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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 13, 1996.
REGISTRATION NO. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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REPUBLIC INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
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DELAWARE 4953 73-1105145
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
200 EAST LAS OLAS BLVD., SUITE 1400
FORT LAUDERDALE, FLORIDA 33301
(954) 627-6000
(Address, including zip code, and telephone number, including
area code of registrant's principal executive offices)
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RICHARD L. HANDLEY
SENIOR VICE PRESIDENT
REPUBLIC INDUSTRIES, INC.
200 EAST LAS OLAS BLVD., SUITE 1400
FORT LAUDERDALE, FLORIDA 33301
(954) 627-6000
(Name, address, including zip code, and
telephone number, including area code, of
agent for service)
Copy to:
JONATHAN L. AWNER, ESQ.
AKERMAN, SENTERFITT & EIDSON, P.A.
ONE SOUTHEAST 3RD AVENUE, SUITE 2800
MIAMI, FLORIDA 33131
(305) 374-5600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the Registration Statement becomes effective and after
satisfaction or waiver of all other conditions to the closing of the merger of
Addington Resources, Inc. with a wholly-owned subsidiary of the Registrant
pursuant to the Agreement and Plan of Merger described in the enclosed
Solicitation Statement/Prospectus.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES TO BE AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
REGISTERED BE REGISTERED(1) PER UNIT(2) PRICE(2) REGISTRATION FEE(3)
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Common Stock, par value
$.01 per share........ 14,014,651 $31.1875 $437,081,928.06 $132,449.07
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(1) This Registration Statement relates to the maximum number of shares of the
Registrant's common stock, par value $.01 per share ("Republic Common
Stock"), issuable upon consummation of the merger of Addington Resources,
Inc. ("Addington") with a wholly-owned subsidiary of the Registrant, in
connection with the conversion of outstanding shares of Addington common
stock and assuming the exercise of all outstanding options to acquire
shares of Addington common stock.
(2) Estimated pursuant to Rule 457(c) solely for the purpose of calculating the
amount of the registration fee. The average of the high and low prices of
Republic Common Stock as reported on The Nasdaq Stock Market was $31.1875
on December 6, 1996.
(3) Pursuant to Rule 457(b), the registration fee has been reduced by
$76,029.48, which was paid on September 30, 1996 in connection with the
filing under the Securities Exchange Act of 1934, as amended, by Addington
of preliminary copies of the Solicitation Statement/Prospectus included
herein. Accordingly the registration fee payable upon the filing of this
Registration Statement is $56,419.59.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
ADDINGTON RESOURCES, INC.
December 13, 1996
Dear Addington Resources, Inc. Stockholder:
The enclosed materials seek your consent to a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of June 25, 1996 (the "Merger
Agreement"), among Addington Resources, Inc. ("Addington"), Republic Industries,
Inc. ("Republic") and RI/AR Merger Corp.
Upon the terms and subject to the conditions of the Merger Agreement,
Addington will be acquired and become a wholly-owned subsidiary of Republic in a
merger transaction (the "Merger"). In the Merger, each share of common stock,
par value $1.00 per share, of Addington (the "Addington Common Stock")
outstanding at the effective time of the Merger will be converted into the right
to receive nine-tenth's (0.9) of one share of common stock, $0.01 par value per
share, of Republic, subject to cash being paid in lieu of issuing any fractional
shares of common stock of Republic (the "Merger Consideration").
THE BOARD OF DIRECTORS (THE "BOARD") OF ADDINGTON HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE
MERGER, AND THE BOARD RECOMMENDS THAT STOCKHOLDERS CONSENT TO THE MERGER
AGREEMENT BY EXECUTING AND RETURNING THE ENCLOSED CONSENT FORM. The Board's
approval and recommendation were based on a number of factors described in the
accompanying Solicitation Statement/Prospectus (the "Solicitation
Statement/Prospectus"), including the opinion of Oppenheimer & Co., Inc., the
financial advisor to Addington engaged by the Board, that the consideration to
be received by stockholders of Addington pursuant to the Merger is fair, from a
financial point of view, to such stockholders.
