alamo for the financing or refinancing of revenue
earning vehicles. AFL and Alamo have separate
corporate existences and separate financial
conditions and records. The assets of AFL will be
available only to satisfy the claims of its creditors
and will not be available to any creditors of Alamo
or its other affiliates.
(II) The financial statements of DKBERT, a Florida
partnership, which owns and leases real property.
(III) The consolidated financial statements of GUSA Ltd., a
Florida limited partnership and the holding company
for certain European car rental affiliates of Alamo.
The subsidiaries of GUSA Ltd. and their respective
periods of inclusion in these financial statements
are (i) Alamo Rent-A-Car (UK) Limited (acquired
1990), which conducts the Company's operations in the
United Kingdom; (ii) Alamo Rent-A-Car, AG, Zurich
(organized November 1992) which conducts the
Company's Swiss operations; (iii) Alamo
Autovermietung GmbH (the surviving entity of the
merger between Dose and Peters, GmbH (acquired
December 1994) and Alamo Rent-A-Car GmbH) (organized
in February 1994), which conducts the Company's
German operations; and (iv) Alamo Rent-A-Car (Vienna)
GmbH (organized April 1995) which conducts the
Company's Austrian operations. All significant
intercompany balances and transactions have been
eliminated in consolidation.
126 (Continued)
<PAGE> 128
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(IV) The combined financial statements of the Alamo
Affiliated Companies, as follows: (i) Alamo Belgium
which conducts car rental operations in Belgium at
one location; (ii) Alamo Canada which conducts car
rental operations in Canada at two locations; (iii)
Green Corn, an entity with limited assets; (iv) GUSA
Inc., which owns 79% of Alamo Rent-A-Car B.V. (which
conducts car rental operations in The Netherlands at
two locations) and a minority interest in Guy Salmon
USA, Ltd. (GUSA Ltd.), which conducts car rental
operations in Europe through its respective
subsidiaries and combined partnerships; (v) Territory
Blue, a management company which contracts with
certain employees of Alamo Rent-A-Car, Inc. (Alamo)
and offers management services to certain other
entities; and (vi) Tower, which provides advertising
services to Alamo. The combined financial statements
include the accounts of the Alamo Affiliated
Companies and their majority-owned subsidiaries.
Minority interest represents GUSA Ltd.'s 21%
ownership in Alamo Rent-A-Car B.V. All significant
intercompany accounts and transactions are eliminated
in combination.
The Companies operate in one principal industry and geographic
segment - the rental of automobiles in the United States which
represents more than 90% of combined revenues.
(B) CASH EQUIVALENTS AND INVESTMENTS
The Companies consider all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents, unless the investments are legally or
contractually restricted for longer than three months.
Investments are classified as held-to-maturity securities and
are recorded at amortized cost adjusted for the amortization
or accretion of premiums or discounts, which approximates
market value.
(C) REVENUE EARNING VEHICLES AND DEPRECIATION
Revenue earning vehicles are stated at cost less accumulated
depreciation and allowances for stolen vehicles. The
straight-line method is used to depreciate revenue vehicles to
their estimated residual values over the anticipated periods
of use based on the respective Company's fleet plan, typically
ranging from 4 to 20 months in the United States and from 4 to
9 months in Canada and Europe. Depreciation expense also
includes those costs relating to losses from damaged and
wrecked vehicles, and gains and losses on vehicle sales in the
ordinary course of business.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and
amortization are provided over the estimated useful lives of
the respective assets using the straight-line method. DKBERT
capitalizes interest as part of the cost of constructing car
rental and other facilities.
127 (Continued)
<PAGE> 129
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(E) OTHER ASSETS
Other assets include goodwill (in thousands) of $18,491 and
$17,319 at December 31, 1995 and 1994. Accumulated
amortization of goodwill (in thousands) was $2,376 and $1,194
at December 31, 1995 and 1994, respectively. Goodwill is
amortized on a straight-line basis combined. The Companies
evaluate the recoverability of intangible assets as well as
the amortization periods to determine whether an adjustment to
the carrying value is appropriate. The primary indicators of
recoverability are the associated current and forecasted
operating cash flows.
Debt issuance and origination fees and costs are amortized to
interest expense on a straight-line basis over the terms of
the related debt agreements. The difference in interest
expense between the straight-line method and interest method of
amortization, where applicable, is not material.
(F) ESTIMATED AUTO LIABILITY CLAIMS
Alamo assumes responsibility for up to $1 million per claim
under its auto liability insurance program for property damage
and bodily injury claims. Costs in excess of $1 million per
claim are insured under various contracts with insurance
carriers. Estimated costs for claims up to $1 million are
actuarially determined based on historical claims experience,
adjusted for current trends and changes in claims-handling
procedures, and are discounted to the net present value. The
assumptions used have a significant effect on the amounts
reported. During the year ended December 31, 1994, Alamo
changed its methodology used to discount its estimated auto
liability claims to a weighted average rate based on Treasury
notes with maturity dates related to the actuarially
determined payout curve. Previously, the rate used for
discounting was based on a three-year average of U.S. Treasury
notes with three-year maturities. Management believes its
current methodology better reflects the anticipated payout of
Alamo's claims. The rates used at December 31, 1995 and 1994
were 5.30% and 7.62%, respectively. The effect of the change
in 1994 was a reduction in the accrual of $3.7 million.
In its foreign car rental operations, the foreign companies
assume responsibility, subject to a deductible, per incident,
under the auto liability insurance programs and for property
and bodily injury claims.
The Companies also assume responsibility, subject to a
deductible, per incident, under its vehicle collision damage
and theft insurance policy. Losses are accrued as incurred.
(G) REVENUE RECOGNITION
DKBERT recognizes rental income on a straight-line basis over
the terms of the respective leases.
128
(Continued)
<PAGE> 130
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(H) INCOME TAXES
Alamo elected "Small Business Corporation" status effective
January 1, 1980. Under S corporation status, each stockholder
is individually responsible for reporting his share of taxable
income or loss. Accordingly, no provision for federal income
taxes has been reflected in the accompanying financial
statements. A provision for state income taxes is made where
applicable.
Each partner of DKBERT is individually responsible for
reporting his share of federal taxable partnership income or
loss. Accordingly, no provision for federal taxes is
reflected in the financial statements. A provision for state
income taxes is made where applicable.
Each partner of GUSA Ltd. is individually responsible for
reporting his share of federal taxable partnership income or
loss. Subsidiaries operating in foreign jurisdictions are
subject to corporate income tax in their respective
jurisdictions. Accordingly, a provision for foreign corporate
income taxes has been made for each company established in a
foreign jurisdiction, where applicable. A provision for state
income taxes is also made where applicable.
Certain of the Alamo Affiliated Companies described in note
1(a)(iv) are taxed as pass-through entities for U.S. income
tax purposes. As a pass-through company for U.S. income tax
purposes, each shareholder is individually responsible for
reporting his share of taxable income or loss. The companies
operating in foreign jurisdictions are subject to corporate
income tax in their respective jurisdictions. Accordingly, a
provision for foreign corporate income taxes has been made for
each company established in a foreign jurisdiction. A
provision for state income taxes is also made where applicable.
(I) FINANCIAL INSTRUMENTS
Certain of the Companies utilize interest rate swaps in the
management of interest rate risk. The differentials between
the amounts paid and received from these swaps are recognized
over the terms of the agreements and are recorded as
adjustments to interest expense. Amounts receivable or
payable under the agreements are included in other receivables
or accrued expenses in the combined balance sheets and were
not material at December 31, 1995 or 1994.
(J) ENVIRONMENTAL COSTS
Certain of the Companies' operations involve the storage and
dispensing of petroleum products, primarily gasoline. The
Companies record as expense, on a current basis, costs
associated with remediation of environmental pollution. The
Companies also accrue for their proportionate share of costs
associated with the remediation of environmental pollution
when it becomes probable that a liability has been incurred
and the amount can be reasonably estimated. Estimated costs
include anticipated site testing, consulting, remediation,
disposal, post-remediation monitoring and legal fees, as
appropriate. The liability does not reflect possible
recoveries from insurance companies or reimbursement of
remediation costs.
129 (Continued)
<PAGE> 131
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(K) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign affiliates are translated
into United States dollars at the current rates of exchange.
Income and expenses are translated at the average rate of
exchange in effect during the period. The related translation
adjustments are reported as a separate component of equity.
Foreign currency transaction gains and losses are included in
determining net income and are not material.
(L) ADVERTISING
The Companies expense the cost of advertising as incurred or
the first time advertising takes place. No advertising costs
were capitalized at December 31, 1995 or 1994. Advertising
expense (in thousands) was $60,288, $67,565 and $39,889 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(M) USE OF ESTIMATES
Management of the Companies have made a number of estimates
and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and
liabilities to prepare these financial statements in
conformity with generally accepted accounting principles.
Actual results could differ from those estimates.
(N) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed
of," which became effective for fiscal years beginning after
December 15, 1995. This standard establishes accounting
standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain
intangibles to be disposed of. The Companies believe that
adoption of this standard will not have a material impact on
the financial condition or operating results of the Companies.
(O) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial
statements to conform to the presentation used in 1995.
130 (Continued)
<PAGE> 132
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(2) INVESTMENTS
Investments have a maturity of three months or less and are classified
as held-to-maturity securities. Investments consist of the following
(in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Eurodollar deposits $26,727 $36,784
Repurchase agreements 24,000 --
Certificate of deposit 9,548 44,358
Commercial paper 2,221 3,521
U.S. treasury bills 130 1,580
Money Market 507 --
------- -------
$63,133 $86,243
======= =======
</TABLE>
Investments serve as collateral for irrevocable letters of credit
issued in favor of the Companies' liability insurance carriers.
Collateral equal to the stated amount of the letter of credit is
required. At December 31, 1995, letters of credit for $23.0, $3.7,
$3.5, and $1.6 million expire October 1, 1996. The Companies also
have a $7.6 million irrevocable letter of credit issued in connection
with airport facilities, expiring October 15, 1996, under which no
amounts were outstanding at December 31, 1995. The letter of credit
is secured by investments of $3.8 million. Repurchase agreements are
restricted for the settlement of specific estimated auto liability
claims.
(3) BUSINESS AND CREDIT CONCENTRATIONS
Business and credit concentrations for each of the Companies included
in the combined financial statements are as follows:
ALAMO - At December 31, 1995, the Company had 133 corporate
owned vehicle rental facilities at airport, near-airport and
downtown locations throughout the United States. The industry
in which Alamo operates is also highly seasonal. For the year
ended December 31, 1995, approximately 24% of Alamo's revenue
was generated in Florida.
Trade receivables (in thousands) include $32,999 and $22,706
from travel agents and tour operators at December 31, 1995 and
1994, respectively. Alamo holds minimum collateral in the
form of cash, letters of credit or insurance from most of
these vendors. Alamo continually evaluates the credit risk of
these customers and believes that its allowance for doubtful
accounts relative to its trade receivables is adequate.
Vehicle receivables (in thousands) include $52,314 and $82,830
from manufacturers at December 31, 1995 and 1994,
respectively. Vehicle receivables also include amounts due
from renters for damages incurred on revenue earning vehicles.
Other receivables (in thousands) include $1,041 and $8,535
from a manufacturer for vehicle incentives at December 31,
1995 and 1994, respectively.
131 (Continued)
<PAGE> 133
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
Alamo enters into vehicle repurchase programs with one
principal vehicle manufacturer, as well as other vehicle
manufacturers. During model year 1995, Alamo purchased
approximately 68% of its vehicle fleet under repurchase
programs with one vehicle manufacturer.
DKBERT - The majority of DKBERT's property is leased to Alamo,
which has guaranteed a substantial portion of DKBERT's
indebtness. DKBERT is economically dependent on Alamo for
rental income sufficient to service its indebtedness.
GUSA LTD. - At December 31, 1995, GUSA Ltd. had 55 corporate
owned locations including 28 in the United Kingdom, 22 in
Germany, 4 in Switzerland and 1 in Austria. In addition to
its corporate owned locations, GUSA Ltd.'s licensee network
operates 102 locations throughout Europe, including 86
locations in Germany. The industry in which GUSA Ltd.
operates is also seasonal.
Trade receivables (in thousands) include $23,677 and $16,703
from travel agents and tour operators at December 31, 1995 and
1994, respectively. GUSA Ltd. holds minimum collateral in the
form of cash, letters of credit or insurance from most of
these vendors. GUSA Ltd. continually evaluates the credit
risk of these customers and believes that its allowance for
doubtful accounts relative to its trade receivables is
adequate. Vehicle receivables (in thousands) include $12,442
and $7,409 from manufacturers at December 31, 1995 and 1994,
respectively.
During model year 1995, GUSA Ltd. purchased approximately 61%
of its vehicle fleet under repurchase programs with one
vehicle manufacturer.
ALAMO AFFILIATED COMPANIES - At December 31, 1995, the Alamo
Affiliated Companies had two corporate owned car rental
locations in Canada, one in Belgium, and one in The
Netherlands.
Trade receivables (in thousands) include $531 and $272 from
travel agents and tour operators at December 31, 1995 and
1994, respectively. The Alamo Affiliated Companies hold
minimum collateral in the form of cash, letters of credit or
insurance from most of these vendors. The Alamo Affiliated
Companies continually evaluates the credit risk of these
customers and believes that its allowance for doubtful
accounts relative to its trade receivables is adequate.
Vehicle receivables (in thousands) include $259 and $376 from
manufacturers at December 31, 1995 and 1994, respectively.
During model year 1995, Alamo Canada purchased 100% of its
vehicle fleet under repurchase programs with one vehicle
manufacturer. During model year 1995, Alamo Belgium purchased
100% of its vehicle fleet under repurchase programs with one
vehicle manufacturer.
132 (Continued)
<PAGE> 134
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(4) REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------
1995 1994
---- ----
<S> <C> <C>
Revenue earning vehicles $1,701,945 $1,870,795
Less accumulated depreciation (223,536) (138,280)
---------- ----------
$1,478,409 $1,732,515
========== ==========
</TABLE>
Revenue earning vehicles with depreciated cost of $1.31 billion and
$1.64 billion at December 31, 1995 and 1994, respectively were
acquired under programs that allow the Companies to require
counterparties to repurchase vehicles held for periods of up to
24 months. The Companies estimate the future value of revenue earning
vehicles under such repurchase programs to be $1.0 billion and $1.2
billion at December 31, 1995 and 1994, respectively. The agreements
contain varying mileage and damage limitations.
The Companies also lease vehicles under operating lease agreements
which require the Companies to provide normal maintenance and
liability coverage. The agreements generally have terms of 4 to 12
months. Many agreements provide for an option to terminate the leases
early and allow the purchase of leased vehicles subject to certain
restrictions. Most leases provide for an initial minimum monthly
charge, with contingent rental charges for changes in interest rates
and adjustments for wear, damage and mileage in excess of stipulated
amounts. Contingent rental charges totaled (in thousands) $13,191,
$2,774 and $1,983 for the years ended December 31, 1995, 1994 and
1993, respectively. Gains (losses) (in thousands) on sales of revenue
earning vehicles was $(6,431), $(852) and $871 for the years ended
December 31, 1995, 1994 and 1993, respectively.
133 (Continued)
<PAGE> 135
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(5) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994 Estimated
---- ---- Useful
Lives
-----
<S> <C> <C> <C>
Land $103,320 $103,133 --
Buildings 64,259 59,247 Up to 18 years
Lease rights 1,560 1,560 (1)
Leasehold improvements 83,773 68,953 (1)
Furniture, fixtures and equipment 55,685 49,868 Up to 10 years
Service vehicles 12,581 26,657 Up to 8 years
Construction in progress 1,276 2,521 --
-------- --------
322,454 311,939
Less accumulated depreciation and
amortization (108,469) (100,988)
-------- --------
$213,985 $210,951
======== ========
</TABLE>
(1) Shorter of the lease term or life of the assets, ranging from 10
to 20 years.
Depreciation expense (in thousands) was $22,006, $19,415 and $17,684
for the years ended December 31, 1995, 1994 and 1993, respectively.
DKBERT has an option to acquire real property in Fort Lauderdale,
Florida for $800,000 through January 1999, and a purchase agreement to
purchase additional real property for $2,079,000 (subsequently
purchased in 1996).
134 (Continued)
<PAGE> 136
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(6) LEASES
The Companies lease real property, equipment and software under
various operating leases with terms from 1 to 20 years. The Companies
have also entered into various airport concession and permit
agreements which generally provide for payment of a percentage of
gross revenue with a guaranteed minimum.
Expenses under real property, equipment and software leases and
airport concession agreements (excluding amounts charged through to
customers) for the years ended December 31, 1995, 1994 and 1993 were
as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Real property $16,783 $16,371 $17,980
Equipment and software 21,961 21,152 20,097
Airport concession and permit fees:
Minimum fixed obligations 46,061 36,328 27,912
Additional amounts, based on gross revenue 28,397 27,617 24,766
-------- -------- -------
Total $113,202 $101,468 $90,755
======== ======== =======
</TABLE>
Future minimum lease obligations under noncancelable real property and
equipment leases and airport agreements with initial terms in excess
of one year at December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
Real Equipment Airport
Property and Software Agreements Total
-------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Year ending December 31:
1996 $26,210 $15,230 $ 36,865 $ 78,305
1997 10,951 3,393 26,833 41,177
1998 7,339 2,554 21,446 31,339
1999 5,645 1,260 14,151 21,056
2000 4,700 1,260 10,685 16,645
Thereafter 17,819 -- 14,270 32,089
------- ------- -------- --------
$72,664 $23,697 $124,250 $220,611
======= ======= ======== ========
</TABLE>
The Companies have options to acquire or extend its leases through the
year 2002 on certain properties and has rights of first refusal on
certain other properties it currently leases.
135 (Continued)
<PAGE> 137
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(7) NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
Notes payable and lines of credit secured by revenue earning vehicles
consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
Alamo 1995 1994
----- ---- ----
<S> <C> <C>
Amounts under $750 million revolving credit agreement and
predecessor agreements with termination date of June 30,
1999; secured by eligible vehicle collateral and vehicle
receivable balances; interest for incremental borrowings at
formulas based on prime, fed funds or LIBOR at the
Companies' discretion $ 19,393 $ 364,385
Amounts under $580 million loan agreement with termination
date of June 17, 1996; secured by eligible vehicle
collateral and vehicle receivable balances; interest is
based on market dictated commercial paper rates 579,001 575,857
Senior secured notes payable with interest at fixed rates
ranging from 5.58% to 7.08% with various maturity dates
and amounts as follows: December 15, 1996 - $133 million;
December 15, 1997 - $25 million; December 15, 1998 - $113
million; December 15, 2000 - $94 million; and, December
15, 2003 - $80.5 million; secured by eligible vehicle
collateral and vehicle receivable balances 445,500 445,500
Amounts under $250 million loan agreement with termination
date of October 2, 1996; secured by eligible vehicle
collateral and vehicle receivable balances; interest is
based on market dictated commercial paper rates 236,357 247,965
</TABLE>
136 (Continued)
<PAGE> 138
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994
---- ----
<S> <C> <C>
Amounts under $90 million term loan and predecessor agreements
with maturity dates and amounts as follows: December 1, 1997 -
$15 million; December 1, 1998 - $75 million; secured by
eligible vehicle collateral and vehicle receivable balances;
interest at a formula based on LIBOR or prime at the
Companies' discretion $ 25,000 $ 24,000
Amounts to be financed after December 31 under various
revolving credit agreements 41,400 22,969
Other -- 6,806
---------- ----------
Alamo subtotal 1,346,651 1,687,482
GUSA Ltd.
---------
Amounts under various uncommitted revolving lease facilities
with financing institutions in Great Britain; secured by
eligible vehicle collateral; interest is based on an as quoted
basis dictated by market competition 126,874 37,372
Amounts outstanding to mature within six months; secured by
eligible vehicle collateral; interest is based on an as quoted
basis dictated by marketing competition 30,214 35,325
Amounts under deutsche mark (DM) 20,513,000 term loan and
predecessor agreements; secured by eligible vehicle collateral
and vehicle receivable balances; interest is based on FIBOR
plus 125 basis points or ICM rate plus 150 basis points 14,139 9,614
Amounts under DM 21,500,000 revolving credit agreement with
various maturity dates and amounts as follows (in thousands):
1995 - $11,233; 1996 - $835; 1997 - $70; and, 1998 - $220;
secured by eligible vehicle collateral and certain real
property; interest ranging from 4.75% - 9.0% 11,368 9,439
Other, including amounts to be financed after December 31,
under various revolving lease facilities 11,341 14,713
---------- ----------
GUSA Ltd. subtotal 193,936 106,463
---------- ----------
</TABLE>
137 (Continued)
<PAGE> 139
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31,
-------------------------
Alamo Affiliated Companies 1995 1994
-------------------------- ---- ----
<S> <C> <C>
Alamo Belgium
-------------
Amounts under Belgium Franc (BEF) 155,520,000 credit facility;
secured by eligible vehicle collateral; interest at Brussels
Interbank offered rate plus 110 basis points; termination
date, June 1996; guaranteed by Alamo $ 1,946 $ 857
Alamo Canada
------------
Amounts under Canadian dollar $10,000,000 credit agreement;
secured by eligible vehicle collateral; interest at Agent's
Bankers Acceptances plus 62.5 basis points; termination date,
June 1998; guaranteed by Alamo 3,539 --
Other 50 --
---------- ----------
Alamo Affiliated Companies subtotal 5,535 857
---------- ----------
Combined $1,546,122 $1,794,802
========== ==========
</TABLE>
Certain of the notes payable and lines of credit secured by revenue
earning vehicles contain various restrictive covenants, including
provisions relating to the maintenance of tangible net worth and debt
to tangible net worth ratios, incurrence of additional indebtedness,
and limitations on the payment of dividends and certain investments.
The effective economic interest rate on notes payable and lines of
credit secured by revenue earning vehicles was 6.94%, 6.02% and 5.45%
at December 31, 1995, 1994 and 1993, respectively.
The Companies have only limited involvement with derivative financial
instruments and do not use them for trading purposes. Interest
protection agreements with several counterparties are used to manage
the impact of interest rate changes. At December 31, 1995 and 1994,
Alamo effectively converted interest rates on the following notional
principal amounts (in thousands):
<TABLE>
<CAPTION>
December 31,
---------------------------- Latest
1995 1994 Maturity
---- ---- --------
<S> <C> <C> <C>
Variable-rate (capped) into fixed-rate
obligations $ 175,000 $ 75,000 February 1997
Variable-rate into fixed-rate obligations -- 100,000 September 1995
Fixed-rate into variable-rate obligations -- 125,000 December 1995
--------- ---------
Aggregate notional principal $ 175,000 $ 300,000
========= =========
</TABLE>
138 (Continued)
<PAGE> 140
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
At December 31, 1995, of the aggregate $175 million in interest swap
agreements, $150 million is paying at a fixed rate of 6.94%, receiving
at a variable rate which is capped at 7.75% and $25 million is paying
at an average fixed rate of 7.00%, receiving at a variable rate which
is capped at 7.90%. Alamo has also entered into an interest rate
protection agreement, which becomes effective January 1997, covering a
notional principal amount of $50 million, paying a fixed rate of
5.80%, receiving a floating rate which is capped at 7.50% and expiring
January 1998. The Companies are exposed to credit loss in the event
of nonperformance by the counterparties to the interest protection
agreements. The Companies do not anticipate nonperformance by the
counterparties because the agreements are with counterparties with a
short-term rating of no less than A-1 or P-1.
(8) OTHER DEBT
Other debt consists of the following (in thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
Alamo 1995 1994
----- ---- ----
<S> <C> <C>
Note payable to bank with interest at a formula based on LIBOR or
prime paid quarterly; secured by a building; principal payable in
quarterly installments beginning March 1996 and based on the
balance outstanding at that date, due December 2003 $ 8,700 $ 8,700
Note payable to bank with interest at optional variable rates;
secured by a portion of outstanding stock of one of the Companies;
payable in quarterly installments of $464,000 plus interest, paid
off and terminated in 1995 -- 4,642
Demand note payable to stockholder -- 350
---------- ----------
Alamo subtotal 8,700 13,692
---------- ----------
</TABLE>
139 (Continued)
<PAGE> 141
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<S> <C> <C>
DKBERT
------
Mortgages payable to GMAC and predecessor agreements with interest
at 9.193%; payable in monthly installments, due July 2005; secured
by real property guaranteed by Alamo $ 107,840 $ 69,335
Mortgages payable to bank with interest at 0.75% over prime; due
December 2000; secured by real property guaranteed by Alamo 934 1,136
Other 354 10,076
---------- ----------
DKBERT subtotal 109,128 80,547
---------- ----------
GUSA Ltd.
---------
Note payable to minority shareholder of a combined affiliate, in
connection with the purchase agreement; secured by a portion of
the outstanding stock of one of the Companies, due March 1996 3,722 5,322
Term loan agreement with bank, interest at LIBOR plus 125 basis
points, payable monthly; principal payable in quarterly
installments of $331,000, due January 1999; secured by non-vehicle
equipment, trade receivables and leasehold improvements 4,285 5,288
Amounts under Great Britain pound (GBP) 10,000,000 revolving
credit commitment to expire December 21, 1996; interest is based
on Sterling LIBOR plus 125 basis points or Base Rate plus 125
basis points; secured by non-vehicle equipment and leaseholds 11,431 9,708
Other -- 2,460
---------- ----------
GUSA Ltd. subtotal 19,438 22,778
---------- ----------
Alamo Affiliated Companies
--------------------------
GUSA Inc.