PLEASE READ THE SOLICITATION STATEMENT/PROSPECTUS, WHICH PROVIDES YOU WITH
A DESCRIPTION OF THE TERMS OF THE MERGER, CONFORMED COPIES OF THE MERGER
AGREEMENT AND THE OPINION OF OPPENHEIMER & CO., INC., ATTACHED AS ANNEXES A AND
B, RESPECTIVELY, TO THE SOLICITATION STATEMENT/PROSPECTUS, AND CERTAIN OTHER
INFORMATION, INCLUDING CERTAIN RISK FACTORS RELATING TO THE MERGER.
In lieu of a special meeting of stockholders of Addington, action to
approve and adopt the Merger Agreement will be taken by written consent.
Regardless of the number of shares of Addington Common Stock you own, you should
complete, sign, date and return the enclosed consent form promptly in the
accompanying prepaid envelope. The Merger will be consummated as soon as
practicable after consents from stockholders holding a majority of the
outstanding Addington Common Stock are received by Addington. YOU ARE URGED,
THEREFORE, TO SIGN, DATE AND RETURN THE ENCLOSED CONSENT FORM PROMPTLY.
PLEASE DO NOT SEND IN ANY STOCK CERTIFICATES AT THIS TIME. IF THE MERGER
BECOMES EFFECTIVE, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF YOUR
STOCK CERTIFICATES IN EXCHANGE FOR THE MERGER CONSIDERATION. ANY QUESTIONS OR
REQUESTS FOR ASSISTANCE REGARDING CONSENTS AND RELATED MATERIALS MAY BE DIRECTED
TO ADDINGTON'S CONSENT SOLICITOR, MACKENZIE PARTNERS, INC., AT (800) 322-2885.
Sincerely,
/s/ HOWARD P. BERKOWITZ
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Howard P. Berkowitz
Chairman of the Board
<PAGE> 3
ADDINGTON RESOURCES, INC.
SOLICITATION STATEMENT
REPUBLIC INDUSTRIES, INC. (LOGO) ADDINGTON (LOGO)
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REPUBLIC INDUSTRIES, INC.
PROSPECTUS
This Solicitation Statement/Prospectus is being furnished to the
stockholders of Addington Resources, Inc., a Delaware corporation ("Addington"),
in connection with the solicitation by the Board of Directors of Addington (the
"Board") of consents of Addington stockholders to a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of June 25, 1996 (the "Merger
Agreement"), by and among Addington, Republic Industries, Inc., a Delaware
corporation ("Republic"), and RI/AR Merger Corp., a Delaware corporation and
wholly-owned subsidiary of Republic ("Mergersub"). Pursuant to the Merger
Agreement, Mergersub is to be merged with and into Addington (the "Merger") with
Addington continuing as the surviving corporation (the "Surviving Corporation")
and as a wholly-owned subsidiary of Republic.
Properly executed, dated and returned consent forms shall be given effect
in accordance with the directions thereon. If no direction is indicated, the
shares of common stock, $1.00 par value per share, of Addington ("Addington
Common Stock") represented by such consent form shall be deemed to have
consented to the approval and adoption of the Merger Agreement. A stockholder
who has delivered a consent form may revoke it at any time before unrevoked
consents representing the requisite number of shares of Addington Common Stock
required to approve and adopt the Merger Agreement are delivered to Addington.
Consents may be revoked by delivering a written notice of revocation of such
consent or by submission of a properly executed later-dated consent form to the
Secretary of Addington. Written consents shall only be effective to approve and
adopt the Merger Agreement if the number of consents required to approve such
corporate action are delivered to Addington within 60 days of the date of the
earliest consent delivered to Addington.
Addington's executive offices are located at 2343 Alexandria Drive, Suite
400, Lexington, Kentucky 40504 (telephone (606) 223-3824). Solicitation
materials will be mailed to stockholders of Addington on or about December 13,
1996.
This Solicitation Statement/Prospectus also constitutes a prospectus of
Republic filed with the Securities and Exchange Commission (the "Commission") as
part of a Registration Statement on Form S-4 (including all amendments and
supplements thereto, the "Registration Statement") under the Securities Act of
1933, as amended (the "Securities Act"), relating to up to 14,014,651 shares
(the "Shares") of common stock, $.01 par value, of Republic ("Republic Common
Stock"), that may be issued upon the closing (the "Closing") of the transactions
contemplated by the Merger Agreement, in connection with the conversion of the
outstanding shares of Addington Common Stock.