----------
Note payable issued in connection with asset purchase agreement;
unsecured, due October 1995 -- 246
---------- ----------
Alamo Affiliated Companies subtotal -- 246
---------- ----------
Combined $ 137,266 $ 117,263
========== ==========
</TABLE>
Certain of the other debt contains various restrictive covenants,
including provisions relating to the maintenance of tangible net worth
and debt to equity ratios, incurrence of additional indebtedness, and
limitations on the payment of dividends and certain investments.
140 (Continued)
<PAGE> 142
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
The effective economic interest rate on other debt was 8.64%, 7.33%
and 6.23% at December 31, 1995, 1994 and 1993, respectively.
The aggregate maturities of other debt at December 31, 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
Combined
Year ending December 31: --------
<S> <C>
1996 $ 20,384
1997 5,099
1998 5,312
1999 4,467
2000 4,411
Thereafter 97,593
---------
$ 137,266
=========
</TABLE>
(9) EQUITY
All of the Companies are affiliated through common ownership and
common management and the capital structures of all entities are
similar and not complex. Equity has been combined as follows (in
thousands):
<TABLE>
<CAPTION>
Additional
Common Paid-in Partners' Retained Translation
December 31, 1995 Stock Capital Capital Earnings Adjustment Total
----------------- ----- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Alamo US $ 1 $ 9,568 $ -- $ 73,114 $ -- $ 82,683
DKBERT -- -- 11,869 -- -- 11,869
Tower 1 -- -- (499) -- (498)
GUSA Inc. 1 1,257 -- (3,552) (47) (2,341)
GUSA Ltd. -- -- (29,326) -- 2,673 (26,653)
Green Corn -- 65 -- 480 -- 545
Alamo Belgium 1 581 -- (602) (16) (36)
Alamo Canada 1 199 -- (1,136) (25) (961)
Territory Blue -- -- -- -- -- --
---- ------- --------- -------- ----- --------
5 11,670 (17,457) 67,805 2,585 64,608
Eliminations -- (2,176) (145,462) 148,995 -- 1,357
---- ------- --------- -------- ----- --------
Total $ 5 $9,494 $(162,919) $216,800 $ 2,585 $ 65,965
==== ====== ========= ======== ======= ========
</TABLE>
141
(Continued)
<PAGE> 143
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Additional
Common Paid-in Partners' Retained Translation
December 31, 1994 Stock Capital Capital Earnings Adjustment Total
- ----------------- ----- ------- ------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Alamo US $ 1 $ 6,492 $ -- $111,842 $ -- $ 118,335
DKBERT -- -- 15,949 -- -- 15,949
Tower 1 -- -- 799 -- 800
GUSA Inc. 1 1,257 -- (2,486) (38) (1,266)
GUSA Ltd. -- -- (10,849) -- 2,859 (7,990)
Green Corn -- 57 -- 464 -- 521
Alamo Belgium 1 581 -- (257) (41) 284
---- -------- --------- -------- ------- ---------
4 8,387 5,100 110,362 2,780 126,633
Eliminations -- -- (151,213) 152,425 -- 1,212
---- -------- --------- -------- ------- ---------
Total $ 4 $ 8,387 $(146,113) $262,787 $ 2,780 $ 127,845
==== ======== ========= ======== ======= =========
</TABLE>
(10) PROFIT SHARING AND RETIREMENT PLANS
Certain of the Companies have a defined contribution retirement plan
offered to all employees after twelve months of service. Certain
employee contributions may be matched and additional amounts may be
contributed to the plan at the discretion of the Board of Directors.
Contributions by the Companies (in thousands) were $1,467, $2,994, and
$2,838 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(11) RELATED PARTY TRANSACTIONS
The following table summarizes business transactions (in thousands)
with uncombined affiliates for the years ended December 31, 1995, 1994
and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Revenue earning vehicle purchases (1) $ 351,755 $ 551,157 $ 576,895
=========== ============ ===========
Vehicle revenue 8,504 8,151 6,923
=========== ============ ===========
Vehicle lease expense -- -- 1,618
=========== ============ ===========
Selling, general and administrative 1,021 616 467
=========== ============ ===========
Interest expense 499 460 361
=========== ============ ===========
Legal and consulting services 6,250 6,914 6,008
=========== ============ ===========
</TABLE>
(1) Alamo purchases certain of its rental vehicles from a group of
dealerships owned primarily by a director of Alamo. Pursuant
to an automobile purchase agreement which expired on December
31, 1995, Alamo-US agreed to purchase and/or lease a minimum
number of vehicles and pay to these dealerships a specific
amount (in addition to the manufacturer's sales price) for
each vehicle purchased. Although Alamo does not expect to
renew this agreement to purchase and/or lease a minimum number
of vehicles, it intends to purchase vehicles on an annual
basis from these dealerships, and to continue its agreement to
pay these dealerships a specified amount (in addition to the
manufacturer's sales price) for any vehicle purchased.
142
(Continued)
<PAGE> 144
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
The following table summarizes account balances (in thousands) with
uncombined affiliates at December 31, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C> <C>
Prepaid expenses and other assets and rent deposits
$ -- $ 345
========== ===============
Accounts payable 442 593
========== ===============
</TABLE>
Certain of the Companies guarantee the mortgage of Tripperoo Wings,
Inc., an uncombined affiliate, which had a balance of $7.0 million and
$7.8 million at December 31, 1995 and 1994, respectively.
(12) INCOME TAXES
As described in note 1(h), a tax provision is provided for each
company that is subject to corporate income taxes. The tax effects of
temporary differences that give rise to significant portions of the
deferred assets and liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
December 31,
--------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 9,969 $ 6,976 $ 5,304
--------- ---- ----
Total gross deferred tax assets 9,969 6,976 5,304
Less valuation allowances (9,204) (5,125) (3,140)
--------- ---- ----
Net deferred tax assets 765 1,851 2,164
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 765 1,851 2,164
--------- ---- ----
Total gross deferred tax liabilities 765 1,851 2,164
--------- ---- ----
Net deferred tax liability $ -- $ -- $ --
========= ==== ====
</TABLE>
As of December 31, 1995, 1994 and 1993, certain of the Companies had
foreign net operating loss carryforwards available to offset future
taxable income (in thousands) of $25,036, $18,660 and $15,300,
respectively. The income tax benefit associated with the net
operating loss carryforwards has been fully offset by a valuation
allowance in the accompanying financial statements. In assessing the
realizability of deferred tax assets, management considers whether it
is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income.
143
(Continued)
<PAGE> 145
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
For U.S. income tax purposes, certain of the pass-through Companies
use accelerated methods of depreciation for reporting income or loss,
which is passed through to their owners. The tax effect of the
cumulative gross temporary differences at December 31, 1995, 1994 and
1993 was $37.3, $38.5 and $29.4 million, respectively. Although
management has no intention to do so, if certain of the Companies
should terminate their pass-through status, additional state and
federal deferred income taxes attributable to the temporary
differences at the time of termination would be recorded as a deferred
tax liability with a corresponding reduction in net income. Assuming
termination of their pass-through status, this amount would be payable
in future years as the net accumulated temporary differences reverse.
State income tax expense recorded by certain of the Companies was (in
thousands) of $200, $985 and $1,600 for the years ended December 31,
1995, 1994 and 1993, respectively.
As a matter of policy, the board of directors declares capital
distributions or dividends to allow payments for the owners' income
taxes on the Companies' earnings.
(13) ACQUISITION
Effective December 31, 1994, a subsidiary of GUSA Ltd. acquired
approximately 75% of the outstanding capital stock of Dose and Peters,
GmbH, a German company with car rental operations in Germany for DM
21.3 million ($13.7 million). The purchase price consisted of cash in
the amount of DM 8.3 million, ($5.4 million), the assumption of net
liabilities of DM 7.6 million ($4.9 million) and a note payable due in
December 1995 (subsequently extended to April 1996) of DM 5.4 million,
($3.5 million). The acquisition was accounted for using the purchase
method. Accordingly, the purchase price was allocated to assets and
liabilities acquired based on their estimated fair values. The excess
of the purchase price over the fair values of acquired assets and
liabilities amounted to approximately DM 21.3 million ($13.7 million),
which has been accounted for as goodwill and is being amortized over
15 years using the straight-line method.
On April 19, 1996, GUSA Ltd. reached an agreement with the minority
shareholder of Dose and Peters, GmbH whereby the minority
shareholder's obligation to fund his proportionate share of the losses
incurred in 1995 was forgiven in exchange for a dilution of the
minority shareholder's investment to approximately 16%. This resulted
in the Company's recognition of DM 17.5 million ($12.2 million) of the
Dose and Peters, GmbH 1995 loss. The minority shareholder has also
agreed to fund up to DM 960,000 of 1996 calendar year losses.
Pursuant to the shareholders agreement, if additional funds are
required for the business of the Company, each shareholder, if
requested, shall contribute their respective share. If a shareholder
fails to meet required contributions, the contributing shareholder may
either elect to treat his contribution as a loan or receive additional
shares. From the date of the purchase agreement to December 31, 1997,
the value of Dose and Peters is deemed to be DM 25,000,000, or as may
be unanimously agreed to by the shareholders at lease annually. If no
value is agreed to by the shareholders for an annual period when a
value must be determined, the value shall continue to be the last
value established by the shareholders.
Pursuant to the purchase agreement, from December 1, 1997 through
November 30, 2000, the subsidiary may elect to purchase the minority
shareholders' interests or the minority shareholder may elect to have
the subsidiary purchase his interest. Such agreement provides that
the value of the acquired company will be DM 50,000,000 for purposes
of the subsidiary election and will be DM 16,666,667 for purposes of
the minority shareholder's election.
Pro forma unaudited combined operating results of the Companies and
Dose and Peters, GmbH for the years ended December 31, 1994 and 1993,
assuming the acquisition had been made as of the beginning of the
periods presented, are summarized below (in thousands):
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Revenue $1,337,690 $1,174,289
========== ==========
Net Income (loss) 22,533 30,084
========== ==========
</TABLE>
These pro forma results have been prepared for comparative purposes only and
are not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of January 1, 1993, nor are
they necessarily indicative of future operating results.
144
(Continued)
<PAGE> 146
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, investments,
receivables, other assets (excluding goodwill, intangibles and
deferred costs), accounts payable, accrued expenses (nonderivatives)
and customer deposits, approximates fair value because of the short
maturity of these instruments.
Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instrument. These
estimates are subjective in nature and involve uncertainties and
matters of significant judgment, and therefore cannot be determined
with precision. The assumptions used have a significant effect on the
estimated amounts reported.
The Companies have interest protection agreements with several
counterparties to manage the impact of interest rate changes. The
estimated fair values of the interest protection agreements were
determined from dealer quotations and represent the discounted future
cash flows through maturity or expiration using current rates, and are
effectively the amounts Alamo would pay or receive to terminate the
agreements. The estimated fair values of the interest rate protection
agreements at December 31, 1995 and 1994 was a net payable position
(in thousands) of $(3,479) and $(2,247), respectively.
The estimated fair value of the Alamo's secured notes payable at
December 31, 1995 and 1994 (in thousands) was $440,506 and $401,885,
respectively. The carrying amount (in thousands) was $445,500 for
each period. The estimated fair value of DKBERT's mortgages payable
to GMAC at December 31, 1995 and 1994 was (in thousands) $109,000 and
$70,368, respectively. Estimated fair values were estimated by
discounting expected cash flows at the rates currently offered to
Alamo for debt of similar terms and remaining maturities. The
carrying amount of the remaining debt approximates fair value because
interest rates are variable and, accordingly, approximate current
market rates.
(15) QUARTERLY DATA (UNAUDITED)
The industry in which the Companies operate, particularly the leisure
travel segment, is highly seasonal. The Companies' third quarter,
which includes the peak summer travel months, has historically been
the strongest quarter of the year. During the peak season the
Companies increase their fleet and workforce to accommodate increased
rental activity. The Companies' results during the first and fourth
quarters are generally their weakest, when there is limited leisure
family travel and a greater potential for adverse weather conditions.
Many of the Companies' operating expenses such as rent, general
insurance and administrative personnel are fixed and cannot be reduced
during periods of decreased rental demand.
In connection with an agreement dated April 19, 1996, the fourth
quarter of 1995 included the recognition of approximately $2.6 million
of losses originally attributable to the minority shareholder of Dose
and Peters, GmbH. See note 13.
<TABLE>
<CAPTION>
Quarters
----------------------------------------------------------
First Second Third Fourth
----- ------ ----- ------
(in thousands)
<S> <C> <C> <C> <C>
Revenue:
1995 $ 301,721 $ 340,079 $ 429,106 $ 326,947
1994 271,008 313,710 419,529 313,514
Net income (loss):
1995 (29,301) (15,436) 23,164 (28,006)
1994 (1,304) 2,963 37,695 (14,437)
</TABLE>
145
(Continued)
<PAGE> 147
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
(16) SUPPLEMENTAL FINANCIAL DATA (IN THOUSANDS)
BALANCE SHEET:
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Assets $ 1,805,783 $ 250,334 $ (55,372) $ 2,000,745
=========== ========== ======== =============
Liabilities 1,732,611 264,096 (61,927) 1,934,780
Equity 73,172 (13,762) 6,555 65,965
=========== ========== ======== =============
$ 1,805,783 $ 250,334 $ (55,372) $ 2,000,745
=========== ========== ======== =============
<CAPTION>
December 31, 1994
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
Assets $ 2,165,884 $ 173,299 $(28,735) $ 2,310,448
=========== ========== ======== =============
Liabilities 2,032,451 168,597 (19,097) 2,181,951
Minority interest -- 652 -- 652
Equity 133,433 4,050 (9,638) 127,845
=========== ========== ======== =============
$ 2,165,884 $ 173,299 $(28,735) $ 2,310,448
=========== ========== ======== =============
<CAPTION>
December 31, 1993
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Assets $ 1,882,503 $ 72,017 $(12,303) $ 1,942,217
=========== ========== ======== =============
Liabilities 1,767,108 80,827 (15,950) 1,831,985
Equity 115,395 (8,810) 3,647 110,232
=========== ========== ======== =============
$ 1,882,503 $ 72,017 $(12,303) $ 1,942,217
=========== ========== ======== =============
INCOME STATEMENT AND CASH FLOW:
<CAPTION>
December 31, 1995
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 1,268,302 $ 138,956 $ (9,405) $ 1,397,853
=========== ========== ======== =============
Net income (loss) $ (48,201) $ (18,422) $ 17,044 $ (49,579)
=========== ========== ======== =============
Cash flows from operating
activities $ 359,142 $ 12,090 $ 5,368 $ 376,600
=========== ========== ======== =============
</TABLE>
146
(Continued)
<PAGE> 148
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
December 31, 1994
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 1,242,164 $ 79,441 $ (3,844) $ 1,317,761
=========== ========= ========== =============
Net income $ 25,048 $ 611 $ (742) $ 24,917
=========== ========= ========== =============
Cash flows from operating
activities $ 375,811 $ 13,725 $ 5,111 $ 394,647
=========== ========= ========== =============
<CAPTION>
December 31, 1993
--------------------------------------------------------------------
European
Operating Combined
Issuers (1) Subsidiaries(2) Eliminations Issuers
----------- --------------- ------------ --------------
<S> <C> <C> <C> <C>
Revenue $ 1,103,853 $ 59,348 $ (10,239) $ 1,152,962
=========== ========= ========== =============
Net income $ 31,497 $ 3,947 $ (3,948) $ 31,496
=========== ========= ========== =============
Cash flows from operating
activities $ 335,695 $ 3,726 $ 1,481 $ 340,902
=========== ========= ========== =============
</TABLE>
(1) Represents the entities which are the issuers of the Senior
Notes referred to in Note 18.
(2) Represents the European operating subsidiaries of certain of
the issuers.
(17) COMMITMENTS AND CONTINGENCIES
The Companies have entered into agreements with vehicle manufacturers
under which ultimate realization of incentives is dependent on
attaining certain volume purchase and vehicle mix requirements.
The Companies have a $15 million working capital line of credit
expiring April 12, 1996, under which no amounts were outstanding at
December 31, 1995.
In August 1995, Alamo entered into a ten-year lease agreement from an
unrelated party for its Fort Lauderdale, Florida corporate
headquarters facility. The lease agreement provides for minimum
monthly lease payments of approximately $227,000 payable from October
1995 through September 2005. The lease agreement contains an option
to purchase the property over the lease term for a base amount plus
the outstanding balance on the lessor's mortgage loan, as defined in
the lease agreement. At the end of the lease term, Alamo must either
purchase the property for $17.4 million or terminate the lease upon
payment to the lessor of approximately $10 million. Under certain
conditions, if the lease is terminated and the property is sold, all
or a portion of the $10 million payment may be refunded to Alamo. In
addition, Alamo and DKBERT have guaranteed a portion of the lessor's
mortgage loan, which guarantee totaled $19.7 million at December 31,
1995.
147
(Continued)
<PAGE> 149
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
In 1995, the Companies entered into employment agreements with certain
of its executive officers which provide for aggregate compensation of
$6,875,000 for the years from 1996 through 2000. These agreements
also provide for minimum additional aggregate compensation of
$1,750,000 through 1997, and provide for adjustments to salary and
bonuses based on certain performance criteria.
Certain of the Companies entered into management agreements with
Rising Moon Inc., an entity controlled by the majority shareholder of
Alamo. Commencing January 1, 1996, Rising Moon Inc. will provide
strategic market planning, executive resource management, oversight
and steering, legal consulting and certain other services to the
Companies. In consideration for these services, certain of the
Companies will pay an aggregate base amount of $6 million in 1996
(which amount will be increased annually by 5%), and a payment of
13.4% of combined net profits before taxes, as defined, subject to
certain adjustments. The agreements will terminate on June 30, 2006,
subject to one-year renewals, and upon certain other events.
The Companies are party to various claims and legal actions involving
automobile liability and personal injury claims, employee grievances,
trade practices and other matters arising in the ordinary course of
business. In some cases, plaintiffs are seeking compensatory and
punitive damages. It is the opinion of management of the Companies
that the ultimate disposition of these matters will not have a
material adverse effect on the Companies' financial condition or
results of operations.
(18) Subsequent Events
On February 12, 1996, the Companies completed their offering of $100
million of 11.75% Senior Notes due January 31, 2006 ("Senior Notes")
on Form S-1 with the Securities and Exchange Commission. Semiannual
interest payments are due January 31 and July 31 of each year
commencing July 31, 1996. The Senior Notes are unsecured joint and
several obligations of each of the Companies.
On November 25, 1996, the Companies and certain affiliated entities
entered into a definitive merger agreement with Republic Industries,
Inc. The transaction is valued at $625 million and will be accounted
for under the pooling of interests method of accounting. On November
26, 1996, the Companies announced a tender offer for all $100 million
Senior Notes due January 31, 2006.
148
<PAGE> 150
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED CONDENSED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents............................................ $ 35,289 $ 11,953
Investments.......................................................... 59,160 62,626
Receivables:
Trade, less allowance for doubtful accounts of $3,897 and $5,214 in
1996 and 1995, respectively..................................... 100,666 67,418
Vehicle............................................................ 141,605 94,408
Notes, mortgages and other due from affiliates..................... 5,468 2,409
Other.............................................................. 12,631 7,775
---------- ----------
260,370 172,010
---------- ----------
Revenue earning vehicles, net........................................ 2,201,583 1,478,409
Property and equipment, net.......................................... 215,800 213,985
Other assets......................................................... 103,007 61,762
---------- ----------
$ 2,875,209 $2,000,745
========== ==========
LIABILITIES AND EQUITY
Notes payable and lines of credit secured by revenue earning
vehicles........................................................... $ 2,254,703 $1,546,122
Estimated auto liability claims...................................... 125,761 112,448
Accounts payable to affiliates....................................... 3,892 1,677
Accounts payable..................................................... 136,793 116,374
Other debt........................................................... 233,606 137,266
Accrued expenses..................................................... 50,552 11,050
Customer deposits.................................................... 9,462 9,843
---------- ----------
Total liabilities.......................................... 2,814,769 1,934,780
---------- ----------
Minority interest (deficiency in assets)............................. (259) --
Equity:
Common stock....................................................... 5 5
Additional paid-in capital......................................... 9,494 9,494
Retained earnings and partners' capital............................ 48,885 53,881
Cumulative translation adjustment.................................. 2,315 2,585
---------- ----------
Total equity............................................... 60,699 65,965
---------- ----------
$ 2,875,209 $2,000,745
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
149
<PAGE> 151
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- ------------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Vehicle rentals............................... $469,680 $426,429 $1,170,360 $1,065,501
Interest...................................... 1,577 690 3,551 3,537
Revenue from affiliates....................... 428 -- 1,053 --
Other......................................... 1,432 804 2,784 1,868
-------- -------- ---------- ----------
473,117 427,923 1,177,748 1,070,906
-------- -------- ---------- ----------
Costs and expenses:
Vehicle depreciation.......................... 129,286 118,532 325,144 300,436
Vehicle interest.............................. 37,589 35,846 93,153 97,073
Vehicle leases................................ 9,554 21,814 19,208 52,884
Selling, general and administrative........... 265,681 227,412 712,410 635,274
Other interest................................ 6,493 3,335 18,279 8,800
Minority interest in net loss of consolidated
subsidiaries............................... -- (827) (653) (1,988)
-------- -------- ---------- ----------
448,603 406,112 1,167,541 1,092,479
-------- -------- ---------- ----------
Net income (loss)..................... $ 24,514 $ 21,811 $ 10,207 $ (21,573)
======== ======== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
150
<PAGE> 152
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities.............................. $ 341,499 $ 301,834
----------- -----------
Cash flows from investing activities:
Cash received from sale of revenue earning vehicles............. 1,281,044 1,580,650
Cash paid to suppliers of revenue earning vehicles.............. (2,376,575) (1,961,988)
Sale of investments............................................. 3,466 22,252
Capital expenditures............................................ (19,629) (27,185)
Proceeds from sale of property and equipment.................... 3,112 855
----------- -----------
Net cash used in investing activities................... (1,108,582) (385,416)
----------- -----------
Cash flows from financing activities:
Proceeds from revenue earning vehicle financing................. 2,427,356 2,002,832
Principal payments on revenue earning vehicle financing......... (1,717,883) (1,933,683)
Proceeds from other debt........................................ 104,529 52,812
Principal payments on other debt................................ (8,240) (28,732)
Dividends and distributions..................................... (15,203) (11,258)
Contributions................................................... -- 1,108
----------- -----------
Net cash provided by financing activities............... 790,559 83,079
----------- -----------
Effect of exchange rate changes on cash........................... (140) 1,887
----------- -----------
Net increase in cash and cash equivalents......................... 23,336 1,384
Cash and cash equivalents at beginning of period.................. 11,953 15,698
----------- -----------
Cash and cash equivalents at end of period........................ $ 35,289 $ 17,082
=========== ===========
Supplemental disclosures:
Interest paid................................................... $ 99,405 $ 95,657
=========== ===========
Income tax payments............................................. $ 399 $ 930
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
151
<PAGE> 153
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) INTERIM FINANCIAL STATEMENTS AND BASIS OF PRESENTATION
The accompanying condensed financial statements include the accounts of the
following entities, each entity affiliated with each other as a result of common
ownership and common management: (i) Alamo Rent-A-Car, Inc. and Affiliate
(Alamo), (ii) DKBERT, Assoc., (DKBERT), (iii) Guy Salmon USA, Ltd. and
Subsidiaries (GUSA Ltd.), and (iv) Alamo Rent-A-Car (Belgium), Inc. (Alamo
Belgium), Alamo Rent-A-Car (Canada), Inc. (Alamo Canada), Green Corn, Inc.
(Green Corn), Guy Salmon (USA), Inc. (GUSA Inc.), Territory Blue, Inc.
(Territory Blue), and Tower Advertising Group, Inc. (Tower) (collectively, the
Alamo Affiliated Companies). The combined financial statements of each of the
above entities (collectively referred to as the "Companies") include the
accounts of the Companies and their respective majority-owned subsidiaries.
All significant intercompany accounts and transactions are eliminated in
combination. The following is a description of the financial statements included
in the accompanying combined financial statements:
(i) The consolidated financial statements of Alamo and Alamo Funding,
L.P. (AFL). Alamo has a 99 percent limited partnership interest in AFL and
AFL's 1 percent general partner is a corporation owned by the shareholders
of Alamo. All significant intercompany balances and transactions have been
eliminated in consolidation. Alamo is engaged in the car rental business
throughout the United States, primarily on a daily or weekly basis. AFL
provides financing to Alamo for the financing or refinancing of revenue
earning vehicles. AFL and Alamo have separate corporate existences and
separate financial conditions and records. The assets of AFL will be
available only to satisfy the claims of its creditors and will not be
available to any creditors of Alamo or its other affiliates.
(ii) The financial statements of DKBERT, a Florida partnership, which
owns and leases real property. DKBERT is economically dependent on Alamo
for rental income sufficient to service its indebtedness.
(iii) The consolidated financial statements of GUSA Ltd., a Florida
limited partnership and the holding company for certain European car rental
affiliates of Alamo. The subsidiaries of GUSA Ltd. are (i) Alamo Rent-A-Car
(UK) Limited, which conducts operations in the United Kingdom; (ii) Alamo
Rent-A-Car, AG, Zurich which conducts Swiss operations; (iii) Alamo
Autovermietung GmbH, which conducts German operations; and (iv) Alamo
Rent-A-Car (Vienna) GmbH, organized April 1995 and closed April 1996. All
significant intercompany balances and transactions have been eliminated in
consolidation. GUSA Ltd. and its subsidiaries are economically dependent on
Alamo for administrative support and working capital required to supplement
its cash flow needs and to provide interim funding for capital
expenditures.
(iv) The combined financial statements of the Alamo Affiliated
Companies, as follows: (i) Alamo Belgium which conducts car rental
operations in Belgium; (ii) Alamo Canada which conducts car rental
operations in Canada; (iii) Green Corn, an entity with limited assets; (iv)
GUSA Inc., which owns 79% of Alamo Rent-A-Car B.V. which conducts car
rental operations in The Netherlands and also owns a minority interest in
GUSA Ltd.; (v) Territory Blue, a management company which contracts with
certain employees of Alamo and offers management services to certain other
entities; and (vi) Tower, which provides advertising services to Alamo. The
combined financial statements include the accounts of the Alamo Affiliated
Companies and their majority-owned subsidiaries. Minority interest
represents GUSA Ltd.'s 21% ownership in Alamo Rent-A-Car B.V. All
significant intercompany accounts and transactions are eliminated in
combination. The Alamo Affiliated Companies are economically dependent on
Alamo for administrative support and working capital required to supplement
their cash flow needs and to provide interim funding for capital
expenditures.
152
<PAGE> 154
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The accompanying unaudited combined condensed financial statements have
been prepared by the Companies in accordance with the accounting policies
described in the 1995 Annual Report and should be read in conjunction with the
combined financial statements and notes which appear in that report. These
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all normal recurring adjustments considered necessary
for a fair presentation have been included.
(B) RECLASSIFICATIONS
Certain reclassifications have been made to the 1995 financial statements
to conform to the presentation used in 1996.
(2) REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following (in thousands):
<TABLE>
<CAPTION>
ALAMO
GUSA AFFILIATED
ALAMO LTD. COMPANIES COMBINED
---------- -------- --------- ----------
<S> <C> <C> <C> <C>
AS OF SEPTEMBER 30, 1996
Revenue earning vehicles................... $2,228,650 $212,207 $18,383 $2,459,240
Less accumulated depreciation.............. (235,997) (20,466) (1,194) (257,657)
---------- -------- ------- ----------
$1,992,653 $191,741 $17,189 $2,201,583
========== ======== ======= ==========
AS OF DECEMBER 31, 1995
Revenue earning vehicles................... $1,539,814 $156,113 $ 6,018 $1,701,945
Less accumulated depreciation.............. (212,242) (10,572) (722) (223,536)
---------- -------- ------- ----------
$1,327,572 $145,541 $ 5,296 $1,478,409
========== ======== ======= ==========
</TABLE>
(3) NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
Notes payable and lines of credit secured by revenue earning vehicles
consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Alamo
------------------------------------------------------------
Amounts under $750 million revolving credit agreement and
predecessor agreements with termination date of June 30,
1999; secured by eligible vehicle collateral and vehicle
receivable balances; interest at formulas based on prime,
Federal funds or LIBOR at Alamo's discretion.............. $ 576,995 $ 19,393
Amounts under $580 million loan agreement with termination
date of June 10, 1997; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates................. 576,232 579,001
</TABLE>
153
<PAGE> 155
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Senior secured notes payable with interest at fixed rates
ranging from 5.58% to 7.08% with various maturity dates
and amounts as follows: December 15, 1996 -- $133 million;
December 15, 1997 -- $25 million; December 15,
1998 -- $113 million; December 15, 2000 -- $94 million;
and, December 15, 2003 -- $80.5 million; secured by
eligible vehicle collateral and vehicle receivable
balances.................................................. $ 445,500 $ 445,500
Amounts under $250 million loan agreement with termination
date of September 19, 1997; secured by eligible vehicle
collateral and vehicle receivable balances; interest based
on market dictated commercial paper rates................. 246,982 236,357
Amounts under $175 million revolving credit agreement and
predecessor agreements with termination date of December
1, 1997; secured by eligible vehicle collateral and
vehicle receivable balances; interest at formulas based on
prime or LIBOR at Alamo's discretion...................... 134,000 --
Amounts to be financed after period end under various
revolving credit agreements............................... 46,038 66,400
------------- ------------
Alamo subtotal.................................... 2,025,747 1,346,651
------------- ------------
GUSA Ltd.
------------------------------------------------------------
Amounts under various uncommitted revolving lease facilities
with financing institutions in Great Britain; secured by
eligible vehicle collateral; interest based on an as
quoted basis dictated by market competition; no stated
expiration dates, reviewed annually....................... $ 167,998 $ 157,088
Amounts under deutsche mark (DM) 27.5 million credit
agreement; secured by eligible vehicle collateral and
vehicle receivable balances; interest based on LIBOR;
termination date, February 1997........................... 17,351 --
Amounts under DM 23.0 million revolving credit agreement
with various maturity dates; secured by eligible vehicle
collateral and certain real property; interest ranging
from 3.8%-9.0%............................................ 13,100 11,368
Amounts under DM term loan and predecessor agreements;
secured by eligible vehicle collateral and vehicle
receivable balances; interest based on FIBOR plus 125
basis points or ICM rate plus 150 basis points............ -- 14,139
Other, including amounts to be financed after period end,
under various revolving lease facilities.................. 9,932 11,341
------------- ------------
GUSA Ltd. subtotal................................ 208,381 193,936
------------- ------------
</TABLE>
154
<PAGE> 156
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Alamo Affiliated Companies
------------------------------------------------------------
Amounts under Belgium franc (BEF) 155.52 million credit
facility; secured by eligible vehicle collateral; interest
at Brussels Interbank offered rate plus 110 basis points;
termination date, June 1997; guaranteed by Alamo.......... $ 4,326 $ 1,946
Amounts under Canadian dollar C$20.0 million credit
agreement; secured by eligible vehicle collateral;
interest at Agent's Bankers Acceptances plus 62.5 basis
points; termination date, June 1998; guaranteed by
Alamo..................................................... 11,791 3,539
Other, including amounts to be financed after period end,
under various revolving credit agreements................. 4,458 50
------------- ------------
Alamo Affiliated Companies subtotal............... 20,575 5,535
------------- ------------
Combined.......................................... $ 2,254,703 $1,546,122
============= ============
</TABLE>
(4) OTHER DEBT
Other debt consists of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Alamo
------------------------------------------------------------
11 3/4% Senior Notes due 2006, interest payable
semi-annually on January 31 and July 31 of each year,
commencing July 31, 1996; unsecured....................... $ 90,000 $ --
Note payable to bank with interest at a formula based on
LIBOR or prime paid quarterly; secured by a building;
principal payable in quarterly installments beginning
March 1996 and based on the balance outstanding at that
date, due December 2003................................... 7,800 8,700
------------- ------------
Alamo subtotal.................................... 97,800 8,700
------------- ------------
DKBERT
------------------------------------------------------------
Mortgages payable to GMAC and predecessor agreements with
interest at 9.193%; payable in monthly installments, due
July 2005; secured by real property; guaranteed by
Alamo..................................................... 108,169 107,840
11 3/4% Senior Notes due 2006, interest payable
semi-annually on January 31 and July 31 of each year,
commencing July 31, 1996; unsecured....................... 10,000 --
Mortgages payable to bank with interest at 0.75% over prime;
variable principal payments due December 2000; secured by
real property; guaranteed by Alamo........................ 779 934
Other mortgages payable..................................... -- 354
------------- ------------
DKBERT subtotal................................... 118,948 109,128
------------- ------------
GUSA LTD.
------------------------------------------------------------
Term loan agreement with bank, interest at LIBOR plus 125
basis points, payable monthly; principal payable in
quarterly installments of $331,000, due January 1999;
secured by non-vehicle equipment, trade receivables and
leasehold improvements.................................... $ 3,295 $ 4,285
</TABLE>
155
<PAGE> 157
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Amounts under Great Britain pound (GBP) 10 million revolving
credit commitment to expire December 21, 1996; interest
based on Sterling LIBOR plus 125 basis points or base rate
plus 125 basis points; secured by non-vehicle equipment
and leaseholds............................................ $ 13,563 $ 11,431
Note payable to minority shareholder of combined affiliate,
paid April 1996........................................... -- 3,722
------------- ------------
GUSA Ltd. subtotal................................ 16,858 19,438
------------- ------------
Combined.......................................... $ 233,606 $ 137,266
============= ============
</TABLE>
The 11 3/4% Senior Notes due 2006 (the "Senior Notes") were issued by the
entities described in Note 1 (the "Issuers") in connection with a registration
statement on Form S-1 with the Securities and Exchange Commission. The Senior
Notes are unsecured, joint and several obligations of each of the Issuers and
rank pari passu in right of payment with all existing and future debt (as
defined) of the Issuers. The Senior Notes are effectively subordinated to all
existing and future secured indebtedness of each of the Issuers.
156
<PAGE> 158
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
(5) SUPPLEMENTAL FINANCIAL DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
EUROPEAN
OPERATING COMBINED
ISSUERS(1) SUBSIDIARIES(2) ELIMINATIONS ISSUERS
---------- --------------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE SHEET:
September 30, 1996
Assets...................................... $2,626,061 $ 276,661 $ (27,513) $2,875,209
========= =========== ========= =========
Liabilities................................. $2,565,330 $ 299,888 $ (50,449) $2,814,769
Minority interest........................... -- (259) -- (259)
Equity...................................... 60,731 (22,968) 22,936 60,699
---------- --------------- ------------ ----------
$2,626,061 $ 276,661 $ (27,513) $2,875,209
========= =========== ========= =========
December 31, 1995
Assets...................................... $1,805,783 $ 250,334 $ (55,372) $2,000,745
========= =========== ========= =========
Liabilities................................. $1,732,611 $ 264,096 $ (61,927) $1,934,780
Equity...................................... 73,172 (13,762) 6,555 65,965
---------- --------------- ------------ ----------
$1,805,783 $ 250,334 $ (55,372) $2,000,745
========= =========== ========= =========
INCOME STATEMENT AND CASH FLOWS:
Nine months ended
September 30, 1996
Revenue..................................... $1,066,674 $ 114,423 $ (3,349) $1,177,748
Net income (loss)........................... 23,840 (9,394) (4,239) 10,207
Cash flows from operating activities........ 304,736 44,157 (7,394) 341,499
September 30, 1995
Revenue..................................... $ 969,155 $ 104,033 $ (2,282) $1,070,906
Net income (loss)........................... (22,837) (4,695) 5,959 (21,573)
Cash flows from operating activities........ 295,480 2,308 4,046 301,834
</TABLE>
- ---------------
(1) Represents the entities which are the issuers of the Senior
Notes -- referred to in note 4.
(2) Represents the European operating subsidiaries of certain of the issuers.
(6) SUBSEQUENT EVENT
On November 25, 1996, the Companies and certain affiliated entities
entered into a definitive merger agreement with Republic Industries, Inc. The
transaction is valued at $625 million and will be accounted for under the
pooling of interests method of accounting. On November 26, 1996, the
Companies announced a tender offer for all $100 million Senior Notes due
January 31, 2006.
157
<PAGE> 159
INDEPENDENT AUDITOR'S REPORT
Republic Industries, Inc.
Ft. Lauderdale, Florida
We have audited the accompanying combined balance sheet of Acquired Solid
Waste Companies as of December 31, 1995, and the related combined statements of
operations, equity, and cash flows for the year then ended. These combined
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these combined financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the combined financial statements are free of
material misstatement. An audit includes examining, on a test basis evidence
supporting the amounts and disclosures in the combined financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Acquired Solid Waste
Companies as of December 31, 1995, and the results of their operations and their
cash flows for the year then ended in conformity with generally accepted
accounting principles.
The combined balance sheets and related statements of operations, equity,
and cash flows for the three months ended March 31, 1995 and 1996, are
unaudited. We did not audit or review those financial statements, and,
accordingly, we express no opinion or other form of assurance on them.
MUNSON, CRONICK & ASSOCIATES
Fullerton, California,
July 18, 1996.
158
<PAGE> 160
ACQUIRED SOLID WASTE COMPANIES
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
----------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current:
Cash.............................................................. $ 2,680,000 $ 2,377,000
Certificates of deposit and marketable securities................. 1,265,000 1,265,000
Accounts receivable, net.......................................... 2,272,000 2,602,000
Deferred taxes.................................................... 15,000 15,000
Prepaid expenses and other........................................ 127,000 291,000
----------- -----------
Total current assets...................................... 6,359,000 6,550,000
Property and equipment, net......................................... 3,853,000 3,891,000
Long-term note receivable from related party........................ 605,000 612,000
Long-term portion of deferred taxes................................. 61,000 61,000
Intangible assets, net.............................................. 2,889,000 2,968,000
Other assets........................................................ 698,000 432,000
----------- -----------
Total assets.............................................. $14,465,000 $ 14,514,000
=========== ===========
LIABILITIES AND EQUITY
Current:
Accounts payable.................................................. $ 1,042,000 $ 1,150,000
Accrued liabilities............................................... 768,000 722,000
Current portion of long-term debt................................. 1,016,000 1,095,000
Deferred income................................................... -- 108,000
Income taxes payable.............................................. -- 53,000
----------- -----------
Total current liabilities................................. 2,826,000 3,128,000
Long-term debt, net of current portion.............................. 3,325,000 3,834,000
Other liabilities................................................... 721,000 724,000
----------- -----------
Total liabilities......................................... 6,872,000 7,686,000
Commitments and contingencies
Equity.............................................................. 7,593,000 6,828,000
----------- -----------
Total liabilities and equity.............................. $14,465,000 $ 14,514,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
159
<PAGE> 161
ACQUIRED SOLID WASTE COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------------
YEAR ENDED
1996 1995 DECEMBER 31,
----------- ----------- ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Revenues.................................................. $ 7,838,000 $ 7,731,000 $ 31,488,000
---------- ---------- -----------
Expenses:
Cost of operations...................................... 5,041,000 4,765,000 21,225,000
General and administrative.............................. 1,618,000 1,856,000 6,558,000
Interest expense........................................ 78,000 50,000 428,000
---------- ---------- -----------
Total expenses.................................. 6,737,000 6,671,000 28,211,000
---------- ---------- -----------
Other income.............................................. 56,000 68,000 845,000
---------- ---------- -----------
Income before income taxes.............................. 1,157,000 1,128,000 4,122,000
Provision for income taxes................................ -- -- 104,000
---------- ---------- -----------
Net income...................................... $ 1,157,000 $ 1,128,000 $ 4,018,000
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
160
<PAGE> 162
ACQUIRED SOLID WASTE COMPANIES
COMBINED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
CORPORATIONS
------------------------------------------------------------- PARTNERSHIPS
ADDITIONAL C-CORP S-CORP ------------
COMMON PREFERRED PAID-IN RETAINED ACCUMULATED PARTNERS'
STOCK STOCK CAPITAL EARNINGS EARNINGS CAPITAL TOTAL
-------- ---------- ---------- ---------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994.................. $193,000 $1,317,000 $504,000 $2,022,000 $ 2,119,000 $ (79,000) $ 6,076,000
Distribution to
owners................ (2,044,000) (1,091,000) (3,135,000)
Dividends............... (131,000) (131,000)
Net income.............. 35,000 2,674,000 1,309,000 4,018,000
-------- ---------- -------- ---------- ----------- ----------- -----------
Balance, December 31,
1995.................. 193,000 1,317,000 504,000 1,926,000 2,749,000 139,000 6,828,000
Distribution to owners
(unaudited)........... (392,000) (392,000)
Net income
(unaudited)........... 179,000 851,000 127,000 1,157,000
-------- ---------- -------- ---------- ----------- ----------- -----------
Balance, March 31, 1996
(unaudited)........... $193,000 $1,317,000 $504,000 $2,105,000 $ 3,208,000 $ 266,000 $ 7,593,000
======== ========== ======== ========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
161
<PAGE> 163
\
ACQUIRED SOLID WASTE COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR END
------------------------- DECEMBER 31,
1996 1995 1995
----------- ----------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income.............................................. $ 1,157,000 $ 1,128,000 $ 4,018,000
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................... 189,000 179,000 1,110,000
Gain on disposal of property and equipment............ (8,000) -- (120,000)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable.............................. 330,000 48,000 102,000
Prepaid expenses................................. -- (47,000) 2,000
Deferred taxes................................... -- -- (76,000)
Other assets..................................... 63,000 211,000 (13,000)
Increase (decrease) in:
Accounts payable and accrued liabilities......... (61,000) 22,000 819,000
Income taxes payable............................. (72,000) -- 48,000
----------- ----------- -----------
Net cash provided by operating activities..... 1,598,000 1,541,000 5,890,000
----------- ----------- -----------
Cash flows from investing activities:
Acquisition of route purchase......................... (10,000) (85,000) (885,000)
Payments of note receivable to related party.......... 5,000 -- (650,000)
Acquisition of property and equipment................. (81,000) (186,000) (1,257,000)
Collection of loans and other......................... 8,000 -- 121,000
----------- ----------- -----------
Net cash (used in) investing activities....... (78,000) (271,000) (2,671,000)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from long-term debt.......................... $ -- $ 1,687,000 $ 2,274,000
Payment of shareholder loans.......................... (151,000) (937,000) (1,399,000)
Payment of notes payable.............................. (675,000) (381,000) (955,000)
Payment of shareholder distribution................... (391,000) (1,286,000) (3,135,000)
----------- ----------- -----------
Net cash (used in) financing activities....... (1,217,000) (917,000) (3,215,000)
----------- ----------- -----------
Net increase in cash and cash equivalents............... 303,000 353,000 4,000
Cash, beginning of period............................... 2,377,000 1,649,000 2,373,000
----------- ----------- -----------
Cash, end of period..................................... $ 2,680,000 $ 2,002,000 $ 2,377,000
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE
Cash paid for:
Interest.............................................. -- -- $ 428,000
Taxes................................................. -- -- $ 66,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
162
<PAGE> 164
ACQUIRED SOLID WASTE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. ACQUIRED SOLID WASTE COMPANIES
Republic Industries, Inc. (the Company) acquired nine solid waste and
related businesses during April and May 1996. The acquisitions were accounted
for using the pooling of interests method of accounting except for Cal Waste
Industries, Inc. which was accounted for as a purchase. The following table
summarizes these acquisitions:
<TABLE>
<CAPTION>
COMPANY BUSINESS
------------------------------------------------------- ------------------------------
<S> <C>
Cal Waste Industries, Inc.............................. Refuse Collection And Disposal
Expert Disposal Service, Inc........................... Refuse Collection And Disposal
Fat Man, Inc........................................... Refuse Collection And Disposal
ASA Leasing, Inc....................................... Equipment Leasing
M-G Disposal Services, Inc............................. Refuse Collection And Disposal
Solid Waste Equipment Maintenance, Inc................. Equipment Maintenance
RWP Services, Inc...................................... Recycling
Oillag................................................. Land And Building Owner
ET Leasing............................................. Equipment Leasing
</TABLE>
These companies are collectively referred to as the Acquired Solid Waste
Companies.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF COMBINATION
The accompanying combined financial statements include the accounts of the
Acquired Solid Waste Companies, as defined in Note 1. All significant
intercompany accounts and transactions have been eliminated.
PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property and equipment are recorded at cost. Depreciation is provided using
straight-line and accelerated methods over estimated useful lives ranging from
three to thirty-nine years.
Certain intangible assets are amortized using the straight-line method over
periods ranging from five to fifteen years. Repairs and maintenance costs are
charged to operations as incurred.
INCOME TAXES
The Acquired Solid Waste Companies (nine entities) include two partnerships
and five corporations that have elected to be taxed as S corporations for
federal and state purposes. Income tax liabilities for these seven entities are
the responsibility of the owners.
CASH AND CASH EQUIVALENTS
Highly liquid debt instruments with a maturity of three months or less are
considered cash equivalents.
Cash balances are maintained at various institutions that are in excess of
FDIC insurance limits of $100,000.
INVESTMENTS
Investments in debt securities and investments in equity securities that
have readily determinable fair values are classified into one of three
categories: trading, held-to-maturity, and available-for-sale. These categories
are based on the type of security and the company's ability and intent to hold
the security.
163
<PAGE> 165
ACQUIRED SOLID WASTE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Certificates of deposit and marketable securities held by the Company are
considered trading investments and are carried at fair value.
INTERIM FINANCIAL INFORMATION
The unaudited combined financial statements as of March 31, 1995 and 1996,
and for the three months ended March 31, 1995 and 1996, reflect, in the opinion
of management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
the respective periods. Operating results for interim periods are not
necessarily indicative of the results which can be expected for a full year.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
3. PROPERTY, EQUIPMENT AND INTANGIBLE ASSETS
Property, equipment and the related accumulated depreciation as of December
31, 1995, are comprised of:
<TABLE>
<S> <C>
Buildings..................................................... $ 1,403,000
Transportation equipment...................................... 6,515,000
Bins and boxes................................................ 3,025,000
Equipment..................................................... 1,192,000
Leasehold improvements........................................ 363,000
Land.......................................................... 956,000
-----------
13,454,000
Less, accumulated depreciation and amortization................. (9,563,000)
-----------
$ 3,891,000
===========
</TABLE>
Depreciation expense for the year ended December 31, 1995, totalled
$679,000.
Intangible assets as of December 31, 1995, consisted of the following:
<TABLE>
<S> <C>
Covenants....................................................... $ 4,850,000
Routes.......................................................... 3,347,000
Goodwill........................................................ 256,000
-----------
8,453,000
Less, accumulated amortization.................................. (5,485,000)
-----------
$ 2,968,000
===========
</TABLE>
Amortization expense for the year ended December 31, 1995, totalled
$431,000.
4. LONG-TERM DEBT
Long-term debt as of December 31, 1995, is comprised of:
<TABLE>
<S> <C>
Note payable, City National Bank, collateralized by company assets and
personal guarantees by two shareholders. Payable in monthly
installments of $54,103 including interest at the bank prime rate..... $ 762,000
Note payable, City National Bank, collateralized by company assets and
personal guarantees by two shareholders. Payable in monthly
installments of $2,332 plus interest at the bank's prime rate plus
1.5%, maturing May 31, 1998........................................... 128,000
Note payable, City National Bank, collateralized by company assets and
personal guarantees by two shareholders. Payable in monthly
installments of $3,533 plus interest at the bank's prime rate plus
1.25%, maturing June 30, 1998......................................... 200,000
Note payable, A One Disposal, collateralized by letter of credit issued
through City National Bank, payable in monthly installments including
interest on portion of note related to lost route at 13%, maturing
September 1, 2003..................................................... 266,000
</TABLE>
164
<PAGE> 166
ACQUIRED SOLID WASTE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Note payable, AB Disposal, payable in monthly installments of $2,592
including interest at 5%, maturing April 1, 1998...................... $ 129,000
Note payable, City National Bank, collateralized by company assets and
personal guarantees by two shareholders. Payable in monthly
installments of $8,515 plus interest at the bank's prime rate plus
1.5%, maturing June 1, 2000........................................... 868,000
Note payable, related party, payable in quarterly installments of
$10,767 including interest at 5%...................................... 783,000
Note payable, TransAmerica, collateralized by transportation equipment
purchased. Payable in monthly installments of $9,034 including
interest at 10.5%, final installment due June, 2000................... 387,000
Mortgage note payable, Fullerton Savings and Loan, collateralized by
land. Payable in monthly installments of $9,685 plus interest of
8.375%................................................................ 896,000
Other................................................................... 510,000
-----------
4,929,000
Less, current portion................................................... (1,095,000)
-----------
Long-term debt, net................................................... $ 3,834,000
===========
</TABLE>
5. RELATED PARTY TRANSACTIONS
Note receivable from related party is collateralized by a second trust deed
for a percentage interest in two properties located in the City of Los Angeles.
The long-term receivable at December 31, 1995, matures as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------------------------------------------------ --------
<S> <C>
1996.............................................................. $ 26,000
1997.............................................................. 28,000
1998.............................................................. 30,000
1999.............................................................. 32,000
2000 and thereafter............................................... 522,000
--------
$638,000
========
</TABLE>
Interest received on this note receivable was $23,000 for 1995.
Notes payable to related parties are included in Note 4. Interest expense
on these notes totalled $90,000 for 1995.
6. LEASE COMMITMENTS
Cal Waste Industries, Inc. rents its main office and two storage yards from
two shareholders for $12,700 per month with a consumer price index adjustment
each January in years three, four, and five. This is a five year lease, expiring
in January, 2001.