Republic Common Stock is traded on The Nasdaq Stock Market ("Nasdaq") under
the symbol "RWIN." On December 9, 1996, the last reported sales price for
Republic Common Stock as reported by Nasdaq was $33.00 per share. On May 10,
1996, Republic's Board of Directors declared a two-for-one stock split in the
form of a 100% stock dividend to stockholders of record on May 28, 1996, which
was distributed on June 8, 1996 (the "Stock Split"). All references in this
Solicitation Statement/Prospectus to historical share and per share data of
Republic Common Stock have been retroactively adjusted to reflect the Stock
Split.
As of the date hereof, Republic's executive offices are located at 200 East
Las Olas Boulevard, Suite 1400, Fort Lauderdale, Florida 33301 (telephone (954)
627-6000). As of December 16, 1996, Republic's executive offices will be located
at 450 East Las Olas Boulevard, Suite 1200, Fort Lauderdale, Florida 33301
(telephone (954) 627-6000).
SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH SHOULD BE CONSIDERED BY THE STOCKHOLDERS OF ADDINGTON.
THE SECURITIES TO BE ISSUED IN THE MERGER HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS SOLICITATION STATEMENT/PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Solicitation Statement/Prospectus is December 13, 1996.
<PAGE> 4
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
SOLICITATION STATEMENT/PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS
SOLICITATION STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY REPUBLIC OR
ADDINGTON. NEITHER THE DELIVERY OF THIS SOLICITATION STATEMENT/PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS SOLICITATION
STATEMENT/ PROSPECTUS OR IN THE AFFAIRS OF REPUBLIC OR ADDINGTON SINCE THE DATE
HEREOF. THIS SOLICITATION STATEMENT/ PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
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TABLE OF CONTENTS
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PAGE
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AVAILABLE INFORMATION................................................................. 3
SUMMARY............................................................................... 4
RISK FACTORS.......................................................................... 12
SOLICITATION OF WRITTEN CONSENTS...................................................... 20
THE MERGER............................................................................ 22
THE MERGER AGREEMENT.................................................................. 32
MANAGEMENT OF REPUBLIC BEFORE AND AFTER THE MERGER AND THE PENDING REPUBLIC
ACQUISITIONS........................................................................ 40
INTERESTS OF CERTAIN PERSONS IN THE MERGER............................................ 44
EFFECT OF MERGER ON RIGHTS OF STOCKHOLDERS............................................ 45
COMPARATIVE STOCK PRICES AND DIVIDEND POLICIES........................................ 46
COMPARATIVE PER SHARE DATA............................................................ 47
DESCRIPTION OF REPUBLIC'S CAPITAL STOCK............................................... 48
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS....................... 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF REPUBLIC......................................................................... 66
BUSINESS OF REPUBLIC.................................................................. 77
EXECUTIVE COMPENSATION OF REPUBLIC.................................................... 95
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF REPUBLIC............ 99
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF REPUBLIC............................ 101
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OF ADDINGTON........................................................................ 103
BUSINESS OF ADDINGTON................................................................. 115
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ADDINGTON........... 122
LEGAL MATTERS......................................................................... 123
EXPERTS............................................................................... 123
OTHER MATTERS......................................................................... 124
STOCKHOLDER PROPOSALS................................................................. 124
INDEX TO FINANCIAL STATEMENTS......................................................... F-1
ANNEX A -- MERGER AGREEMENT........................................................... A-1
ANNEX B -- OPINION OF OPPENHEIMER & CO., INC.......................................... B-1
ANNEX C -- VOTING AGREEMENT........................................................... C-1
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2
<PAGE> 5
AVAILABLE INFORMATION
Republic and Addington are subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules
and regulations promulgated thereunder, and, in accordance therewith, file
reports, proxy and information statements and other information with the
Commission. These reports, proxy and information statements and other
information concerning Republic and Addington can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices
located at Northwest Atrium Center, Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661 and at Seven World Trade Center, New York, New York
10048. Copies of the reports, proxy and information statements and other
information concerning Republic and Addington can also be obtained from the
Commission at prescribed rates through its Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a site on
the World Wide Web at http://www.sec.gov that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. Shares of Republic Common Stock and
Addington Common Stock are traded on Nasdaq. Information filed by Republic and
by Addington with Nasdaq may be inspected at the offices of Nasdaq at 1735 K
Street, N.W., Washington, D.C. 20006.