Expert Disposal Service, Inc., Fat Man, Inc., and ASA Leasing, Inc. rent
facilities and equipment from a company owned by a shareholder on a month to
month basis. The main facility is leased from an unrelated party for $11,000 per
month with a consumer price index adjustment each September. This lease expires
in March, 1997, but can be extended for an additional two and one-half years.
Rent expense for the year ended December 31, 1995, was $333,436.
7. OTHER INCOME
Other income at December 31, 1995, consists of the following:
<TABLE>
<S> <C>
Interest income................................................... $271,000
Dividend income................................................... 90,000
Unrealized gains on investments................................... 95,000
Gain on sale of assets............................................ 119,000
Cash surrender value, life insurance.............................. 13,000
Forfeited customer deposits....................................... 241,000
Miscellaneous..................................................... 16,000
--------
Total other income......................................... $845,000
========
</TABLE>
165
<PAGE> 167
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
CONTINENTAL WASTE INDUSTRIES, INC. AND ADDINGTON RESOURCES, INC.
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements include the supplemental consolidated financial statements of
Republic which include the results of operations of Alamo which Republic
acquired in November 1996. This transaction has been accounted for under the
pooling of interests method of accounting and, accordingly, Republic's
supplemental consolidated financial statements have been retroactively adjusted
as if Republic and Alamo had operated as one entity since inception. The
supplemental consolidated financial statements of Republic also include the
financial position and results of operations of CarChoice which Republic
acquired in August 1996 and Schaubach and Denver Alarm both of which Republic
acquired in February 1996. These transactions have been accounted for under
the pooling of interests method of accounting and, accordingly, Republic's
historical financial statements have been previously restated as if the
companies had operated as one entity since inception.
The following Unaudited Condensed Consolidated Pro Forma Balance Sheet
presents the pro forma financial position of Republic as of September 30, 1996
as if the pending acquisitions of AutoNation, Continental and Addington had
been consummated as of September 30, 1996.
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the Nine Months Ended September 30, 1996 and the Years Ended
December 31, 1995, 1994 and 1993 present the pro forma results of continuing
operations of Republic as if the pending acquisitions of Continental and
Addington, which will be accounted for under the pooling of interests method of
accounting, had been consummated as of January 1, 1993. The Unaudited Condensed
Consolidated Pro Forma Statements of Operations for the Nine Months Ended
September 30, 1996 and the Year Ended December 31, 1995 also include the pending
acquisition of AutoNation, which will be accounted for under the purchase method
of accounting, as if it had been consummated as of January 1, 1995. Amounts
appearing under the column headings "Pro Forma Republic" and "Pro Forma
Continental" include the effects of certain acquisitions and related pro forma
adjustments found in Republic and Continental's stand-alone pro forma financial
statements. The Unaudited Condensed Consolidated Pro Forma Statement of
Operations for the Year Ended December 31, 1995 contains pro forma adjustments
related to a series of 1995 completed equity transactions which are discussed
further in Republic's stand-alone Unaudited Condensed Consolidated Pro Forma
Financial Statements.
The unaudited pro forma income from continuing operations per common and
common equivalent share includes the weighted average number of common shares
and common share equivalents outstanding of Republic and Addington and
Continental (based on the respective merger share exchange ratios) and the
number of common shares to be issued in the AutoNation merger. Common
share equivalents, include, where appropriate, the assumed exercise or
conversion of warrants and options. In computing the unaudited pro forma income
from continuing operations per common and common equivalent share, Republic
utilizes the modified treasury stock method. Primary earnings per share is not
presented as it does not significantly differ from fully diluted earnings per
share.
These Unaudited Condensed Consolidated Pro Forma Financial Statements
should be read in conjunction with the respective historical consolidated
financial statements and notes thereto of Republic, AutoNation, Continental,
Addington and Alamo and the stand-alone pro forma financial statements of
Republic and Continental which are included elsewhere herein. These Unaudited
Condensed Consolidated Pro Forma Financial Statements were prepared utilizing
the accounting policies of the respective entities as outlined in their
historical financial statements except as described in the accompanying notes.
The pending acquisition of AutoNation will be accounted for under the purchase
method of accounting. Accordingly, the Unaudited Condensed Consolidated Pro
Forma Financial Statements reflect Republic's preliminary allocation of the
purchase price of AutoNation which will be subject to further adjustments as
Republic finalizes the allocation of the purchase price in accordance with
generally accepted accounting principles. The unaudited pro forma condensed
consolidated results of operations do not necessarily reflect actual results
which would have occurred if the acquisitions or the 1995 equity transactions
had taken place on the assumed dates, nor are they necessarily indicative of the
results of future combined operations. Additionally, Republic estimates that
transaction related expenses totaling approximately $2,000,000 to $2,500,000
will be charged to expense during the fourth quarter of 1996 related to the
November 1996 acquisition of Alamo and the pending mergers with Continental
and Addington which are expected to close in December 1996.
166
<PAGE> 168
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
CONTINENTAL WASTE INDUSTRIES, INC. AND ADDINGTON RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
AS OF SEPTEMBER 30, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------- PRO FORMA
SUPPLEMENTAL REPUBLIC AND
REPUBLIC AUTONATION COMBINED DR. CR. AUTONATION
-------- ---------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 190,115 $ 8,599 $ 198,714 $ 198,714
Accounts receivable,
net..................... 322,794 6,266 329,060 329,060
Prepaid expenses and other
current assets.......... 283,208 167 283,375 $112,900(f) 170,475
Inventory................. 27,954 40,769 68,723 68,723
Revenue earning
vehicles, net........... 2,201,583 -- 2,201,583 2,201,583
---------- -------- ---------- -------- -------- ----------
Total current
assets............ 3,025,654 55,801 3,081,455 112,900 2,968,555
Property and equipment,
net....................... 547,391 134,373 681,764 681,764
Investment in subscribers,
net....................... 78,940 -- 78,940 78,940
Intangible assets, net...... 197,640 -- 197,640 $161,316(a) 358,956
Other assets................ 12,449 -- 12,449 12,449
---------- -------- ---------- -------- -------- ----------
Total assets........ $3,862,074 $190,174 $4,052,248 $161,316 $112,900 $4,100,664
========== ======== ========== ======== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses........ $ 276,800 $ 17,322 $ 294,122 $ 294,122
Current maturities of
long-term debt and notes
payable................. 2,291,961 142,118 2,434,079 $112,900(f) 2,321,179
Deferred revenue and other
current liabilities..... 165,625 -- 165,625 165,625
---------- -------- ---------- -------- -------- ----------
Total current
liabilities....... 2,734,386 159,440 2,893,826 112,900 2,780,926
Long-term debt, net of
current maturities........ 215,153 -- 215,153 215,153
Other liabilities........... 80,282 -- 80,282 80,282
---------- -------- ---------- -------- -------- ----------
Total liabilities... 3,029,821 159,440 3,189,261 112,900 3,076,361
---------- -------- ---------- -------- -------- ----------
Shareholders' equity:
Common stock.............. 2,131 80 2,211 80(b) $ 175(c) 2,306
Additional
paid-in capital......... 757,308 52,050 809,358 52,050(b) 191,875(c) 949,183
Retained earnings......... 70,499 (21,396) 49,103 21,396(b) 70,499
Translation adjustment.... 2,315 -- 2,315 2,315
Treasury stock............ -- 0
---------- -------- ---------- -------- -------- ----------
Total shareholders'
equity............ 832,253 30,734 862,987 52,130 213,446 1,024,303
---------- -------- ---------- -------- -------- ----------
Total liabilities
and shareholders'
equity............ $3,862,074 $190,174 $4,052,248 $165,030 $213,446 $4,100,664
========== ======== ========== ======== ======== ==========
<CAPTION>
PRO FORMA ADJUSTMENTS
--------------------- PRO FORMA
COMBINED
CONTINENTAL ADDINGTON COMBINED DR. CR. COMPANY
----------- --------- ----------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents............. $ 1,601 $ 1,165 $ 201,480 $ 201,480
Accounts receivable,
net..................... 11,881 8,567 349,508 349,508
Prepaid expenses and other
current assets.......... 3,872 2,882 177,229 177,229
Inventory................. -- -- 68,723 68,723
Revenue earning
vehicles, net........... -- -- 2,201,583 2,201,583
-------- -------- ---------- -------- -------- ----------
Total current
assets............ 17,354 12,614 2,998,523 2,998,523
Property and equipment,
net....................... 110,029 122,048 913,841 913,841
Investment in subscribers,
net....................... -- -- 78,940 78,940
Intangible assets, net...... 23,527 -- 382,483 382,483
Other assets................ 12,585 7,109 32,143 32,143
-------- -------- ---------- -------- -------- ----------
Total assets........ $163,495 $141,771 $4,405,930 $4,405,930
======== ======== ========== ======== ======== ==========
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and
accrued expenses........ $ 12,972 $ 9,708 $ 316,802 $ 316,802
Current maturities of
long-term debt and notes
payable................. 5,199 2,710 2,329,088 2,329,088
Deferred revenue and other
current liabilities..... 2,063 -- 167,688 167,688
-------- -------- ---------- -------- -------- ----------
Total current
liabilities....... 20,234 12,418 2,813,578 2,813,578
Long-term debt, net of
current maturities........ 45,097 17,073 277,323 277,323
Other liabilities........... 22,621 14,282 117,185 117,185
-------- -------- ---------- -------- -------- ----------
Total liabilities... 87,952 43,773 3,208,086 3,208,086
-------- -------- ---------- -------- -------- ----------
Shareholders' equity:
Common stock.............. 9 16,194 18,509 $ 16,203(e) $ 259(d) 2,565
Additional
paid-in capital......... 74,808 87,187 1,111,178 14,097(e) 16,203(e) 1,113,025
259(d)
Retained earnings......... 1,198 8,242 79,939 79,939
Translation adjustment.... -- -- 2,315 2,315
Treasury stock............ (472) (13,625) (14,097) 14,097(e) 0
-------- -------- ---------- -------- -------- ----------
Total shareholders'
equity............ 75,543 97,998 1,197,844 30,559 30,559 1,197,844
-------- -------- ---------- -------- -------- ----------
Total liabilities
and shareholders'
equity............ $163,495 $141,771 $4,405,930 $ 30,559 $ 30,559 $4,405,930
======== ======== ========== ======== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
167
<PAGE> 169
PRO FORMA REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
PRO FORMA CONTINENTAL WASTE INDUSTRIES, INC., AND ADDINGTON RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
PRO FORMA ----------------------- REPUBLIC AND
REPUBLIC AUTONATION COMBINED DR. CR. AUTONATION
--------- ---------- -------- --------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $1,601,337 $ 9,190 $1,610,527 $1,610,527
Expenses:
Cost of operations............. 737,219 14,297 751,516 $3,025 (g) 754,541
Selling, general and
administrative............... 788,218 11,929 800,147 800,147
Special charge................. -- -- -- --
Other (income) expense:
Interest and other income...... (17,287) -- (17,287) 1,296 (f) (15,991)
Interest expense............... 20,603 1,296 21,899 $1,296 (f) 20,603
--------- -------- --------- ------ ------ ---------
1,528,753 27,522 1,556,275 4,321 1,296 1,559,300
--------- -------- --------- ------ ------ ---------
Income (loss) from
continuing operations before
income taxes................... 72,584 (18,332) 54,252 4,321 1,296 51,227
Income tax provision............. 32,723 -- 32,723 7,902 (i) 24,821
-------- -------- -------- ------ ------ --------
Income (loss) from continuing
operations..................... $ 39,861 $(18,332) $ 21,529 $4,321 $9,198 $ 26,406
======== ======== ======== ====== ====== ========
Fully-diluted:
Earnings (loss) per share from
continuing operations......... $ 0.17 $ 0.10
======== ========
Weighted average shares
outstanding.................. 241,227 17,467 258,694 258,694
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------- PRO FORMA
PRO FORMA COMBINED
CONTINENTAL ADDINGTON COMBINED DR. CR. COMPANY
----------- ---------- --------- ------- --- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue........................ $ 59,799 $46,012 $1,716,338 $1,716,338
Expenses:
Cost of operations........... 49,469 32,432 836,442 836,442
Selling, general and
administrative............. 8,282 4,100 812,529 812,529
Special charge............... 7,623 -- 7,623 7,623
Other (income) expense:
Interest and other income.... (1,030) 739 (16,282) (16,282)
Interest expense............. 2,415 629 23,647 23,647
-------- ------- ---------- ------- -- ----------
66,759 37,900 1,663,959 1,663,959
-------- ------- ---------- ------- -- ----------
Income (loss) from
continuing operations
before income taxes.......... (6,960) 8,112 52,379 52,379
Income tax provision........... 285 2,693 27,799 27,799
-------- ------- ---------- ------- -- ----------
Income (loss) from
continuing operations........ $ (7,245) $ 5,419 $ 24,580 $ 24,580
======== ======= ========== ======= == ==========
Fully-diluted:
Earnings (loss) per share
from continuing operations.. $ (.46) $ .35 $ 0.09
======== ======= ==========
Weighted average shares
outstanding................ 15,588 15,348 289,630 (4,552) (j) 285,078
======== ======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
168
<PAGE> 170
PRO FORMA REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
PRO FORMA CONTINENTAL WASTE INDUSTRIES, INC.
AND ADDINGTON RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
------------------ PRO FORMA
PRO FORMA REPUBLIC AND PRO FORMA
REPUBLIC AUTONATION COMBINED DR. CR. AUTONATION CONTINENTAL
-------- ---------- -------- -------- ------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue................... $1,751,581 -- $1,751,581 $1,751,581 $66,156
Expenses:
Cost of operations....... 830,665 $2,177 832,842 $ 4,033(g) 836,875 44,463
Selling, general and
administrative......... 922,340 887 923,227 923,227 10,120
Restructuring and unusual
charges................ -- -- -- -- 3,264
Other (income) expense:
Interest and other
income................. (13,229) -- (13,229) (13,229) (240)
Interest expense......... -- -- -- -- 3,344
---------- ------ ---------- ------- ------ ---------- -------
1,739,776 3,064 1,742,840 4,033 $1,746,873 60,951
---------- ------ ---------- ------- ------ ---------- -------
Income (loss) from
continuing operations
before income taxes...... 11,805 (3,064) 8,741 4,033 4,708 5,205
Income tax provision..... 7,393 -- 7,393 $2,697(i) 4,696 2,257
---------- ------- ---------- ------- ------ ---------- -------
Income (loss) from
continuing operations... $ 4,412 $(3,064) $ 1,348 $ 4,033 $2,697 $ 12 $ 2,948
========== ======= ========== ======= ====== ========== =======
Fully Diluted:
Earnings per share
from continuing
operations............. $ 0.02 $ -- $ .23
========== ========== =======
Weighted average
shares outstanding..... 212,561 17,467 230,028 230,028 12,702
========== ======= ========== ========== =======
<CAPTION>
PRO FORMA
ADJUSTMENTS
--------------------- PRO FORMA
COMBINED
ADDINGTON COMBINED DR. CR. COMPANY
--------- --------- -------- --------- ------------
<S> <C> <C> <C> <C> <C>
Revenue...................... $56,739 $1,874,476 $1,874,476
Expenses:
Cost of operations.......... 38,080 919,418 919,418
Selling, general and
administrative............ 6,631 939,978 939,978
Restructuring and
unusual charges........... -- 3,264 3,264
Other (income) expense:
Interest and other
income.................... (427) (13,896) (13,896)
Interest expense............ 955 4,299 $ 935(h) 3,364
------- ---------- ------- ------- ----------
45,239 1,853,063 935 1,852,128
------- ---------- ------- ------- ----------
Income (loss) from
continuing operations
before income taxes......... 11,500 21,413 935 22,348
Income tax provision......... 4,426 11,379 $ 355(i) 11,734
------- ---------- ------- ------- ----------
Income (loss) from
continuing operations....... $ 7,074 $ 10,034 $ 355 $ 935 $ 10,614
======= ========== ======= ======= ==========
Fully Diluted:
Earnings per share
from continuing
operations................ $ .45 $ 0.04
======= ==========
Weighted average
shares outstanding........ 15,748 258,478 1,745 260,223
======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
169
<PAGE> 171
REPUBLIC INDUSTRIES, INC.,
CONTINENTAL WASTE INDUSTRIES, INC.
AND ADDINGTON RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
SUPPLEMENTAL ----------------- COMBINED
REPUBLIC CONTINENTAL ADDINGTON COMBINED DR. CR. COMPANY
-------- ----------- ---------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue.......................... $1,531,095 $28,728 $36,057 $1,595,880 $1,595,880
Expenses:
Cost of operations.............. 639,963 17,224 23,798 680,985 680,985
Selling, general and
administrative................. 835,296 4,737 7,119 847,152 847,152
Restructuring and unusual
charges........................ -- -- 670 670 670
Other (income) expense:
Interest and other income....... (5,920) 126 (772) (6,566) (6,566)
Interest expense................ 13,707 1,881 8,052 23,640 23,640
---------- ------- ------- ---------- ------- -- ----------
1,483,046 23,968 38,867 1,545,881 1,545,881
---------- ------- ------- ---------- ------- -- ----------
Income from continuing operations
before income taxes............ 48,049 4,760 (2,810) 49,999 49,999
Income tax provision............. 19,396 2,132 (1,124) 20,404 20,404
---------- ------- ------- ---------- ------- -- ----------
Income from continuing
operations...................... $ 28,653 $ 2,628 $(1,686) $ 29,595 $ 29,595
========== ======= ======= ========== ======= == ==========
Fully-Diluted:
Earnings per share from
continuing operations.......... $ 0.24 $ .34 $ (.11) $ 0.21
========== ======= ======= ==========
Weighted average shares
outstanding.................... 119,044 7,685 15,798 142,527 (3,117)(j) 139,410
========== ======= ======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
170
<PAGE> 172
REPUBLIC INDUSTRIES, INC.,
CONTINENTAL WASTE INDUSTRIES, INC.
AND ADDINGTON RESOURCES, INC.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
SUPPLEMENTAL ----------------- COMBINED
REPUBLIC CONTINENTAL ADDINGTON COMBINED DR. CR. COMPANY
-------- ----------- ---------- ---------- ------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................... $1,331,693 $16,204 $22,600 $1,370,497 $1,370,497
Expenses:
Cost of operations............. 493,395 11,209 13,694 518,298 518,298
Selling, general and
administrative................ 783,502 2,067 6,503 792,072 792,072
Restructuring and unusual
charges....................... 10,040 -- 5,122 15,162 15,162
Other (income) expense:
Interest and other income...... (4,524) (49) -- (4,573) (4,573)
Interest expense............... 14,022 1,303 5,790 21,115 21,115
-------- ------- ------- ---------- ------- -- ----------
1,296,435 14,530 31,109 1,342,074 1,342,074
-------- ------- ------- ---------- ------- -- ----------
Income (loss) from continuing
operations before income taxes. 35,258 1,674 (8,509) 28,423 28,423
Income tax provision............ 16,529 721 (3,233) 14,017 14,017
-------- ------- ------- ---------- ------- -- ----------
Income (loss) from continuing
operations..................... $ 18,729 $ 953 $(5,276) $ 14,406 $ 14,406
======== ======= ======= ========== ======= == ==========
Fully-Diluted:
Earnings (loss) per share from
continuing operations........ $ 0.16 $ .19 $ (.34) $ 0.11
======== ======= ======= ==========
Weighted average shares
outstanding................... 119,226 4,739 15,563 139,528 (2,504)(j) 137,024
======== ======= ======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
171
<PAGE> 173
REPUBLIC INDUSTRIES, INC., AUTONATION INCORPORATED,
CONTINENTAL WASTE INDUSTRIES, INC.
AND ADDINGTON RESOURCES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
PRO FORMA FINANCIAL STATEMENTS
(a) Represents an entry to record intangible assets resulting from the
preliminary allocation of the purchase price for the proposed acquisition
of AutoNation as follows (in thousands):
<TABLE>
<S> <C>
Shares of Republic Common Stock to be issued.................... 17,467
Value of Republic Common Stock consideration.................... $192,050
Historical net tangible assets.................................. (30,734)
----------
Allocation to intangible assets................................. $161,316
==========
</TABLE>
The value of the Republic Common Stock consideration was computed based
upon the 5 day average quoted stock price before and after the signing and
public announcement of the definitive agreement to acquire AutoNation,
adjusted to reflect a discount from market value to account for selling
restrictions imposed on the sellers of AutoNation. The above purchase price
has been allocated on a preliminary basis using the historical value of the
tangible assets and liabilities of AutoNation as of September 30, 1996,
which represents a reasonable estimate of the fair value, with the
remaining balance allocated to intangible assets. The pro forma purchase
price will be adjusted based on the actual closing date balance sheet and
thereafter for any potential contingencies which may arise prior to
consummation of the merger, in accordance with generally accepted
accounting principles. Such adjustments for contingencies, if any, are
not expected to be material.
(b) Represents an entry to eliminate the historical equity balances of
AutoNation.
(c) Represents the recording of equity resulting from Republic's issuance of
Republic Common Stock to the stockholders of AutoNation.
(d) Represents an entry to record the par value of the shares of Republic
Common Stock issued to the stockholders of Continental and Addington,
both of which will be accounted for under the pooling of interests
method of accounting.
(e) Represents an entry to reclassify the historical common and treasury stock
balances of Continental and Addington to additional paid-in capital.
(f) Represents an entry to eliminate advances from Republic to AutoNation and
related interest on such advances.
(g) Represents a net adjustment related to the elimination of the historical
amortization of intangible assets and the recording of amortization, on a
straight-line basis, on the intangible assets resulting from the
preliminary purchase price allocation of AutoNation. Intangible assets
resulting from the purchase of AutoNation are being amortized over a 40
year life which approximates the estimated useful life.
(h) Represents the assumed 1995 interest savings on the payoff of all or a
portion of the existing indebtedness outstanding as of January 1, 1995 of
Republic, Continental and Addington with the proceeds from the 1995
Equity Transactions assumed to have occurred as of January 1, 1995.
(i) Represents the incremental change in the combined entity's provision for
income taxes as a result of the pre-tax loss of AutoNation and all pro
forma adjustments as described above.
(j) Represents the effect of converting the Addington and Continental weighted
average common shares and common equivalent shares into equivalent
Republic shares based upon the respective share exchange ratios. Also
included for 1995 only is the weighted average effect of shares and common
share equivalents issued in the 1995 Equity Transactions.
172
<PAGE> 174
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., HUDSON MANAGEMENT CORPORATION AND
ENVIROCYCLE, INC. AND ACQUIRED SOLID WASTE COMPANIES
The following Unaudited Condensed Consolidated Pro Forma Financial
Statements include the supplemental consolidated financial statements of
Republic which include the results of operations of Alamo which Republic
acquired in November 1996. This transaction has been accounted for under the
pooling of interests method of accounting and, accordingly, Republic's
supplemental consolidated financial statements have been retroactively adjusted
as if Republic and Alamo had operated as one entity since inception. The
supplemental consolidated financial statements of Republic also include the
financial position and results of operations of CarChoice which Republic
acquired in August 1996 and Schaubach and Denver Alarm both of which Republic
acquired in February 1996. These transactions have been accounted for under
the pooling of interests method of accounting and, accordingly, Republic's
historical financial statements have been previously restated as if the
companies had operated as one entity since inception.
The following Unaudited Condensed Consolidated Pro Forma Statements of
Operations for the Nine Months Ended September 30, 1996 and for the Year Ended
December 31, 1995 present the pro forma results of continuing operations of
Republic as if the acquisitions of Hudson Management Corporation and
Envirocycle, Inc. (collectively, "HMC") in August 1995 and various other solid
waste companies ("Acquired Solid Waste Companies") in May 1996 as well as a
series of 1995 completed Equity Transactions (the "1995 Equity Transactions")
had occurred as of January 1, 1995. The 1995 Equity Transactions include the
sale of common stock and warrants during the three months ended September 30,
1995 in certain private placement and other transactions resulting in net
proceeds of approximately $232 million. These Unaudited Pro Forma Condensed
Consolidated Financial Statements should be read in conjunction with the
respective audited and unaudited historical consolidated financial statements
and notes thereto of Republic, HMC and Acquired Solid Waste Companies.
The unaudited pro forma earnings per common and common equivalent
share is based upon the combined weighted average number of common shares and
common share equivalents outstanding which include, where appropriate, the
assumed exercise or conversion of Republic warrants and options. In computing
the unaudited pro forma income from continuing operations per common and
common equivalent share, Republic utilizes the modified treasury stock method.
Primary earnings per share is not presented as it does not significantly
differ from fully diluted earnings per share.
These Unaudited Condensed Consolidated Pro Forma Statements of
Operations were prepared utilizing the accounting policies of the respective
entities as outlined in their historical financial statements except as
described in the accompanying notes. Acquired Solid Waste Companies include
various businesses acquired and accounted for under the pooling of interests
method of accounting and a business acquisition accounted for under the
purchase method of accounting. The Acquired Solid Waste Companies accounted
for under the pooling of interests method of accounting were not significant
individually or in the aggregate and consequently prior period financial
statements have not been restated and pro forma statements of operations for
1994 and 1993 have not been included herein. The acquisitions of HMC and one of
the Acquired Solid Waste Companies have been accounted for under the purchase
method of accounting. The unaudited pro forma consolidated results of
operations do not necessarily reflect actual results which would have occurred
if the acquisitions or the Equity Transactions had taken place on the assumed
dates, nor are they necessarily indicative of future combined operations.
173
<PAGE> 175
REPUBLIC INDUSTRIES, INC. AND AN ACQUIRED SOLID WASTE COMPANY
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Supplemental Acquired Solid --------------------- Pro Forma
Republic Waste Company(1) Combined Dr. Cr. Republic
-------- -------------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................ $1,597,568 $3,769 $1,601,337 $1,601,337
Expenses:
Cost of operations................... 735,121 1,934 737,055 $164(a) 737,219
Selling, general and administrative.. 787,254 964 788,218 788,218
Other (income) expense:
Interest and other income............ (17,287) -- (17,287) (17,287)
Interest expense..................... 20,603 -- 20,603 20,603
--------- ------ --------- ------- ------- --------
1,525,691 2,898 1,528,589 164 1,528,753
--------- ------ --------- ------- ------- --------
Income from continuing
operations before income taxes....... 71,877 871 72,748 164 ------- 72,584
Income tax provision................... 32,454 -- 32,454 269(e) 32,723
-------- ------ -------- ---- ------- --------
Income from continuing
operations........................... $ 39,423 $ 871 $ 40,294 $433 $ 39,861
======== ====== ======== ==== ======= ========
Fully-diluted:
Earnings per share from continuing
operations.......................... $ 0.16 $ 0.17
======== ========
Weighted average shares outstanding.. 240,792 435(f) 241,227
======== ==== ========
</TABLE>
- -----------
(1) Represents the pre-acquisition results of operations for the period from
January to April 1996.
The accompanying notes are an integral part of these statements.
174
<PAGE> 176
REPUBLIC INDUSTRIES, INC., HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC.
AND ACQUIRED SOLID WASTE COMPANIES
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Pro Forma
Adjustments
Supplemental Acquired Solid ------------------- Pro Forma
Republic HMC(1) Waste Companies Combined Dr. Cr. Republic
-------- ------- --------------- -------- ------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue......................... $1,686,892 $33,201 $31,488 $1,751,581 $1,751,581
Expenses:
Cost of operations............ 786,634 21,772 21,225 829,631 $ 1,323(a) $ 289(b) 830,665
Selling, general and
administrative.............. 906,931 9,298 6,558 922,787 447(c) 922,340
Restructuring and unusual
charges..................... -- -- -- -- --
Other (income) expense:
Interest and other income..... (12,384) -- (845) (13,229) (13,229)
Interest expense.............. 19,635 489 428 20,552 20,552(d) --
---------- ------- ------- ---------- ------- ------- ----------
1,700,816 31,559 27,366 1,759,741 1,323 21,288 1,739,776
---------- ------- ------- ---------- ------- ------- ----------
Income (loss) from continuing
operations before income taxes. (13,924) 1,642 4,122 (8,160) 1,323 21,288 11,805
Income tax provision............ (2,385) 657 104 (1,624) 9,016(e) 7,393
---------- ------- ------- ---------- ------- ------- ----------
Income (loss) from continuing
operations..................... $ (11,539) $ 985 $ 4,018 $ (6,536) $10,340 $21,288 $ 4,412
========== ======= ======= ========== ======= ======= ==========
Fully-diluted:
Earnings per share from
continuing operations........ $ (0.08) $ 0.02
========== ==========
Weighted average shares
outstanding.................. 146,627 65,934(g) 212,561
========== ======= ==========
</TABLE>
- -----------
(1) Represents the pre-acquisition results of operations for the period from
January to July 1995.
The accompanying notes are an integral part of these statements.
175
<PAGE> 177
REPUBLIC INDUSTRIES, INC., HUDSON MANAGEMENT CORPORATION AND ENVIROCYCLE, INC.
AND ACQUIRED SOLID WASTE COMPANIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
(a) Represents a net adjustment related to the elimination of the
historical amortization of intangible assets and the recording of
amortization, on a straight-line basis, on the intangible assets
resulting from the purchase price allocation of HMC and an Acquired
Solid Waste Company, as applicable. Intangible assets resulting from
the purchase of HMC and an Acquired Solid Waste Company are being
amortized over a 40 year life which approximates the useful life.
(b) Represents a reduction to depreciation expense resulting from the
revision of estimated lives of acquired property and equipment of HMC
to conform with Republic policies.
(c) Represents the contractual reduction of salary and benefits of the
sellers of HMC.
(d) Represents the assumed 1995 interest savings on the payoff of all
existing indebtedness of Republic, HMC and Acquired Solid Waste
Companies outstanding as of January 1, 1995 with the proceeds from the
1995 Equity Transactions assumed to have occurred as of January 1, 1995.
(e) Represents the incremental change in the combined entity's provision
for income taxes as a result of the pre-tax earnings of HMC and
Acquired Solid Waste Companies, as applicable, and all pro forma
adjustments as described above.
(f) Represents the pro forma incremental weighted shares issued to the
sellers of an Acquired Solid Waste Company assuming the acquisition
occurred as of January 1, 1996.
(g) Represents the Shares issued to the sellers of Acquired Solid Waste
Companies and the pro forma incremental weighted shares issued to the
sellers of HMC assuming such acquisition occurred as of January 1,
1995. Also included is the weighted average effect of shares issued
in the 1995 Equity Transactions to the extent required to repay debt
outstanding at January 1, 1995 and the pro forma common stock equiv-
alents associated with warrants sold in the 1995 Equity Transactions.
176
<PAGE> 178
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CONTINENTAL
WASTE BUSINESSES
INDUSTRIES, ACQUIRED PRO FORMA PRO FORMA PRO FORMA PRO FORMA
INC. IN 1995 ADJUSTMENTS SUBTOTAL STATEWIDE RECYCLING(a) ADJUSTMENTS COMBINED
----------- ---------- ----------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
REVENUE.................... $47,815 $6,353 $ -- $54,168 $ 9,416 $ 5,601 $ (3,029) $66,156
COSTS AND EXPENSES:
Operating expenses....... 22,182 5,210 176 27,568 6,706 5,360 (3,029) 36,605
General and
administrative
expenses............... 7,915 840 -- 8,755 1,933 472 (1,040) 10,120
Depreciation and
amortization........... 6,863 -- -- 6,863 452 85 458 7,858
Office closing charge.... 3,264 -- -- 3,264 -- -- -- 3,264
------- ------ ----- ------- ------- --------- ------- ------
Income (loss) from
operations......... 7,591 303 (176) 7,718 325 (316) 582 8,309
OTHER INCOME (EXPENSES):
Interest expense......... (2,659) (97) (137) (2,893) (304) (5) (142) (3,344)
Other income (expenses),
net.................... 205 1 (10) 196 44 -- -- 240
------- ------ ----- ------- ------- --------- ------- ------
Other income
(expenses), net.... (2,454) (96) (147) (2,697) (260) (5) (142) (3,104)
------- ------ ----- ------- ------- --------- ------- ------
Income (loss) before
income taxes........... 5,137 207 (323) 5,021 65 (321) 440 5,205
PROVISION (BENEFIT) FOR
INCOME TAXES............. 2,135 104 (96) 2,143 17 (123) 220 2,257
------- ------ ----- ------- ------- --------- ------- ------
Net income (loss)........ $ 3,002 $ 103 $(227) $ 2,878 $ 48 $ (198) $ 220 $ 2,948
======= ====== ===== ======= ======= ========= ======= ======
EARNINGS PER SHARE:
PRIMARY.................... $ .25 $ .24 $ .23
======= ======= ======
FULLY DILUTED.............. $ .25 $ .24 $ .23
======= ======= ======
PRIMARY WEIGHTED AVERAGE
SHARES................... 11,979 31 12,010 556 12,566
======= ===== ======= ======= ======
FULLY DILUTED WEIGHTED
AVERAGE SHARES........... 12,115 31 12,146 556 12,702
======= ===== ======= ======= ======
</TABLE>
- -------------------
(a) Represents twelve months ended March 31, 1996.
The accompanying Notes to Unaudited Pro Forma Combining Statements of Income
are an integral part of this statement.
177
<PAGE> 179
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE NINE FOR THE SIX MONTHS
MONTHS ENDED ENDED JUNE 30, 1996
SEPTEMBER 30, 1996 --------------------- PRO FORMA PRO FORMA
CONTINENTAL STATEWIDE RECYCLING ADJUSTMENTS COMBINED
---------------------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
REVENUE.................... $ 53,709 $ 4,695 $ 3,486 $(2,091) $59,799
COSTS AND EXPENSES:
Operating expenses....... 36,050 3,856 3,099 (2,091) 40,914
General and
administrative
expenses.............. 7,490 939 230 (377) 8,282
Depreciation and
amortization.......... 8,080 181 65 229 8,555
Special charge........... 7,623 -- -- -- 7,623
------- ------ ------ ------- -------
Income (loss) from
operations............ (5,534) (281) 92 148 (5,575)
OTHER INCOME (EXPENSES):
Interest expense......... (2,294) (130) (3) 12 (2,415)
Other income (expense),
net................... 1,130 (102) 2 -- 1,030
------- ------ ------ ------- -------
Income (loss) before
income taxes.......... (6,698) (513) 91 160 (6,960)
PROVISION (BENEFIT) FOR
INCOME TAXES............. 208 (57) 48 86 285
------- ------ ------ ------- -------
Net income (loss)........ $ (6,906) $ (456) $ 43 $ 74 $(7,245)
======= ====== ====== ======= =======
EARNINGS (LOSS) PER
SHARE.................... $ (.45) $ (.46)
======= =======
Weighted average common
and common equivalent
shares................ 15,217 371 15,588
======= ======= =======
</TABLE>
The accompanying Notes to Unaudited Pro Forma Combining Statements of Income
are an integral part of this statement.
178
<PAGE> 180
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME
1. DESCRIPTION OF PRO FORMA COMBINING STATEMENTS OF INCOME
The unaudited pro forma combining statements of income of the Company
reflect certain business acquisitions as if such acquisitions had occurred as of
the beginning of the periods presented. The acquisitions included in the pro
forma statements are described below:
1995 Acquisitions:
From January 1 to August 15, the Company expanded its operations through
the acquisition of six businesses engaged in waste management businesses. Each
of these transactions have been accounted for using the purchase method of
accounting. The aggregate of these business acquisitions was significant to the
Company. These entities included ASCO Sanitation, Inc., Larry's Disposal, Inc.,
Terre Haute Recycling, Inc. Gilliam Sanitation, Inc., Gilliam Transfer, Inc.,
Anderson Refuse Company, Inc./M.V. Dulworth, and a 72% interest in Procesa
Continental S.A., de C.V.
The aggregate purchase price of these businesses was $8.9 million, plus the
assumption or refinancing of $2.1 million of debt and $0.6 million of future
contingent payments. The purchase prices were paid by issuing 164,846 Shares of
the Company's Common Stock with a market value of $1.1 million at the time of
issuance, paying $5.8 million of cash obtained from the Company's credit
facility and issuing $2.0 million of notes payable to the Sellers.
None of these acquisitions individually are significant, each with a
purchase price and assets less than 10% of the Company's December 31, 1994
assets and each with historical income or loss before income taxes of less than
10% of the Company's income before income taxes and extraordinary gain for the
year ended December 31, 1994. In addition, the aggregate of these transactions
is less than 10% of the measures described above except for the aggregate of the
absolute values of the incomes and losses before income taxes of these entities
which total more than 10% but less than 20% of the Company's 1994 income before
income taxes and extraordinary gain.
Accordingly, although the acquired businesses are not integral to each
other, their financial position and operating results were combined for purposes
of the pro forma presentation.
1996 Acquisitions:
On July 1, 1996, the Company purchased Statewide Environmental Contractors,
Inc., Recycling Industries, Inc. and all of the assets of Lomac Realty. These
three affiliated companies are engaged in the waste management business.
Operating results of Lomac Realty are excluded from the pro forma presentation
as such results are not material.
The purchase price of Statewide was $18.6 million and consisted of $6.7
million in cash, 555,512 Shares of the Company's Common Stock (valued at $8.9
million based on the quoted market price as of the date of the definitive letter
of intent to acquire Statewide) and $3.0 million in notes payable to the
sellers. The Company recorded this transaction as a purchase.
On September 13, 1996, the Company acquired Reliable Disposal, Inc.,
Reliable Recycle (a partnership) and various properties owned by certain
shareholders of Reliable Disposal, Inc. or their wholly owned partnership
(collectively, "Reliable"). All entities and properties of Reliable were
commonly owned and integral to the Reliable business. The Company exchanged
457,000 Shares of Common Stock for all of the outstanding shares and interests
and for the properties of Reliable. The acquisition was accounted for as a
pooling of interests. Accordingly, Continental's historical statement of income
for the nine months ended September 30, 1996 include the operating results of
Reliable for the entire nine month period. The acquisition of Reliable was not
significant and, as a consequence, prior period financial statements were not
restated.
For purposes of the accompanying pro forma financial statements,
adjustments have been reflected on an estimated basis using the most recent
information available. No assurances can be given that the final
179
<PAGE> 181
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME -- (CONTINUED)
1. DESCRIPTION OF PRO FORMA COMBINING STATEMENTS OF INCOME --(CONTINUED)
determination of the fair value of assets acquired and liabilities assumed in
the various acquisitions will not differ from the adjustments presented herein.
Such determination will be made within one year of the related acquisition and
are not expected to be materially different from the estimates used herein.
The pro forma financial statements should be read in conjunction with the
respective audited and interim financial statements of the Company and the
related notes thereto. The pro forma statements are not necessarily indicative
of the results that would have been obtained if the acquisitions had been
consummated at an earlier date and is not intended to be a projection of future
results or trends.
2. ADJUSTMENTS TO COMBINING STATEMENTS OF INCOME
Operating results of acquired businesses for periods prior to their
acquisition by the Company are included in pro forma statements of income.
Pre-acquisition periods for each acquired business extend to their respective
acquisition dates which are as follows:
<TABLE>
<S> <C>
ASCO Sanitation, Inc. April 1, 1995
Larry's Disposal, Inc. April 28, 1995
Terre Haute Recycling, Inc. July 17, 1995
Gilliam Sanitation, Inc. July 18, 1995
Gilliam Transfer, Inc. July 18, 1995
Anderson Refuse Company, Inc. August 1, 1995
M.V. Dulworth August 1, 1995
Procesa Continental S.A. de
C.V. August 15, 1995
Statewide Environmental and
affiliated companies July 1, 1996
</TABLE>
180
<PAGE> 182
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME -- (CONTINUED)
2. ADJUSTMENTS TO COMBINING STATEMENTS OF INCOME -- (CONTINUED)
Pro forma adjustments for "Business Acquired in 1995" (in thousands) --
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31, 1995
-----------------
<S> <C>
Operating expenses --
Record depreciation of other property revaluation adjustments......... $ 32
Record amortization of goodwill from all acquisitions over 25 years... 144
-----
$ 176
=====
Interest expense --
Record interest expense on additional borrowings under the Credit
Facility to finance the acquisitions (6.97%)....................... $(110)
Record interest expense on notes due to sellers....................... (27)
-----
$(137)
=====
Other income (expense), net --
Eliminate the Company's minority interest related to Victory and
GEM................................................................ $ (68)
Record the Company's minority interest related to Procesa............. 58
-----
$ (10)
=====
Benefit for income taxes --
Record income tax effect of above adjustments......................... $ (96)
=====
Primary and fully dilutive weighted average shares --
Issuance of Shares to acquire companies............................... 31
=====
</TABLE>
181
<PAGE> 183
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINING STATEMENTS OF INCOME -- (CONTINUED)
2. ADJUSTMENTS TO COMBINING STATEMENTS OF INCOME -- (CONTINUED)
Pro forma adjustments for "Statewide" (in thousands) --
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE NINE
ENDED MONTHS ENDED
DECEMBER 31, 1995 SEPTEMBER 30, 1996
----------------- ------------------
<S> <C> <C>
Revenue
Elimination of intercompany revenue................ $(3,029) $ (2,091)
======= =======
Operating expenses
Elimination of intercompany disposal costs......... $(3,029) $ (2,091)
======= =======
General and administrative expenses
Elimination of former owners' salaries............. $(1,015) $ (363)
Elimination of intercompany rent................... (25) (14)
------- -------
$(1,040) $ (377)
======= =======
Depreciation and amortization
Record depreciation of other property revaluation
adjustments (over 7-31.5 years)................. $ 242 $ 121
Record amortization of goodwill from all
acquisitions over 40 years...................... 216 108
------- -------
$ 458 $ 229
======= =======
Interest expense --
Record interest expense on additional borrowings
under the Credit Facility to finance the
acquisitions (at 6.97%)......................... $ (451) $ (226)
Eliminate non-recurring interest expense........... 309 238
------- -------
$ (142) $ 12
======= =======
Provision for income taxes --
Record income tax effect of above adjustments at
the Company's statutory income tax rate (40%)... $ 220 $ 86
======= =======
Primary and fully dilutive weighted average shares --
Issuance of Shares to acquire companies............ 556 371
======= =======
</TABLE>
182
<PAGE> 184
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF REPUBLIC (RESTATED)
The following discussion should be read in conjunction with Republic's
Consolidated Financial Statements and Unaudited Condensed Consolidated Financial
Statements and the Notes thereto. The historical financial statements of
Republic include the financial position and results of operations of CarChoice
which Republic acquired in August 1996 and Schaubach and Denver Alarm both of
which Republic acquired in February 1996. These transactions have been
accounted for under the pooling of interests method of accounting and,
accordingly, Republic's historical financial statements have been restated as
if the companies had operated as one entity since inception. All references to
historical share and per share data of the Company's common stock, $.01 par
value per share ("Common Stock") have been retroactively adjusted to reflect
a two-for-one stock split in the form of a 100% stock dividend that was
effected in June 1996.
The following discussion should also be read in conjunction with the
unaudited pro forma financial statements and notes thereto appearing elsewhere
herein.
BUSINESS COMBINATIONS
Republic makes its decisions to acquire or invest in businesses based on
financial and strategic considerations.
Pending Acquisitions
In June 1996, Republic signed a definitive agreement to acquire
Continental Waste Industries, Inc. ("Continental") in a merger transaction.
Continental provides integrated solid waste management services to residential,
commercial and industrial customers primarily in the mid-south and eastern
United States. Under the terms of the agreement, each share of common stock of
Continental would be exchanged, on a tax-free basis, for 0.8 of a share of
the Company's common stock, par value $.01 per share ("Common Stock"). As of
September 30, 1996, there were approximately 15,300,000 shares of Continental's
common stock issued and outstanding. The transaction, which will be accounted
for under the pooling of interests method of accounting, is subject to approval
of Continental's stockholders and other customary closing conditions, including
regulatory approvals, and is expected to close in the fourth quarter of 1996.
Certain stockholders of Continental, representing approximately 23% of
Continental's outstanding common stock, have granted to Republic irrevocable
proxies to vote or to execute written consents with respect to their shares in
favor of the transaction.
In June 1996, Republic signed a definitive agreement to acquire
Addington Resources, Inc. ("Addington") in a merger transaction. Addington
provides integrated solid waste disposal services including landfill,
collection and recycling services for cities and counties in the southeastern
United States. Under the terms of the agreement, each share of Addington common
stock would be exchanged, on a tax free basis, for 0.9 of a share of Common
Stock. As of September 30, 1996, there were approximately 15,200,000 shares of
Addington common stock issued and outstanding. The transaction, which will be
accounted for under the pooling of interests method of accounting, is subject
to approval by the stockholders of Addington and other customary closing
conditions, including regulatory approvals. Six of Addington's shareholders
representing approximately 45% of the outstanding shares of Addington common
stock, have granted to Republic irrevocable proxies to, and agreed to, vote or
to execute written consents with respect to their shares of Addington common
stock in favor of approval and adoption of the transaction.
In May 1996, after approval by a special committee of disinterested members
of Republic's Board of Directors, Republic signed a definitive agreement
to acquire AutoNation Incorporated ("AutoNation"). AutoNation is a
183
<PAGE> 185
privately-owned company developing a chain of megastores for the sale of new and
used vehicles and is partially owned by Republic's Chairman and Co-Chief
Executive Officers, and certain other officers and directors of Republic. The
transaction, which will be accounted for under the purchase method of accounting
and is intended to be tax-free to AutoNation shareholders, is subject to final
approval by the stockholders of Republic and other customary closing conditions
including regulatory approvals, and is expected to close in the first quarter
of 1997. It is contemplated that Republic will issue approximately 17,467,000
shares of Common Stock in connection with the transaction.
The consummation of each of the Continental, Addington or AutoNation
mergers is not contingent on the approval or consummation of any other merger.
Completed Acquisitions
Significant businesses acquired through September 30, 1996 and accounted
for under the pooling of interests method of accounting have been included
retroactively in the financial statements as if the companies had operated as
one entity since inception. Businesses acquired through September 30, 1996 and
accounted for under the purchase method of accounting are included in the
financial statements from the date of acquisition.
In November 1996, Republic acquired Alamo Rent-A-Car, Inc. and affiliated
entities ("Alamo") in merger transactions. Alamo is the fourth largest car
rental company in the United States and operates a fleet of approximately
158,000 vehicles. Alamo operates in 48 states in the United States and has
operations in 9 European countries and Canada. The Company issued 22,123,893
shares of Common Stock to acquire Alamo which will be accounted for under the
pooling of interests method of accounting.
In August 1996, Republic acquired all of the net assets of CarChoice, Inc.
("CarChoice"). CarChoice, which commenced operations in January 1995, is a
developer and operator of used car superstores similar to those being
developed by AutoNation.
In February 1996, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of Incendere, Inc. and affiliates
("Schaubach"). Schaubach provides solid waste collection and recycling services
to residential, commercial and industrial customers in southeastern Virginia
and eastern North Carolina and provides transportation of medical waste
throughout the Mid-Atlantic states.
In February 1996, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of The Denver Fire Alarm and Protective Co.
and affiliate ("Denver Alarm"). Denver Alarm provides installation, monitoring
and maintenance services to residential and commercial customers throughout
Colorado.
Republic issued an aggregate of 9,707,664 shares of Common Stock to
acquire CarChoice, Schaubach and Denver Alarm, all of which have been
accounted for under the pooling of interests method of accounting.
During the nine months ended September 30, 1996, Republic also acquired
various other businesses in the solid waste and electronic security industries
which were immaterial to Republic. The aggregate purchase price paid by Republic
related to immaterial acquisitions accounted for under the purchase method of
accounting was approximately $101,039,000 and consisted of cash and 8,474,286
shares of Common Stock. With respect to immaterial acquisitions accounted for
under the pooling of interests method of accounting, Republic issued 8,318,800
shares of Common Stock. These acquisitions were not material in the aggregate
and, consequently, prior period financial statements were not restated.
In November 1995, Republic acquired, in a merger transaction, all of the
outstanding shares of capital stock of Cana First Corporation and several
related companies doing business as Scott Alarm Company ("Scott"). Scott
provides electronic security monitoring and maintenance to residential accounts
in Jacksonville, Orlando and Tallahassee, Florida, as well as other metropolitan
areas in the southeastern United States, including Charlotte, North Carolina,
Savannah, Georgia and Nashville, Tennessee.
In November 1995, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of Fennell Container Company, Inc. and
several related companies ("Fennell"). Fennell provides waste collection,
recycling and environmental services to commercial, industrial and residential
customers in and around Charleston and Greenville, South Carolina, and also owns
a landfill.
In November 1995, Republic acquired, in a merger transaction, all of the
outstanding shares of capital stock of Garbage Disposal Service, Inc. ("GDS").
GDS provides solid waste collection and recycling services for commercial,
residential and industrial customers throughout western North Carolina.
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In November 1995, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of J.C. Duncan Company, Inc. and related
companies ("Duncan"). Duncan provides solid waste collection and recycling
services to residential, commercial and industrial customers in the Dallas-Fort
Worth metropolitan area and throughout west Texas, and also operates two
landfills.
In October 1995, Republic acquired, in a merger transaction, all of the
outstanding shares of capital stock of Southland Environmental Services, Inc.
("Southland"). Southland, through its subsidiaries, provides solid waste
collection services to residential, commercial and industrial customers in and
around Jacksonville, Florida, owns and operates a construction and demolition
landfill and provides composting and recycling services.
In October 1995, Republic acquired, in a merger transaction, all of the
outstanding shares of capital stock of United Waste Service, Inc. ("United").
United provides solid waste collection, transfer and recycling services in the
Atlanta, Georgia metropolitan area and services both residential and commercial
customers.
In August 1995, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of Kertz Security Systems, Inc. and Kertz
Security Systems II, Inc. ("Kertz"). Kertz provides electronic security
monitoring and maintenance to residential and commercial customers predominantly
in the South Florida, Tampa and Orlando areas.
Republic issued an aggregate of 36,255,968 shares of Common Stock for the
acquisitions of Scott, Fennell, GDS, Duncan, Southland, United and Kertz, all
of which were accounted for under the pooling of interests method of accounting.
In August 1995, Republic acquired, in merger transactions, all of the
outstanding shares of capital stock of Hudson Management Corporation and
Envirocycle, Inc. (collectively, "HMC") in exchange for an aggregate of
16,000,000 shares of Republic Common Stock. HMC, as the third largest solid
waste management company in Florida, provides solid waste collection and
recycling services to commercial, industrial and residential customers. The
acquisition of HMC has been accounted for under the purchase method of
accounting.
Termination of ADT Agreement
In September 1996, Republic announced that the Agreement and Plan of
Amalgamation, dated as of July 1, 1996 and amended as of July 15, 1996 (the
"ADT Agreement") between Republic and ADT Limited ("ADT"), which provided for
the acquisition of ADT by Republic, had been terminated by mutual agreement of
the parties. In connection with the execution of the ADT Agreement, ADT
granted to Republic a warrant to purchase 15,000,000 common shares of ADT at
a purchase price of $20 per share (which approximated fair market value),
subject to certain anti-dilution adjustments. The warrant became exercisable
upon the termination of the ADT Agreement and remains exercisable until March
1997. Pursuant to the terms of the warrant, ADT has granted to Republic certain
registration rights with respect to the common shares of ADT issuable to
Republic upon exercise of the warrant.
RESULTS OF OPERATIONS
Three and Nine Months Ended September 30, 1996 and 1995
Revenue. Republic's revenue from its waste collection operations
consists of fees from residential, commercial and industrial customers.
Republic's revenue from landfill operations is comprised primarily of tipping
fees charged to third parties. Republic's revenue from its electronic security
services business results from monitoring contracts for security systems and
fees charged for the sale and installation of such systems. Republic's revenue
from its automotive retailing business consists primarily of sales of used
vehicles.
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The following table presents revenue data from Republic's primary industry
segments for the following periods (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------- ------------------------
1996 1995 1996 1995
------------- ------- -------- -------------
<S> <C> <C> <C> <C>
Solid waste services................. $ 113,436 $66,180 $314,200 $ 174,647
Electronic security services......... 19,926 11,874 57,514 36,032
Automobile Retailing................. 22,384 -- 51,657 --
-------- ------- -------- --------
$ 155,746 $78,054 $423,371 $ 210,679
======== ======= ======== ========
</TABLE>
The increases in revenue from the solid waste services segment for the
three and nine months ended September 30, 1996 are primarily a result of the
acquisition of HMC in August 1995 and other businesses during the periods, as
well as the expansion of Republic's existing businesses. The increases in
revenue from the electronic security services segment for the three and nine
months ended September 30, 1996 are principally a result of the addition of new
monitoring accounts during the periods. Revenue from Republic's automotive
retailing business during the three and nine months ended September 30, 1996 is
a result of the acquisition of CarChoice in August 1996 which was accounted for
under the pooling of interests method of accounting. CarChoice opened its
two used car megastores in December 1995 and May 1996, respectively.
Operating Costs and Expenses
The following table sets forth Republic's total cost of operations and
selling, general and administrative expenses as percentages of total revenue for
the following periods:
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cost of operations............................................ 73% 69% 70% 67%
Selling, general and administrative........................... 16% 23% 18% 23%
</TABLE>
Cost of Operations. Cost of operations for Republic's waste collection
operations includes disposal, labor, fuel and equipment maintenance costs.
Landfill cost of operations includes daily operating expenses, the legal and
administrative costs of ongoing environmental compliance and site closure and
post-closure costs. Certain direct landfill development costs, such as
engineering, upgrading, cell construction and permitting costs, are capitalized
and depleted based on consumed airspace. All indirect landfill development
costs, such as executive salaries, general corporate overhead, public affairs
and other corporate services are expensed as incurred. Cost of operations for
Republic's electronic security services business primarily consists of the labor
and equipment associated with the sale, installation and monitoring of security
systems. Cost of operations for Republic's automotive retailing business
primarily consists of the direct cost to acquire vehicles sold and their related
reconditioning costs.
Cost of operations was $113,566,000 and $297,616,000 for the three and nine
month periods ended September 30, 1996, respectively, as compared to $53,921,000
and $140,152,000 for the same periods of the prior year. These increases reflect
Republic's expanded operations through acquisitions of new businesses and growth
of its existing businesses. The increases in cost of operations as percentages
of revenue for the three and nine months ended September 30, 1996 are primarily
due to start-up operating costs associated with Republic's automotive retailing
business.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $24,139,000 and $76,744,000 for the three and nine
month periods ended September 30, 1996, respectively, as compared to $17,645,000
and $49,294,000 for the same periods of the prior year. These increases
primarily reflect the growth of Republic's business through the acquisitions of
HMC and other businesses as well as start-up costs related to Republic's
automotive retailing business. The decreases in selling, general and
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administrative expenses as percentages of revenue for the three and nine months
ended September 30, 1996 are primarily due to the reduction of administrative
expenses for acquired businesses and growth in revenue.
Included in selling, general and administrative expenses for the three and
nine months ended September 30, 1996 are approximately $3,000,000 of
transaction costs associated with the ADT Agreement which was terminated by
mutual agreement of the parties on September 30, 1996. Upon terminating the
ADT Agreement, Republic recorded the ADT Warrant at a value of approximately
$5,670,000 based upon an option pricing model computation. Republic has
recorded $3,000,000 of the $5,670,000 value attributed to the ADT Warrant as a
credit to selling, general and administrative expenses for the three months
ended September 30, 1996 to offset the transaction costs incurred in
connection with the ADT Agreement described above. The remaining value of the
ADT Warrant totaling $2,670,000 has been included as component of other income
for the three months ended September 30, 1996.
Interest and Other Income. Interest and other income increased to
$7,102,000 and $13,083,000 for the three and nine month periods ended September
30, 1996, respectively, from $1,717,000 and $2,770,000 for the comparable
periods in 1995. These increases are due to the increase in interest income from
Republic's cash investments resulting from the proceeds from sales of Republic
Common Stock in 1996 and 1995 and interest income on advances to AutoNation.
Also included in other income for the three and nine months ended September 30,
1996 is the $2,670,000 value attributed to the ADT Warrant in excess of the ADT
transaction costs as described above.
Interest Expense. Interest expense was $513,000 and $2,324,000 for the
three and nine month periods ended September 30, 1996, respectively, as compared
to $1,264,000 and $4,263,000 for the comparable periods in 1995. The decreases
are due to a reduction in average borrowings outstanding during the periods.
Income Taxes. Republic's provision for income taxes is based upon
Republic's anticipated annual effective income tax rate. Republic's effective
income tax rates for the three and nine months ended September 30, 1996
decreased to 35.1% and 36.5% respectively, from 44.0% and 44.4% respectively,
for the same periods of the prior year. Such decreases are due to fluctuations
associated with varying effective income tax rates of businesses acquired and
accounted for under the pooling of interests method of accounting. Republic
anticipates its effective income tax rates will fluctuate in future periods as a
result of future business combinations, particularly those accounted for under
the pooling of interests method of accounting.
Years Ended December 31, 1995, 1994 and 1993
Revenue. The following table presents revenue data from Republic's primary
industry segments for the periods indicated (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Solid waste services............................... $245,412 $176,260 $146,107
Electronic security services....................... 49,826 41,913 36,388
-------- -------- --------
$295,238 $218,173 $182,495
======== ======== ========
</TABLE>
The increase in revenue from the solid waste services segment for the year
ended December 31, 1995 is primarily a result of the acquisition of HMC and
other businesses as well as the expansion of Republic's existing businesses. The
increase for 1994 is primarily attributable to the expansion of Republic's
existing businesses. The increases in revenue from the electronic security
services segment for the years ended December 31, 1995 and 1994 are principally
a result of the addition of new monitoring accounts during the periods.
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Operating Costs and Expenses
The following table sets forth Republic's total cost of operations and
selling, general and administrative expenses as percentages of total revenue for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cost of operations............................................ 65% 66% 67%
Selling, general and administrative........................... 23% 23% 25%
</TABLE>
Cost of Operations. Cost of operations was $192,311,000, $143,375,000 and
$121,640,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The increases reflect Republic's expanded operations through acquisitions of new
businesses and growth of its existing businesses. The decreases in cost of
operations as a percentage of revenue for the years ended December 31, 1995 and
1994 are primarily a result of price increases and the implementation of cost
reduction measures.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $67,048,000, $49,245,000 and $46,477,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. The increase for the
year ended December 31, 1995 primarily reflects the growth of Republic's
business through the acquisition of HMC and other businesses. The decreases in
selling, general and administrative expenses as a percentage of revenue for the
years ended December 31, 1995 and 1994 are primarily due to the reduction of
administrative expenses for acquired businesses offset partially in 1995 by
start-up costs related to Republic's automotive retailing business.
Restructuring and Unusual Charges. In 1993, Republic recorded
restructuring and unusual charges of $10,040,000 based on Republic's
reevaluation of its solid waste operations. As a result of this reevaluation,
Republic decided to terminate certain contracts, close one of its facilities
(due to low waste volumes) and abandon its permitting effort at another facility
(because of limited market opportunity in that area and delays in the permitting
process). The write-off of property and equipment and accumulated permitting
costs associated with these facilities were included in these restructuring and
unusual charges. In addition, Republic also reevaluated its exposure related to
litigation and environmental matters and provided additional accruals for the
costs to defend or settle certain litigation and environmental matters. For
further discussion of the restructuring and unusual charges, see Note 10 of
Notes to Republic's Consolidated Financial Statements.
Interest and Other Income. Interest and other income increased to
$5,715,000 in 1995 from $1,081,000 in 1994 due to the increase in Republic's
cash investments resulting from the proceeds from sales of Republic Common
Stock. For further discussion of the sales of Republic Common Stock, see Note 5
of Notes to Republic's Consolidated Financial Statements.
Interest Expense. Interest expense was $6,139,000, $4,487,000 and
$2,936,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
The increases are primarily due to higher average outstanding borrowings used to
fund internal growth. Substantially all of Republic's outstanding borrowings
were repaid during the latter half of 1995.
Income Taxes. Republic's income tax provisions for 1995 and 1994 were
partially offset by certain tax reserve adjustments resulting from tax planning
strategies employed by Republic, such as combining entities to reduce state
income taxes, claiming tax credits not previously claimed, recapturing taxes
previously paid by acquired companies and adjustments for the resolution of tax
matters in amounts more favorable than those originally estimated. Republic's
1995 income tax provision included an increase in the valuation allowance due to
uncertainty surrounding future realization of a portion of the deferred tax
assets generated as a result of acquired net operating loss carryforwards.
Additionally, Republic's 1994 income tax provision was offset by a decrease in
the valuation allowance related to the expected realization of deferred tax
assets generated as a result of restructuring and unusual charges incurred in
the fourth quarter of 1993. The valuation allowance was recorded in 1993 due to
the uncertainty surrounding the future utilization of such deferred tax assets.
For further discussion of income taxes, see Note 4 of Notes to Republic's
Consolidated Financial Statements.
Environmental and Landfill Matters. Republic provides for accrued
environmental and landfill costs which include landfill site closure and
post-closure costs. Landfill site closure and post-closure costs include
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<PAGE> 190
estimated costs to be incurred for final closure of the landfills and estimated
costs for providing required post-closure monitoring and maintenance of
landfills. These costs are accrued based on consumed airspace. Republic
estimates its future cost requirements for closure and post-closure monitoring
and maintenance for its solid waste facilities based on its interpretation of
the technical standards of the EPA's Subtitle D regulations. These estimates do
not take into account discounts for the present value of such total estimated
costs.
Environmental costs are accrued by Republic through a charge to income in
the period such liabilities become probable and reasonably estimatable.
Republic periodically reassesses its methods and assumptions used to
estimate such accruals for environmental and landfill costs and adjusts such
accruals accordingly. Such factors considered are changing regulatory
requirements, the effects of inflation, changes in operating climates in the
regions in which Republic's facilities are located and the expectations
regarding costs of securing environmental services.
Discontinued Operations. In April 1995, Republic spun-off its hazardous
waste services segment, RESI, to Republic's stockholders. Republic has had no
direct ownership interest in RESI since the spin-off. The hazardous waste
services segment of Republic's business has been accounted for as a discontinued
operation in Republic's Consolidated Financial Statements.
Republic's income (loss) from discontinued operations, net of income taxes
was ($293,000), $2,684,000 and ($14,579,000) for the years ended December 31,
1995, 1994 and 1993, respectively. The 1993 loss from discontinued operations is
primarily a result of a $14,900,000 nonrecurring charge in the fourth quarter of
1993 related to the restructuring of RESI. Income from discontinued operations
in 1994 was partially offset by $8,484,000 of various charges related primarily
to the write off of goodwill in connection with Republic's decision to spin off
RESI. The 1995 loss from discontinued operations primarily consists of operating
results of RESI prior to the spinoff in April 1995.
EFFECTS OF ACQUISITIONS ON RESULTS OF OPERATIONS
The acquisition of Alamo represents the Company's entry into the
automobile rental industry. For the nine months ended September 30,
1996, Alamo had total revenue of approximately $1,174,197,000 and pre-tax
earnings of $10,207,000. The industry in which Alamo operates, particularly the
leisure travel segment, is highly seasonal. Alamo's third quarter, which
includes the peak summer travel months, has historically been the strongest
quarter of the year. During the peak season Alamo increases its fleet and
workforce to accommodate increased rental activity. As a result, any occurrence
that disrupts travel patterns during the summer period could have a material
adverse effect on the Company's annual performance. Alamo's first quarter is
generally its weakest, when there is limited leisure family travel and a
greater potential for adverse weather conditions. Many of Alamo's operating
expenses such as rent, general insurance and administrative personnel are fixed
and cannot be reduced during periods of decreased rental demand.
Due to the recent commencement of AutoNation's principal operations, the
pending acquisition of AutoNation is expected to be dilutive to earnings per
share until such time as the number of open stores and related revenue is
sufficient to absorb the overhead and operating expenses of AutoNation. Due to
the limited operating history and the plans for a rapid rollout of AutoNation
stores, the Company is unable to reasonably estimate the degree of such
dilution. However, Republic anticipates growth from the opening of new
AutoNation stores and revenue increases as newly opened stores mature.
Although AutoNation's limited operations preclude a precise estimation,
AutoNation anticipates that each store will reach its planned mature sales and
earnings potential within two years of opening. Given the infrequent repeat
purchase cycle on vehicles, sales and earnings may continue to grow beyond
this initial anticipated ramp-up period.
The pending acquisitions of Continental and Addington are more consistent
with the historical integrated solid waste management and disposal operations
of Republic. Such acquisitions are expected to enhance and strengthen the
operations of Republic's solid waste services division and be accretive to
earnings per share in 1997 and thereafter. For the nine months ended September
30, 1996, Continental and Addington had combined revenue of approximately
$99,721,000 and pre-tax earnings of approximately $1,414,000. The effect
of the mergers with Continental and Addington on Republic's restated historical
results of operations as a result of the poolings is reflected in the unaudited
Condensed Consolidated Pro Forma Financial Statements included elsewhere
herein.
As Republic completes an acquisition it reviews the overall business
practices and efficiencies of the acquired company with a view to improving
operations, eliminating unnecessary redundancies, increasing utilization of
assets and personnel, and coordinating and integrating the acquired company
with and into Republic's existing operations. Due to the size and complexity
of the transactions with Addington, Alamo, AutoNation and Continental,
Republic has not yet completed its review or formulated a specific plan with
respect to these companies that would allow it to determine whether to record
a charge against earnings in connection with these acquisitions, or if so, the
size or timing of such charge, or whether such charge would be material. It is
expected that this review and determination will be completed as soon as
practicable and that any such charge would be quantified at that time.
FINANCIAL CONDITION
At September 30, 1996, Republic had $154,826,000 in cash and $250,000,000
of availability under its credit facility. In addition, in November 1996,
Republic issued and sold approximately 12,080,000 shares of Republic Common
Stock in a private placement transaction resulting in net proceeds of
approximately $353,000,000. Republic believes that its financial condition is
strong and that it has the financial resources necessary to meet its anticipated
financing needs.
Working Capital
Working capital at September 30, 1996 amounted to $246,129,000 as compared
to $144,329,000 at December 31, 1995. The increase in working capital primarily
results from the May 1996 sale of 9,878,400 shares of Republic Common Stock in a
private placement transaction resulting in net proceeds of $197,583,000.
Republic believes working capital may decline during the remainder of 1996 to
lower levels as additional capital is used for the continued expansion of
Republic's existing businesses and the development of the AutoNation business.
Accounts receivable at September 30, 1996 were $62,424,000 as compared to
$38,092,000 at December 31, 1995 and $26,159,000 at December 31, 1994. The
increases are primarily attributed to various business acquisitions and
expansion of Republic's existing businesses. On a combined company pro forma
basis, the Company had accounts receivable of $349,508,000 at September 30,
1996 consisting primarily of amounts due from retail and service customers,
travel agents and tour operators and amounts due under vehicle repurchase and
incentive programs.
Inventory at September 30, 1996 amounted to $27,954,000 as compared to
$14,924,000 at December 31, 1995. The increase is primarily attributed to
increases in vehicle inventory associated with the May 1996 opening of a used
car megastore by CarChoice.
Other current assets at September 30, 1996 were $126,296,000 as compared to
$7,323,000 at December 31, 1995. The increase is primarily due to approximately
$112,900,000 in advances made to AutoNation during the nine months ended
September 30, 1996. In May 1996, in connection with the execution of the
AutoNation Agreement which provides for the acquisition of AutoNation by
Republic, the parties also entered into a loan agreement (the "AutoNation Loan
Agreement") whereby Republic has agreed to provide a line-of-credit to
AutoNation for the development of new and used car megastores until consummation
of the acquisition of AutoNation by Republic. Advances under the AutoNation Loan
Agreement bear interest at
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LIBOR plus 2% and mature on June 30, 1997. Additionally, advances are secured by
the common stock of AutoNation's principal operating subsidiary, all trademarks
and intellectual property of AutoNation and, until consummation of the
AutoNation Merger, AutoNation's remaining shareholder subscription commitments
which commitments approximate $28,000,000. Also included in other current assets
at September 30, 1996 is the value assigned to the ADT Warrant totaling
$5,670,000 as previously discussed.
Accounts payable and accrued liabilities at September 30, 1996 were
$86,767,000 as compared to $40,238,000 at December 31, 1995 and $24,464,000 at
December 31, 1994. The increases are primarily attributed to various business
acquisitions and expansion of Republic's existing businesses.
Deferred revenue consists primarily of proceeds from the factoring of
electronic security monitoring contracts by one of Republic's acquired security
businesses. The use of factoring was discontinued by Republic subsequent to the
date of acquisition of such business. The current portion of deferred revenue
amounted to $25,555,000 at December 31, 1995 as compared to $13,892,000 at
December 31, 1994. The increase is primarily due to new installations of
electronic security devices and related monitoring contracts.
Property and Equipment
Property and equipment increased to $457,976,000 at September 30, 1996 from
$293,734,000 at December 31, 1995 and $217,000,000 at December 31, 1994. The
increases are attributed primarily to various business acquisitions and
increased capital expenditures resulting from expansion of Republic's existing
businesses.
Investment in Subscriber Accounts
Investment in subscriber accounts represents certain capitalized costs
associated with the installation of new electronic security systems and the cost
of acquired subscriber accounts. Investment in subscriber accounts increased to
$96,542,000 at September 30, 1996 from $53,686,000 at December 31, 1995 and
$31,170,000 at December 31, 1994. These increases are due to growth in
electronic security system installations and acquisitions of subscriber
accounts.
Intangible Assets
Intangible assets increased $90,177,000 during the nine months ended
September 30, 1996 as a result of the acquisition of various businesses
accounted for under the purchase method of accounting during the period.
Intangible assets increased $91,572,000 during the year ended December 31, 1995
as a result of the acquisition of HMC and other businesses during the period.
The pending acquisition of AutoNation is expected to result in additional
intangible assets of approximately $161,000,000 upon consummation to be
amortized over 40 years.
Deferred Revenue, Net of Current Portion
Deferred revenue, net of current portion, decreased to $9,794,000 at
September 30, 1996 from $18,012,000 at December 31, 1995 and $20,353,000 at
December 31, 1994. Such decreases are a result of revenue recognition from
previously factored monitoring contracts over the remaining term of the
contracts which expire through 1998.
Net Assets of Discontinued Operations
Net assets of discontinued operations decreased to zero at December 31,
1995 from $20,292,000 at December 31, 1994 due to the spin-off of the hazardous
waste services segment which was consummated in April 1995. For further
discussion of the spin-off, see Note 9 of Notes to Republic's Consolidated
Financial Statements.
Long-Term Debt and Notes Payable Including Current Maturities
Long-term debt and notes payable including current maturities increased to
$18,805,000 at September 30, 1996 from $15,787,000 at December 31, 1995. The
increase is primarily attributed to an increase in vehicle floor plan financing
associated with Republic's automotive retailing businesses. Long-term debt and
notes payable including current maturities decreased to $15,787,000 at December
31, 1995 from $51,913,000 at December 31, 1994 due to repayment of borrowings in
1995 with proceeds from 1995 sales of Common Stock.
On a combined company pro forma basis, the Company had long-term debt
including current maturities totaling approximately $2,606,411,000 at
September 30, 1996 of which $2,254,703,000 was secured by Alamo's revenue
earning rental vehicles. The Company expects to continue to fund its purchases
of revenue earning rental vehicles with secured vehicle financings. Included
in the combined company pro forma long-term debt including current maturities
are $100,000,000 principal amount of 11 3/4% Senior Notes due 2006 (the "Senior
Notes") which were issued in February 1996 by Alamo Rent-A-Car, Inc. and
certain of its affiliates (the "Alamo Issuers"). The Senior Notes are
unsecured, joint and several obligations of each of the Alamo Issuers and rank
pari passu in right of payment with all existing and future debt (as defined)
of the Alamo Issuers. The Senior Notes are effectively subordinated to all
existing and future secured indebtedness of each of the Alamo Issuers. In
November 1996, Alamo made a Tender Offer for all outstanding Senior Notes.
Concurrently with the Tender Offer, Alamo made a Consent Solicitation in order
to effect certain changes to the indenture relating to the Senior Notes.
Aggregate consideration to holders of the Senior Notes that tender and consent
will be $1,206.25 per $1,000 principal amount plus accrued and unpaid interest
to the tender date. Such amount consists of $1,196.25 per $1,000 principal
amount plus accrued and unpaid interest for tendered notes and, for holders of
the Senior Notes providing their consent by December 10, 1996, $10 per $1,000
principal amount for their consent. The Consent Solicitation will expire
December 10, 1996 and the Tender Offer will expire at 12:00 midnight December
23, 1996. As of December 10, 1996, virtually all of the Senior Notes were
tendered and consents were received. Republic estimates that it will record an
extraordinary charge of approximately $20,000,000 to $25,000,000, net of tax,
during the fourth quarter of 1996 related to the early extinguishment of the
Senior Notes and certain other debt. Included in the potential charge related
to the early extinguishment of debt is the premium related to the Tender
Offer and capitalized debt costs, prepayment penalties and legal fees related
to the Tender Offer and the repayment of other debt.
Also included in Republic's combined company pro forma long-term debt of
approximately $2,606,411,000 at September 30, 1996 is the long-term debt and
current maturities of Continental and Addington of approximately $70,079,000.
It is currently Republic's intention to either repay such outstanding debt or
refinance such outstanding debt using Republic's $250,000,000 credit
facility upon consummation of the mergers. The effect of the mergers with
Continental and Addington on Republic's restated historical financial condition
as a result of the poolings is reflected in the unaudited Condensed
Consolidated Pro Forma Financial Statements included elsewhere herein.
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Shareholders' Equity
Shareholders' equity increased $341,356,000 during the nine months ended
September 30, 1996 primarily due to the May 1996 sale of Common Stock and the
acquisition of various businesses during the period. Shareholders' equity
increased $335,330,000 during the year ended December 31, 1995 primarily due
to sales of Common Stock and the acquisition of HMC and other businesses.
CASH FLOWS
Cash and cash equivalents decreased by $9,746,000 during the nine months
ended September 30, 1996 and increased by $153,087,000 during 1995. The major
components of these changes are discussed below.
Cash Flows from Operating Activities
Republic's net cash flows from operating activities increased during the
nine months ended September 30, 1996 and during the year ended December 31, 1995
primarily as a result of various business acquisitions and expansion of
Republic's existing businesses.
Cash Flows from Investing Activities
Republic made capital expenditures of approximately $77,538,000 during the
nine months ended September 30, 1996 and $62,930,000 during the year ended
December 31, 1995 which included the purchase of equipment, normal replacement
of older equipment and expansion of landfill sites. Republic also made capital
expenditures of approximately $24,943,000 during the nine months ended September
30, 1996 and $15,980,000 during the year ended December 31, 1995 related to the
expansion of its electronic security services business through installations of
new monitoring systems and acquisitions of subscriber accounts.
In addition, during the nine months ended September 30, 1996, Republic
advanced $112,900,000 to AutoNation under the AutoNation Loan Agreement as
previously discussed.
Republic expects capital expenditures to increase substantially during the
remainder of 1996 and in the foreseeable future due to the development of the
AutoNation business as well as continued internal growth of existing businesses
and pending acquisitions. In addition, management anticipates continuing to
make capital expenditures for equipment, upgrading existing equipment and
facilities, the construction of new airspace at landfill sites and the
installation of new security systems.
AutoNation is in various stages of evaluating, contracting and closing on
purchases or leases of approximately 70 additional sites for vehicle retail
stores or reconditioning centers. Due to the recent commencement of
AutoNation's principal operations, the amount of capital expenditures to be
incurred related to such operations cannot be reasonably estimated. However,
the Company intends to finance capital expenditures through cash on hand,
revolving credit facilities and other financings.
Cash Flows from Financing Activities
Cash flows from financing activities for the nine months ended September
30, 1996 primarily consist of $197,583,000 in net cash proceeds from the May
1996 sale of Common Stock.
In August 1995, Republic issued and sold an aggregate of 16,700,000 shares
of Common Stock and warrants to purchase an additional 33,400,000 shares of
Republic Common Stock to H. Wayne Huizenga, Westbury (Bermuda) Ltd. (a Bermuda
corporation controlled by Michael G. DeGroote), Harris W. Hudson, and certain
of their assigns for an aggregate purchase price of approximately $37,500,000.
The warrants are exercisable at prices ranging from $2.25 to $3.50 per share.
In August 1995, Republic issued and sold an additional 2,000,000 shares of
Common Stock each to Mr. Huizenga and John J. Melk, for $6.63 per share for
aggregate proceeds of approximately $26,500,000.
In July 1995, Republic sold 10,800,000 shares of Common Stock in a
private placement transaction for $6.63 per share resulting in net proceeds of
approximately $69,000,000 after deducting expenses, fees and commissions. In
September 1995, Republic sold 10,000,000 shares of Common Stock in an
additional private placement transaction for $10.13 per share resulting in net
proceeds of approximately $99,000,000.
As a result of these transactions, Republic received approximately
$429,583,000 in cash, a portion of which was used to repay all outstanding
borrowings resulting in no long-term debt outstanding at September 30, 1996.
191
<PAGE> 1
EXHIBIT 99.2
HISTORICAL FINANCIAL STATEMENTS
OF DKBERT ASSOC. AND GUY SALMON USA, LTD.
AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
DKBERT ASSOC.
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1995 and 1994............. F-3
Statements of Income for the Years Ended
December 31, 1995, 1994 and 1993......................... F-4
Statements of Partners' Capital for the
Years Ended December 31, 1995, 1994 and 1993............. F-5
Statements of Cash Flows for the Years
Ended December 31, 1995, 1994 and 1993................... F-6
Notes to Financial Statements............................... F-7
GUY SALMON USA, LTD. AND SUBSIDIARIES
Independent Auditors' Report................................ F-13
Consolidated Balance Sheets as of
December 31, 1995 and 1994............................... F-14
Consolidated Statements of Operations for the
Years Ending December 31, 1995, 1994 and 1993............ F-15
Consolidated Statements of Partners' Capital
(Deficiency) for the Years Ending
December 31, 1995, 1994 and 1993......................... F-16
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993............. F-17
Notes to Consolidated Financial Statements.................. F-18
</TABLE>
<PAGE> 2
INDEPENDENT AUDITORS' REPORT
The Partners
DKBERT Assoc.:
We have audited the accompanying balance sheets of DKBERT Assoc. as of
December 31, 1995 and 1994, and the related statements of income, partners'
capital and cash flows for each of the years in the three-year period ended
December 31, 1995. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
Substantially all the Partnership's properties have been leased to Alamo
Rent-A-Car, Inc., a company with common ownership. The Partnership is
economically dependent on Alamo Rent-A-Car, Inc. for rental income sufficient to
service its indebtedness.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of DKBERT Assoc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the years in the three-year period ended December 31, 1995, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
March 8, 1996, except as to the
third paragraph of Note 12, which is
as of November 26, 1996
F-2
<PAGE> 3
DKBERT ASSOC.
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 79 $ 466
Investments, at cost..................................................... 507 3,263
Due from affiliates...................................................... 680 --
Interest and other receivables........................................... 211 188
Properties, at cost:
Rental properties...................................................... 156,285 149,269
Other properties....................................................... 6,856 6,856
-------- --------
163,141 156,125
Less accumulated depreciation.......................................... (28,352) (24,610)
-------- --------
Properties, net................................................ 134,789 131,515
-------- --------
Investment in direct financing lease with affiliate...................... -- 3,308
Other assets............................................................. 2,683 2,241
-------- --------
$138,949 $140,981
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Mortgages payable........................................................ $109,128 $ 80,547
Mortgages and unsecured loans and notes payable to affiliate............. 8,815 36,332
Due to affiliate......................................................... 3,938 2,537
Accounts payable and accrued expenses.................................... 3,271 2,303
Lease deposits........................................................... 1,928 3,313
-------- --------
Total liabilities.............................................. 127,080 125,032
-------- --------
Partners' capital........................................................ 11,869 15,949
-------- --------
Commitments and contingencies............................................
-------- --------
$138,949 $140,981
======== ========
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 4
DKBERT ASSOC.
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Revenues:
Rental income from affiliate.................................... $15,234 $17,696 $17,939
Property management fees from affiliates........................ 680 2,400 2,400
Rental income from others....................................... 590 631 564
Interest income................................................. 149 404 426
------- ------- -------
16,653 21,131 21,329
------- ------- -------
Expenses:
Interest, net of amounts capitalized of $808, $994 and $223 in
1995, 1994 and 1993, respectively............................ 10,207 10,406 11,714
Depreciation.................................................... 3,780 3,601 3,701
General and administrative...................................... 757 3,082 2,932
Real estate taxes............................................... 1,750 1,757 1,601
Rent............................................................ 77 161 238
------- ------- -------
16,571 19,007 20,186
------- ------- -------
Net income.............................................. $ 82 $ 2,124 $ 1,143
======= ======= =======
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 5
DKBERT ASSOC.
STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1992....................................................... $15,285
Distributions.................................................................... (1,138)
Net income....................................................................... 1,143
-------
Balance at December 31, 1993....................................................... 15,290
Distributions.................................................................... (1,465)
Net income....................................................................... 2,124
-------
Balance at December 31, 1994....................................................... 15,949
Distributions.................................................................... (1,986)
Distribution due to cancellation of direct financing lease with affiliate........ (2,176)
Net income....................................................................... 82
-------
Balance at December 31, 1995....................................................... $11,869
=======
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE> 6
DKBERT ASSOC.
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from rentals and management fees............... $ 15,908 $ 21,507 $ 21,568
Cash paid to vendors and employees........................... (1,983) (7,138) (5,225)
Interest received............................................ 149 405 426
Interest paid (net of interest capitalized).................. (9,682) (9,392) (11,113)
-------- -------- --------
Net cash provided by operating activities............ 4,392 5,382 5,656
-------- -------- --------
Cash flows from investing activities:
Sale of investments, net..................................... 2,756 356 98
Capital expenditures......................................... (6,453) (3,962) (12,222)
Proceeds from sale of properties............................. 418 1,845 --
Deposits made on properties.................................. -- (440) (128)
-------- -------- --------
Net cash used in investing activities................ (3,279) (2,201) (12,252)
-------- -------- --------
Cash flows from financing activities:
Principal payments on non-affiliate mortgages payable........ (24,809) (6,010) (10,271)
Proceeds from non-affiliate mortgages payable................ 52,812 -- --
Borrowings from affiliate.................................... 4,118 4,780 17,224
Payments to affiliate........................................ (31,635) (210) (191)
Distributions to partners.................................... (1,986) (1,465) (1,138)
-------- -------- --------
Net cash (used in) provided by financing
activities......................................... (1,500) (2,905) 5,624
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........... (387) 276 (972)
Cash and cash equivalents at beginning of year................. 466 190 1,162
-------- -------- --------
Cash and cash equivalents at end of year....................... $ 79 $ 466 $ 190
======== ======== ========
Reconciliation of net income to net cash provided by operating
activities:
Net income................................................... $ 82 $ 2,124 $ 1,143
Depreciation................................................. 3,780 3,601 3,701
Amortization................................................. 147 77 77
Loss (gain) on sale of properties............................ (145) 104 164
Cash flows from operating activities affecting assets and
liabilities:
Due from affiliates....................................... (680) -- --
Interest and other receivables............................ (24) 542 450
Investment in direct financing lease with affiliate....... 108 239 215
Deposits and other assets................................. 140 41 (43)
Accounts payable and accrued expenses..................... 968 (1,187) (596)
Due to affiliate.......................................... 1,401 194 620
Lease deposits............................................ (1,385) (353) (75)
-------- -------- --------
Net cash provided by operating activities............ $ 4,392 $ 5,382 $ 5,656
======== ======== ========
</TABLE>
Supplemental schedule of noncash investing and financing activities (in
thousands):
In 1995, the Partnership canceled its direct financing lease with
affiliate which resulted in a $2,176 distribution, an addition to rental
properties of $1,017, and the elimination of the investment in direct
financing lease of $3,193.
In 1994, the Partnership sold real property in exchange for $440 of trade
credits.
See accompanying notes to financial statements.
F-6
<PAGE> 7
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) OPERATIONS
DKBERT Assoc. (the Partnership), a Florida partnership, owns and leases
real property. The majority of the Partnership's property is leased to Alamo
Rent A Car, Inc. (Alamo), an affiliated company which has guaranteed a
substantial portion of the Partnership's indebtedness. The Partnership is
economically dependent on Alamo for rental income sufficient to service its
indebtedness.
The Partnership is affiliated with the following entities as a result of
common ownership and control: (i) Alamo, which conducts car rental operations in
the United States; (ii) Guy Salmon USA, Ltd. (GUSA Ltd.), a partnership which
conducts car rental operations in Europe; (iii) Alamo Rent-A-Car (Belgium),
Inc., which conducts car rental operations in Belgium; (iv) Alamo Rent-A-Car
(Canada), Inc., which conducts car rental operations in Canada; (v) Green Corn,
Inc., which is an entity with limited assets; (vi) Guy Salmon (USA), Inc., which
through its subsidiaries conducts car rental operations in certain European
countries; (vii) Territory Blue, Inc., which is a management company which
contracts with certain employees of Alamo and offers management services to
certain other entities; and (viii) Tower Advertising Group, Inc., which provides
advertising services to Alamo.
(B) CASH EQUIVALENTS AND INVESTMENTS
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents, unless the investments
are legally or contractually restricted for longer than three months.
Investments are classified as held-to-maturity securities and are recorded at
amortized cost and accrued interest, adjusted for the amortization or accretion
of premiums or discounts.
(C) PROPERTIES
Properties are stated at cost. Depreciation and amortization are provided
over the estimated useful lives of the respective assets using the straight-line
method.
(D) OTHER ASSETS
Other assets include goodwill (in thousands) of $1,534 at December 31, 1995
and 1994. Accumulated amortization of goodwill (in thousands) was $767 and $690
at December 31, 1995 and 1994, respectively. Goodwill is amortized on a
straight-line basis over a period of twenty years. The Company evaluates the
recoverability of intangible assets as well as the amortization periods to
determine whether an adjustment to the carrying value is appropriate. The
primary indicators of recoverability are the associated current and forecasted
operating cash flows.
(E) DEBT ISSUE COSTS
Debt issue costs, including financing, legal and appraisal fees, are
amortized to interest expense using the interest method over the terms of the
related debt agreements. Unamortized debt issue costs (in thousands) totaled
$1,128 and $421 at December 31, 1995 and 1994, respectively.
(F) REVENUE RECOGNITION
Rental income is recognized on a straight-line basis over the term of the
respective leases.
F-7
<PAGE> 8
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(G) INCOME TAXES
Each partner is individually responsible for reporting his share of Federal
taxable Partnership income or loss. Accordingly, no provision for Federal taxes
is reflected in the financial statements. A provision for state income taxes is
made where applicable.
(H) CONCENTRATIONS OF CREDIT
The Partnership places its cash and investments with high credit quality
financial institutions and maintains balances, at times, in excess of federally
insured limits.
(I) USE OF ESTIMATES
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(J) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of," which became effective for fiscal years beginning
after December 15, 1995. This standard establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain intangibles to be disposed of. The Partnership believes that adoption of
this standard will not have a material impact on the financial condition or
operating results of the Partnership.
(K) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements
to conform to the presentation used in 1995.
(2) INVESTMENTS
Investments primarily represent lease deposits from Alamo and have a
maturity of three months or less. Investments consist of the following (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1995 1994
---- ------
<S> <C> <C>
Money market.......................................................... $507 $ --
Commercial paper...................................................... -- 1,813
U.S. Treasury Bills................................................... -- 1,450
---- ------
$507 $3,263
==== ======
</TABLE>
F-8
<PAGE> 9
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) PROPERTIES
Properties consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- ESTIMATED
1995 1994 USEFUL LIVES
-------- -------- ----------------
<S> <C> <C> <C>
Land and improvements............................. $102,375 $102,188 --
Buildings and improvements........................ 57,705 49,345 15 to 20 years
Equipment and furniture........................... 2,808 2,689 5 to 10 years
Construction in progress.......................... 253 1,903 --
-------- --------
163,141 156,125
Less accumulated depreciation..................... (28,352) (24,610)
-------- --------
$134,789 $131,515
======== ========
</TABLE>
Substantially all properties are assigned as security for mortgage loans.
The Partnership has an option to acquire additional real property in Fort
Lauderdale for $800,000 through January 1999. In addition, the Partnership
entered into a purchase agreement for the purchase of real property (in
thousands) of $2,079 which was subsequently purchased in January 1996.
(4) LEASES
The Partnership leases property primarily to Alamo under various operating
leases. Certain leases contain two-year renewal options at fair market rentals,
exercisable at Alamo's discretion. Alamo provides or reimburses the Partnership
for insurance, property taxes, repairs and other operating expenses. Alamo has
indemnified the Partnership for any losses incurred in connection with the
storage or use of hazardous or toxic materials upon the premises.
In July 1995, the Partnership canceled its direct financing lease with
Alamo and simultaneously entered into an operating lease for the applicable
property. The transaction resulted in a non-cash distribution (in thousands) of
$2,176, an addition to rental properties of $1,017, and elimination of the
investment in direct financing lease of $3,193.
The Partnership provides consulting services to Alamo and affiliated
entities relating to management of existing rental properties and acquisition of
future rental properties. The fees were based on stipulated fixed amounts.
The Partnership earned interest income (in thousands) of $143 and $386 for
the year ended December 31, 1995 and 1994, respectively, related to its direct
financing lease with Alamo.
Minimum future cash receipts under noncancelable operating leases at
December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1996............................................................. $12,535
1997............................................................. 498
1998............................................................. 498
1999............................................................. 498
2000............................................................. 498
Thereafter....................................................... 1,120
--------
Total minimum future cash receipts..................... $15,647
========
</TABLE>
F-9
<PAGE> 10
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(5) MORTGAGES PAYABLE
Mortgages payable to non-affiliates secured by real property, consist of
the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- -------
<S> <C> <C>
Mortgages payable to GMAC and predecessor agreements with interest at
9.193%; payable in monthly installments, due July 2005; guaranteed by
Alamo................................................................... $107,840 $69,335
Mortgage payable to bank with interest at 3/4% over prime; due December
2000; guaranteed by Alamo............................................... 934 1,136
Other mortgages payable................................................... 354 10,076
-------- --------
$109,128 $80,547
======== ========
</TABLE>
The Partnership has only limited involvement with derivative financial
instruments and does not use them for trading purposes. In July 1994, to manage
interest rate fluctuations, the Partnership entered into an agreement for a
notional amount equal to the outstanding principal balance of the mortgages
payable to GMAC resulting in variable interest rates based on the commercial
paper rate. This agreement was terminated in June 1995.
Certain of the mortgages payable to nonaffiliates contain various
restrictive covenants, including provisions relating to the maintenance of
tangible net worth and debt to equity ratios, incurrence of additional
indebtedness, and limitations on the payment of dividends and certain
investments.
The effective interest rate on mortgages to non-affiliates was 9.03%, 9.73%
and 10.74% at December 31, 1995, 1994 and 1993, respectively.
Mortgages and unsecured loans and notes payable to affiliate consist of the
following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
------ -------
<S> <C> <C>
Mortgages payable with interest at 10%; secured by real property;
payable in monthly installments ranging from $8,000 to $17,000
including interest; due at various dates from August 2003 to March
2006.............................................................. $3,013 $ 3,919
Unsecured loans and notes payable with interest at prime-based
formulas, due on demand........................................... 5,802 32,413
------ -------
$8,815 $36,332
====== =======
</TABLE>
The aggregate maturities of mortgages payable and mortgages and unsecured
loans and notes payable to affiliate, at December 31, 1995, are as follows (in
thousands):
<TABLE>
<S> <C>
YEAR ENDING DECEMBER 31:
1996............................................................ $ 8,817
1997............................................................ 2,903
1998............................................................ 3,123
1999............................................................ 3,330
2000............................................................ 3,641
Thereafter...................................................... 96,129
--------
$117,943
========
</TABLE>
F-10
<PAGE> 11
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(6) PROFIT SHARING AND RETIREMENT PLAN
Prior to 1995, the Partnership participated in a defined contribution
retirement plan sponsored by Alamo. Employees were eligible to participate in
the plan after twelve months of service. Certain employee contributions were
matched by the Partnership and additional amounts were contributed to the plan
at the discretion of the Partners. Effective January 1, 1995, the employees of
the Partnership became employees of Alamo.
(7) RELATED PARTY TRANSACTIONS
The Partnership leases a majority of its rental properties to Alamo and has
business transactions with other entities whose ownership and management is the
same as the Partnership and with other entities in which partners have ownership
interests.
The following table summarizes related party account balances and business
transactions, other than those balances and transactions with Alamo which have
been separately disclosed elsewhere, as of and for the years ended December 31,
1995, 1994, and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Other receivables............................................ $ 8 $ 10 $ 18
====== ====== ======
Accounts payable............................................. $ 13 $ 28 $ 35
====== ====== ======
Deposits and other assets.................................... $1,883 $3,270 $3,264
====== ====== ======
Interest expense............................................. $2,140 $3,187 $2,283
====== ====== ======
Rent expense................................................. $ -- $ 78 $ 137
====== ====== ======
Legal and consulting expense................................. $ 431 $ 525 $ 394
====== ====== ======
General and administrative................................... $ 54 $ 54 $ 54
====== ====== ======
</TABLE>
(8) INCOME TAXES
The Partnership uses accelerated depreciation methods for reporting taxable
income or losses which are passed through to the partners. If the Partnership
should convert to a regular corporation, additional state and Federal deferred
income taxes attributable to accumulated temporary differences at the time of
conversion would be recorded as a deferred tax liability with a corresponding
reduction in net income. The Federal and state tax effect of such accumulated
temporary differences at December 31, 1995, 1994 and 1993 was approximately
$2.2, $2.9 million and $2.2 million, respectively. Assuming conversion to a
regular corporation, this amount would be payable in future years as the net
accumulated temporary differences reverse.
As a matter of policy, the Partnership declares capital distributions to
allow payments for the Partners' income taxes on Partnership earnings.
F-11
<PAGE> 12
DKBERT ASSOC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERS
---------------------------------
FIRST SECOND THIRD FOURTH
------ ------ ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenue:
1995........................................................ $4,381 $4,281 $3,736 $4,255
1994........................................................ $5,632 $5,642 $5,193 $4,664
Net income (loss):
1995........................................................ $ 214 $ 342 $ (489) $ 15
1994........................................................ $ 594 $ 678 $ 817 $ 35
</TABLE>
(10) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, investments, receivables,
accounts payable, accrued expenses, due from affiliates, due to affiliate and
lease deposits approximate fair value because of the short maturity of these
instruments. The estimated fair value of the mortgages payable to GMAC at
December 31, 1995 and 1994 was (in thousands) $109,000 and $70,000,
respectively. Estimated fair values were estimated by discounting expected cash
flows at the rates currently offered to the Partnership for debt of similar
terms and remaining maturities.
Fair value estimates are made at a specific point in time, based on the
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect estimates.
(11) COMMITMENTS AND CONTINGENCIES
In connection with a lease agreement entered into by Alamo, the Partnership
has guaranteed a portion of the lessor's mortgage loan. The guarantee totaled
$19.7 million as of December 31, 1995.
(12) SUBSEQUENT EVENTS
On February 12, 1996, the Partnership, along with Alamo and certain other
affiliates, completed their offering of $100 million of 11 3/4% Senior Notes due
2006 ("Senior Notes") on Form S-1 with the Securities and Exchange Commission.
Semi-annual interest payments are due January 31 and July 31 of each year
commencing July 31, 1996. The Senior Notes are unsecured joint and several
obligations of the Partnership and these affiliates.
The Partnership and certain of its affiliates entered into management
agreements with Rising Moon, an entity controlled by the majority shareholder of
Alamo. Commencing January 1, 1996, Rising Moon will provide strategic market
planning, executive resource management, oversight and steering, legal
consulting and certain other services to the Partnership. In consideration for
these services, the Partnership and certain of its affiliates will pay a base
amount of $6 million in 1996 (which amount will be increased annually 5%), and a
payment of 13.4% of combined Net Profit Before Taxes, as defined, subject to
certain adjustments. The agreements will terminate on June 30, 2006, subject to
one-year renewals, and upon certain other events.
On November 25, 1996, the Partnership and certain affiliated entities
entered into a definitive merger agreement with Republic Industries, Inc. The
transaction is valued at $625 million and will be accounted for under the
pooling of interests method of accounting. On November 26, 1996, the
Partnership, along with Alamo and certain other affiliates announced a tender
offer for all outstanding $100 million Senior Notes due January 31, 2006.
F-12
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
The Partners
Guy Salmon USA, Ltd. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Guy Salmon
USA, Ltd. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of operations, partners' capital (deficiency) and cash
flows for each of the years in the three-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Guy Salmon
USA, Ltd. and Subsidiaries as of December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Fort Lauderdale, Florida
March 8, 1996, except as to the
second paragraph of Note 10,
which is as of April 19, 1996 and
the second paragraph of Note 13,
which is as of November 26, 1996
F-13
<PAGE> 14
GUY SALMON USA, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................................ $ 3,777 $ 6,400
Receivables:
Trade, less allowance for doubtful accounts of $3,692 and $1,941 in
1995 and 1994, respectively......................................... 24,770 22,107
Vehicle................................................................ 15,494 3,777
Notes, mortgages and other due from affiliates......................... 7,128 112
Other.................................................................. 480 10,278
-------- --------
47,872 36,274
-------- --------
Revenue earning vehicles, net............................................ 145,541 100,759
Property and equipment, net.............................................. 4,487 4,180
Other assets............................................................. 19,458 19,764
-------- --------
$221,135 $167,377
======== ========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIENCY)
Notes payable and lines of credit secured by revenue earning vehicles.... $193,936 $106,463
Notes payable to affiliates.............................................. 4,827 6,886
Accounts payable to affiliates........................................... 1,931 4,874
Estimated auto liability claims.......................................... 2,079 208
Accounts payable......................................................... 23,467 23,737
Other debt............................................................... 19,438 22,778
Accrued expenses......................................................... 1,183 9,644
Customer deposits........................................................ 808 5
-------- --------
Total liabilities.............................................. 247,669 174,595
-------- --------
Minority interest........................................................ 119 772
Partners' capital (deficiency):
Partners' capital (deficiency)......................................... (29,326) (10,849)
Translation adjustment................................................. 2,673 2,859
-------- --------
Total partners' capital (deficiency)........................... (26,653) (7,990)
-------- --------
Commitments and contingencies............................................
-------- --------
$221,135 $167,377
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE> 15
GUY SALMON USA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Revenue:
Vehicle rentals................................................ $131,304 $72,547 $54,586
Interest....................................................... 1,486 278 18
Other revenue.................................................. 2,720 3,911 4,412
-------- ------- -------
135,510 76,736 59,016
-------- ------- -------
Costs and expenses:
Vehicle depreciation........................................... 28,445 10,258 4,461
Vehicle interest............................................... 9,738 5,157 5,612
Vehicle leases................................................. 8,188 5,274 1,937
Selling, general and administrative............................ 106,205 55,026 43,146
Other interest................................................. 1,881 432 439
Minority interest in net loss of consolidated subsidiary....... (470) -- --
-------- ------- -------
153,987 76,147 55,595
-------- ------- -------
Net income (loss)...................................... $(18,477) $ 589 $ 3,421
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE> 16
GUY SALMON USA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL (DEFICIENCY)
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PARTNERS' TRANSLATION
CAPITAL ADJUSTMENT TOTAL
--------- ------------ --------
<S> <C> <C> <C>
Balance at December 31, 1992.................................. $ (15,732) $3,015 $(12,717)
Contributions............................................... 281 -- 281
Net income.................................................. 3,421 -- 3,421
Translation adjustment...................................... -- 173 173
-------- ------ --------
Balance at December 31, 1993.................................. (12,030) 3,188 (8,842)
Contributions............................................... 592 -- 592
Net income.................................................. 589 -- 589
Translation adjustment...................................... -- (329) (329)
-------- ------ --------
Balance at December 31, 1994.................................. (10,849) 2,859 (7,990)
Net loss.................................................... (18,477) -- (18,477)
Translation adjustment...................................... -- (186) (186)
-------- ------ --------
Balance at December 31, 1995.................................. $ (29,326) $2,673 $(26,653)
======== ====== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 17
GUY SALMON USA, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers..................................................... $ 141,041 $ 73,290 $ 57,992
Cash paid to vendors and employees............................................... (118,621) (54,177) (47,383)
Interest received................................................................ 158 278 18
Interest paid.................................................................... (9,976) (5,268) (5,803)
--------- --------- ---------
Net cash provided by operating activities.................................. 12,602 14,123 4,824
--------- --------- ---------
Cash flows from investing activities:
Cash received from sale of revenue earning vehicles.............................. 209,926 138,436 135,300
Cash paid to suppliers of revenue earning vehicles............................... (295,511) (183,737) (149,785)
Capital expenditures............................................................. (1,199) (1,540) (387)
Proceeds from sale of property and equipment..................................... -- 91 584
Payment for business acquired, net of cash received.............................. -- (4,683) --
Collections from affiliate....................................................... 1,606 2,104 2,698
--------- --------- ---------
Net cash used in investing activities...................................... (85,178) (49,329) (11,590)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from revenue earning vehicle financing.................................. 291,335 175,589 152,892
Principal payments on revenue earning vehicle financing.......................... (212,688) (141,246) (152,953)
Proceeds from other debt......................................................... 1,834 9,599 6,991
Principal payments on other debt................................................. (3,553) -- --
Capital contributions............................................................ -- 592 281
Contributions from minority interest............................................. -- 772 --
Payments to affiliate............................................................ (7,051) (1,791) (1,947)
--------- --------- ---------
Net cash provided by financing activities.................................. 69,877 43,515 5,264
--------- --------- ---------
Effect of exchange rate changes on cash............................................ 76 (2,339) 476
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents............................... (2,623) 5,970 (1,026)
Cash and cash equivalents at beginning of year..................................... 6,400 430 1,456
--------- --------- ---------
Cash and cash equivalents at end of year........................................... $ 3,777 $ 6,400 $ 430
========= ========= =========
Reconciliation of net income (loss) to net cash provided by operating activities:
Net income (loss)................................................................ $ (18,477) $ 589 $ 3,421
Vehicle depreciation............................................................. 28,446 10,258 4,461
Property and equipment depreciation and amortization............................. 862 901 898
Gain on sale of property and equipment........................................... -- (54) (52)
Amortization of intangible assets................................................ 1,122 112 112
Minority interest in net loss of subsidiary...................................... (470) -- --
Other............................................................................ -- 144 24
Bad debt expense................................................................. 1,805 383 282
Cash flows from operating activities affecting assets and liabilities:
Receivables.................................................................... 6,099 (3,416) (1,051)
Other assets................................................................... 1,630 (2,379) 257
Estimated auto liability claims................................................ 1,887 -- --
Accounts payable............................................................... (8,417) 3,757 (2,603)
Accrued expenses............................................................... (2,701) 3,828 (925)
Customer deposits.............................................................. 816 -- --
--------- --------- ---------
Net cash provided by operating activities.................................. $ 12,602 $ 14,123 $ 4,824
========= ========= =========
Supplemental schedule of noncash investing and financing activities:
In December 1994, the Company purchased approximately 75% of the outstanding
capital stock of Dose and Peters, GmbH for approximately $8.9 million (see notes 10
and 13). In conjunction with the acquisition, liabilities were assumed as follows:
Fair value of assets acquired.................................................. $ (30,556)
Costs in excess of net assets of company acquired.............................. (13,779)
Liabilities assumed............................................................ 39,652
---------
Cash paid, net of cash received............................................ $ (4,683)
=========
</TABLE>
See accompanying notes to consolidated financial statements.
F-17
<PAGE> 18
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) BASIS OF PRESENTATION AND PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Guy Salmon USA, Ltd. ("GUSA Ltd." or the "Company") and its subsidiaries. GUSA
Ltd. is a Florida limited partnership and the holding company for certain
European car rental affiliates of Alamo Rent-A-Car, Inc. (Alamo). The
subsidiaries of GUSA Ltd. and their respective periods of inclusion in these
consolidated financial statements are (i) Alamo Rent-A-Car (UK) Limited
(acquired in 1990) which conducts the Company's operations in the United
Kingdom; (ii) Alamo Rent-A-Car, AG, Zurich (organized in November 1992) which
conducts the Company's Swiss operations; (iii) Dose and Peters, GmbH (acquired
on December 31, 1994) which conducts the Company's German operations; (iv) Alamo
Rent-A-Car (Vienna) GmbH (organized in April 1995) which conducts the Company's
Austrian operations; and (v) Alamo Rent-A-Car GmbH, (organized in February 1994)
which also conducted the Company's German operations. On September 1, 1995,
Alamo Rent-A-Car GmbH's operations were merged into Dose and Peters, GmbH. The
consolidated financial statements include the accounts of the Company and its
majority-owned subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation.
The Company is economically dependent on Alamo for administrative support
and working capital required to supplement its cash flow needs and provide
interim funding for capital expenditures.
GUSA Ltd. is also affiliated with the following entities as a result of
common ownership and control: (i) Alamo, which conducts car rental operations in
the United States; (ii) DKBERT Assoc. (DKBERT), a company from which Alamo
leases rental locations; (iii) Alamo Rent-A-Car (Belgium), Inc., which conducts
car rental operations in Belgium; (iv) Alamo Rent-A-Car (Canada), Inc., which
conducts car rental operations in Canada; (v) Green Corn, Inc., which is an
entity with limited assets; (vi) Guy Salmon (USA), Inc., which through its
subsidiaries conducts car rental operations in certain European countries; (vii)
Territory Blue, Inc., which is a management company that contracts with certain
employees of Alamo and offers management services to certain other entities; and
(viii) Tower Advertising Group, Inc., which provides Alamo with advertising
services.
(B) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents, unless the
investments are legally or contractually restricted for longer than three
months.
(C) REVENUE EARNING VEHICLES AND DEPRECIATION
Revenue earning vehicles are stated at cost less accumulated depreciation
and allowances for stolen vehicles. The straight-line method is used to
depreciate revenue earning vehicles to their estimated residual values over the
anticipated periods of use based on the Company's fleet plan, typically ranging
from 4 to 8 months. Depreciation expense also includes those costs relating to
losses from damaged and wrecked vehicles, and gains and losses on vehicle sales
in the ordinary course of business.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
are provided over the estimated useful lives of the respective assets using the
straight-line method.
F-18
<PAGE> 19
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(E) DEBT ISSUE COSTS
Debt issuance and origination fees and costs are amortized to interest
expense over the terms of the related debt agreements.
(F) OTHER ASSETS
Other assets include goodwill (in thousands) of $16,957 and $15,785 at
December 31, 1995 and 1994, respectively. Accumulated amortization of goodwill
(in thousands) was $1,609 and $504, at December 31, 1995 and 1994, respectively.
Goodwill is amortized on a straight-line basis over 10 to 20 years. The Company
evaluates the recoverability of intangible assets as well as the amortization
periods to determine whether an adjustment to the carrying value is appropriate.
The primary indicators of recoverability are the associated current and
forecasted operating cash flows.
(G) ESTIMATED AUTO LIABILITY CLAIMS
The Company assumes responsibility, subject to a deductible, per incident,
under its auto liability insurance program and for property and bodily injury
claims. The Company also assumes responsibility, subject to a deductible, per
incident, under its vehicle collision damage and theft insurance policy. Losses
are accrued as incurred.
(H) INCOME TAXES
Each partner is individually responsible for reporting his share of federal
taxable partnership income or loss. The companies operating in foreign
jurisdictions are subject to corporate income tax in their respective
jurisdictions. Accordingly, a provision for foreign corporate income taxes has
been made for each company established in a foreign jurisdiction, where
applicable. A provision for state income taxes is also made where applicable.
(I) ENVIRONMENTAL COSTS
The Company's operations involve the storage and dispensing of petroleum
products, primarily gasoline. The Company records as expense, on a current
basis, costs associated with remediation of environmental pollution. The Company
also accrues for its proportionate share of costs associated with the
remediation of environmental pollution when it becomes probable that a liability
has been incurred and the amount can be reasonably estimated. Estimated costs
include anticipated site testing, consulting, remediation, disposal, post-
remediation monitoring and legal fees, as appropriate. The liability does not
reflect possible recoveries from insurance companies or reimbursement of
remediation costs by government agencies.
(J) FOREIGN CURRENCY TRANSLATION
Assets and liabilities of foreign subsidiaries are translated into United
States dollars at the current rates of exchange. Income and expenses are
translated at the average rate of exchange in effect during the period. The
related translation adjustments are reported as a separate component of equity.
Foreign currency transaction gains and losses are included in determining net
income.
(K) ADVERTISING
The Company expenses the cost of advertising as incurred or the first time
advertising takes place. No advertising costs were capitalized at December 31,
1995 or 1994. Advertising expense (in thousands) was $2,996, $1,209, and $2,219
for the years ended December 31, 1995, 1994, and 1993, respectively.
F-19
<PAGE> 20
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(L) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results could
differ from those estimates.
(M) NEW ACCOUNTING STANDARD
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of," which became effective for fiscal years beginning
after December 15, 1995. This standard establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain intangibles to be disposed of. The Company believes that adoption of
this standard will not have a material impact on the financial condition or
operating results of the Company.
(N) RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 financial statements
to conform to the presentation used in 1995.
(2) BUSINESS AND CREDIT CONCENTRATIONS
At December 31, 1995, the Company had 55 corporate owned vehicle rental
locations including 28 in the United Kingdom, 22 in Germany, 4 in Switzerland
and 1 in Austria. In addition to its corporate owned locations, the Company's
licensee network operates 102 locations throughout Europe, including 86
locations in Germany. The industry in which the Company operates is highly
seasonal.
The Company places its cash and cash equivalents with high credit quality
financial institutions. Trade receivables (in thousands) include $23,677 and
$16,703 from travel agents and tour operators at December 31, 1995 and 1994,
respectively. The Company holds minimum collateral in the form of cash, letters
of credit, or insurance from most of these vendors. The Company continually
evaluates the credit risk of these customers and believes that its allowance for
doubtful accounts relative to its trade receivables is adequate. Vehicle
receivables (in thousands) include $12,442 and $7,409 from manufacturers at
December 31, 1995 and 1994, respectively.
The Company enters into repurchase programs with its vehicle suppliers.
During model year 1995, the Company purchased approximately 61% of its vehicle
fleet under repurchase programs with one vehicle manufacturer.
(3) REVENUE EARNING VEHICLES
Revenue earning vehicles consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Revenue earning vehicles......................................... $156,113 $109,807
Less accumulated depreciation.................................... (10,572) (9,048)
-------- --------
$145,541 $100,759
======== ========
</TABLE>
Revenue earning vehicles with depreciated cost of $29 million and $34
million at December 31, 1995 and 1994, respectively, were acquired under
programs which allow the Company to require counterparties to
F-20
<PAGE> 21
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
repurchase vehicles held for periods of up to 12 months. The Company estimates
the future value of revenue earning vehicles under such repurchase programs to
be $29 million and $33 million at December 31, 1995 and 1994, respectively. The
agreements also contain varying mileage and damage limitations.
The Company also leases vehicles under operating lease agreements, which
requires the Company to provide normal maintenance and liability coverage. The
agreements generally have terms of less than 12 months. Many agreements provide
an option to terminate the leases early and allow the purchase of leased
vehicles subject to certain restrictions. Most leases provide for an initial
minimum monthly charge, with contingent rental charges for changes in interest
rates, and adjustments for wear, damage and mileage in excess of stipulated
amounts. Contingent rental charges totaled (in thousands) $-0-, $168 and $-0-
for the years ended December 31, 1995, 1994 and 1993, respectively. Gains
(losses) on sales of revenue earning vehicles (in thousands) was $(2,130),
$3,962 and $6,626 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- ESTIMATED
1995 1994 USEFUL LIVES
------- ------- ----------------
<S> <C> <C> <C>
Leasehold improvements.............................. $ 3,905 $ 3,568 (1)
Furniture, fixtures and equipment................... 5,094 4,287 up to 10 years
Service vehicles.................................... 1,300 1,164 up to 8 years
------- -------
10,299 9,019
Less accumulated depreciation and amortization...... (5,812) (4,839)
------- -------
$ 4,487 $ 4,180
======= =======
</TABLE>
(1) Shorter of the lease term or life of the assets, ranging from 10 to 20
years.
(5) LEASES
The Company leases real property and equipment under various operating
leases with terms from 1 to 25 years. The Company has also entered into various
airport concession and permit agreements which generally provide for payment of
a percentage of gross revenue amounts with a guaranteed minimum.
Expenses under real property, equipment leases and airport agreements
(excluding amounts charged through to customers) for the years ended December
31, 1995, 1994 and 1993 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Real property............................................... $ 5,042 $2,177 $1,852
Equipment................................................... 650 153 128
Airport concession and permit fees:
Minimum fixed obligations................................. 2,952 1,546 1,265
Additional amounts, based on gross revenue amounts........ 2,331 1,005 970
------- ------ ------
$10,975 $4,881 $4,215
======= ====== ======
</TABLE>
F-21
<PAGE> 22
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease obligations under noncancelable real property,
equipment and airport agreements with initial terms in excess of one year at
December 31, 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
REAL AIRPORT
PROPERTY AGREEMENTS TOTAL
-------- ---------- -------
<S> <C> <C> <C>
Year ending December 31:
1996........................................... $ 1,225 $3,158 $ 4,383
1997........................................... 1,047 2,115 3,162
1998........................................... 893 1,010 1,903
1999........................................... 819 424 1,243
2000........................................... 819 -- 819
Thereafter..................................... 7,817 -- 7,817
------- ------ -------
$ 12,620 $6,707 $19,327
======= ====== =======
</TABLE>
(6) NOTES PAYABLE AND LINES OF CREDIT SECURED BY REVENUE EARNING VEHICLES
Notes payable and lines of credit secured by revenue earning vehicles
consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Amounts under various uncommitted revolving lease facilities with
financing institutions in Great Britain; secured by eligible
vehicle collateral; interest is based on an as quoted basis
dictated by market competition................................. $126,874 $ 37,372
Amounts outstanding to mature within six months; secured by
eligible vehicle collateral; interest is based on an as quoted
basis dictated by market competition........................... 30,214 35,325
Amounts under deutsche mark (DM) 20,513,000 term loan and
predecessor agreements; secured by eligible vehicle collateral
and vehicle receivable balances; interest in based on FIBOR
plus 125 basis points or ICM rate plus 150 basis points........ 14,139 9,614
Amounts under DM 21,500,000 revolving credit agreement with
various maturity dates and amounts as follows (in thousands of
U.S. dollars): 1995 -- $11,233; 1996 -- $835; 1997 -- $70; and,
1998 -- $220; secured by eligible vehicle collateral and
certain real property; interest ranging from 4.75% to 9.0%..... 11,368 9,439
Other, including amounts to be financed after December 31 under
various revolving credit facilities............................ 11,341 14,713
-------- --------
$193,936 $106,463
======== ========
</TABLE>
Certain of the notes payable and lines of credit secured by revenue earning
vehicles contain various restrictive covenants, including provisions relating to
incurrence of additional indebtedness, and limitations on the payment of
dividends and certain investments. The effective economic interest rate on notes
payable and lines of credit secured by revenue earning vehicles was 6.02%, 6.65%
and 7.53% at December 31, 1995, 1994 and 1993, respectively.
Alamo has guaranteed substantially all outstanding debt of GUSA Ltd.'s
operating subsidiaries.
F-22
<PAGE> 23
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) OTHER DEBT
Other debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
------- -------
<S> <C> <C>
Note payable to minority shareholder of consolidated subsidiary
issued in connection with purchase agreement; secured by a
portion of the outstanding stock of subsidiary; due March 1996... $ 3,722 $ 5,322
Term loan agreement with bank, interest at LIBOR plus 125 basis
points, payable monthly; principal payable in quarterly
installments of $331,000, due January 1999; secured by nonvehicle
equipment, trade receivables and leasehold improvements.......... 4,285 5,288
Amounts under GBP 10,000,000 revolving credit commitment to expire
December 21, 1996; interest is based on sterling LIBOR plus 125
basis points or base rate plus 125 basis points; secured by
non-vehicle equipment, trade receivables and leasehold
improvements; guaranteed by Alamo................................ 11,431 9,708
Other.............................................................. -- 2,460
------- -------
$19,438 $22,778
======= =======
</TABLE>
Certain of the other debt agreements contain various restrictive covenants,
including provisions relating to incurrence of additional indebtedness.
The effective interest rate on other debt was 7.18%, 6.63% and 7.38% at
December 31, 1995, 1994 and 1993, respectively.
The aggregate maturities of other debt at December 31, 1995 are as follows
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31:
---------------------------------------------------------------------------
<S> <C>
1996....................................................................... $16,477
1997....................................................................... 1,324
1998....................................................................... 1,324
1999....................................................................... 313
-------
$19,438
=======
</TABLE>
(8) RELATED PARTY TRANSACTIONS
The Company provides marketing services to Alamo which are billed at cost
plus 15 percent. In addition to the companies described in note 1(a), the
ownership and management of the Company is substantially the same as a tour
company which arranges certain vehicle rentals through the Company.
The following table summarizes business transactions with affiliated
companies for the years ended December 31, 1995, 1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Selling, general and administrative.......................... $2,878 $2,888 $2,274
====== ====== ======
Interest expense............................................. $2,117 $1,015 $1,212
====== ====== ======
Other revenue................................................ $3,750 $2,530 $3,107
====== ====== ======
</TABLE>
F-23
<PAGE> 24
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) INCOME TAXES
As described in note 1(h), a tax provision is provided for each company
that is subject to corporate income taxes. The tax effects of temporary
differences that give rise to significant portions of the deferred assets and
liabilities are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 8,703 $ 6,572 $ 5,264
Property and equipment, principally due to differences
in depreciation...................................... -- 823 --
------- ------- -------
Total gross deferred tax assets................. 8,703 7,395 5,264
Less valuation allowance.................................. (7,938) (7,395) (5,142)
------- ------- -------
Net deferred tax assets......................... 765 -- 122
Deferred tax liabilities:
Property and equipment, principally due to differences
in depreciation...................................... 765 -- 122
------- ------- -------
Total gross deferred tax liabilities............ 765 -- 122
------- ------- -------
Net deferred tax liability...................... $ -- $ -- $ --
======= ======= =======
</TABLE>
As of December 31, 1995, 1994 and 1993, the Company had foreign net
operating loss carryforwards available to offset future taxable income (in
thousands) of $21,300, $17,500 and $15,200, respectively. The income tax benefit
associated with the net operating loss carryforwards has been fully offset by a
valuation allowance in the accompanying financial statements. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income.
As a matter of policy, the board of directors declares capital
distributions or dividends to allow payments for the owners' income taxes on the
Company's earnings.
(10) ACQUISITION
Effective December 31, 1994, the Company acquired approximately 75% of the
outstanding capital stock of Dose and Peters, GmbH, a German company with car
rental operations in Germany for DM 21.3 million ($13.7 million). The purchase
price consisted of cash in the amount of DM 8.3 million ($5.4 million), the
assumption of net liabilities of DM 7.6 million ($4.9 million) and a note
payable due in December 1995 (subsequently extended to April 1996) of DM 5.4
million ($3.5 million). The acquisition was accounted for using the purchase
method. Accordingly, the purchase price was allocated to assets and liabilities
acquired based on their estimated fair values. The excess of the purchase price
over the fair values of acquired assets and liabilities amounted to
approximately DM 21.3 million ($13.7 million), which has been accounted for as
goodwill and is being amortized over 15 years using the straight-line method.
On April 19, 1996, the Company reached an agreement with the minority
shareholder of Dose and Peters GmbH whereby the minority shareholder's
obligation to fund his proportionate share of the losses incurred in 1995 was
forgiven in exchange for a dilution of the minority shareholder's investment to
approximately 16%. This resulted in the Company's recognition of the Dose and
Peters, GmbH 1995 loss of DM 17.5 million ($12.2 million). The minority
shareholder also agreed to fund up to DM 960,000 of 1996 calendar year losses.
F-24
<PAGE> 25
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pursuant to the shareholders agreement, if additional funds are required
for the business of the Company, each shareholder, if requested, shall
contribute their respective share. If a shareholder fails to meet a required
contribution, the contributing shareholder may either elect to treat his
contribution as a loan or receive additional shares. From the date of the
purchase agreement to December 1, 1997, the value of Dose and Peters is deemed
to be DM 25,000,000, or as may be unanimously agreed to by the shareholders at
least annually. If no value is agreed to by the shareholders for an annual
period when a value must be determined, the value shall continue to be the last
value established by the shareholders.
Pursuant to the purchase agreement, from December 1, 1997 through November
30, 2000 the Company may elect to purchase the minority shareholders' interests
or the minority shareholder may elect to have the Company purchase his interest.
Such agreement provides that the value of the acquired company will be DM
50,000,000 for purposes of the Company's election and will be DM 16,666,667 for
purposes of the minority shareholders' election.
Pro forma unaudited consolidated operating results of the Company and Dose
and Peters, GmbH for the years ended December 31, 1994 and 1993, assuming the
acquisition had been made as of the beginning of the periods presented, are
summarized below (in thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Revenue............................................................ $96,665 $80,343
======= =======
Net income (loss).................................................. $(1,795) $ 2,009
======= =======
</TABLE>
These pro forma results have been prepared for comparative purposes only
and are not necessarily indicative of the operating results that would have
occurred had the acquisition been consummated as of January 1, 1993, nor are
they necessarily indicative of future operating results.
(11) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash and cash equivalents, receivables, due to
affiliates, accounts payable and accrued expenses approximates fair value
because of the short maturity of these instruments. The carrying amount of notes
payable and other debt approximates fair value because interest rates are
variable and, accordingly, approximate current market rates.
Fair value estimates are made at a specific point in time, based on the
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
(12) COMMITMENTS AND CONTINGENCIES
The Company has entered into agreements with vehicle manufacturers under
which ultimate realization of incentives is dependent on attaining certain
volume purchase and vehicle mix requirements.
The Company, along with Alamo and certain other affiliates, entered into
management agreements with Rising Moon, an entity controlled by the majority
shareholder of Alamo. Commencing January 1, 1996, Rising Moon will provide
strategic market planning, executive resource management, oversight and
steering, legal consulting and certain other services to the Company, Alamo and
affiliated companies. In consideration for these services, the Company, Alamo
and affiliated companies will pay an aggregate base amount of $6 million in 1996
(which amount will be increased annually by 5%), and a payment of 13.4% of
combined net profit before taxes, as defined, subject to certain adjustments.
The agreements will terminate on June 30, 2006, subject to one-year renewals,
and upon certain other events.
F-25
<PAGE> 26
GUY SALMON USA, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is party to various claims and legal actions involving
automobile liability and personal injury claims, employee grievances, trade
practices and other matters arising in the ordinary course of business. In some
cases, plaintiffs are seeking compensatory and punitive damages. It is the
opinion of management that ultimate disposition of these matters will not have a
material adverse effect on the Company's financial condition or results of
operations.
(13) SUBSEQUENT EVENTS
On February 12, 1996, the Company, along with Alamo and certain other
affiliates, completed their offering of $100 million of 11.75% Senior Notes due
January 31, 2006 ("Senior Notes") on Form S-1 with the Securities and Exchange
Commission. Semiannual interest payments are due January 31 and July 31 of each
year commencing July 31, 1996. The senior notes are unsecured joint and several
obligations of the Company and these affiliates.
On November 25, 1996, the Company and certain affiliated entities entered
into a definitive merger agreement with Republic Industries, Inc. The
transaction is valued at $625 million and will be accounted for under the
pooling of interests method of accounting. On November 26, 1996, the Company,
along with Alamo and certain affiliates announced a tender offer for all
outstanding $100 million Senior Notes due January 31, 2006.
F-26
<PAGE> 1
Exhibit 99.3
REPUBLIC INDUSTRIES, INC.
200 East Las Olas Boulevard
Suite 1400
Fort Lauderdale, Florida 33301
954-627-6000
954-779-3884 FAX
CONTACT: J. Ronald Castell
(954) 627-6061
FOR IMMEDIATE RELEASE
Republic Industries Completes Acquisition Of Alamo
Fort Lauderdale, Fla., (November 25, 1996)--Republic Industries, Inc.
(NASDAQ:RWIN) today announced the closing of its acquisition of Alamo
Rent-A-Car, Inc., the nation's fourth largest rental car company.
Alamo, headquartered in Ft. Lauderdale, Florida, operates a fleet of
approximately 130,000 vehicles. The company operates in 45 states and has
operations in 9 European countries and Canada.
In connection with this transaction, which will be accounted for under the
pooling-of-interests method of accounting, Republic issued shares of common
stock valued at approximately $625 million.
Republic is a diversified company operating in the solid waste, automotive,
electronic security services and out-of-home media industries.