Republic has filed with the Commission the Registration Statement under the
Securities Act with respect to the Shares to be issued pursuant to the Merger
Agreement. This Solicitation Statement/Prospectus, which forms a part of the
Registration Statement, does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted in accordance
with the rules and regulations of the Commission. Statements contained herein
concerning the provisions of certain documents are not necessarily complete and,
in each instance, reference is made to the copies of such documents filed as
exhibits to the Registration Statement or otherwise filed with the Commission.
Each such statement is qualified in its entirety by such reference. The
Registration Statement and the exhibits thereto can be inspected and copied at
the public reference facilities and regional offices of the Commission and at
the offices of Nasdaq referred to above.
3
<PAGE> 6
SUMMARY
The following is a summary of certain information contained elsewhere in
this Solicitation Statement/Prospectus. Reference is made to, and this summary
is qualified in its entirety by, the more detailed information contained in this
Solicitation Statement/Prospectus and the Annexes hereto. Stockholders of
Addington are urged to read this Solicitation Statement/Prospectus and the
Annexes hereto, and in particular the section herein entitled "Risk Factors", in
their entirety.
REPUBLIC
Republic is a holding company with major business segments in vehicle
rental, vehicle retailing, integrated solid waste services, and electronic
security services. In November 1996, Republic completed the acquisition of Alamo
Rent-A-Car, Inc. and certain affiliated companies ("Alamo"), which operates a
fleet of approximately 158,000 vehicles, owns and operates 205 car rental
locations in the United States and Canada and 61 car rental locations in Europe,
and licenses another 111 locations to third party operators in Europe. In August
1996, Republic completed the acquisition of CarChoice, Inc. ("CarChoice"), which
owns and operates two used vehicle megastores in Dallas, Texas and Detroit,
Michigan. Republic owns or operates 15 landfills and provides waste collection
services to over 1,300,000 residential, commercial and industrial customers, and
provides related environmental services. Republic provides electronic security
monitoring services to over 207,000 businesses and residences predominantly in
Florida, Colorado, Illinois and Maryland. Republic's strategy is to grow
aggressively as a diversified company through internal growth and by acquiring
and integrating additional automotive businesses, solid waste services
businesses, and electronic security services businesses, as well as by acquiring
and expanding businesses in other industries.
In addition to the Merger, Republic has two other significant pending
acquisitions of other companies: AutoNation Incorporated ("AutoNation"), which
is owned in part by certain affiliates of Republic and is developing a chain of
vehicle retailing megastores, and Continental Waste Industries, Inc.
("Continental"), a company primarily engaged in the solid waste services
industry (collectively, the "Pending Republic Acquisitions"). In connection with
the Pending Republic Acquisitions, an aggregate of approximately 30.9 million
shares of Republic Common Stock will be issued (which number includes shares of
Republic Common Stock issuable upon future exercises of warrants and options to
be assumed by Republic in the Pending Republic Acquisitions). The AutoNation
transaction is subject to the approval of Republic stockholders and is expected
to be closed in January 1997, and the Continental transaction is subject to
approval of Continental stockholders and is expected to be closed in December
1996. Each of the Pending Republic Acquisitions is subject to other customary
closing conditions, including receipt of regulatory approvals. However, the
consummation of each of the Addington, AutoNation, and Continental acquisitions
is not contingent on the approval or consummation of any of such other
acquisitions.
In November 1995, Republic changed its name to Republic Industries, Inc.
from Republic Waste Industries, Inc. As of the date hereof, Republic's principal
executive offices are located at 200 East Las Olas Boulevard, Suite 1400, Fort
Lauderdale, Florida 33301, and its telephone number is (954) 627-6000. As of
December 16, 1996, Republic's principal executive offices will be located at 450
East Las Olas Boulevard, Suite 1200, Fort Lauderdale, Florida 33301.
ADDINGTON
Addington and its subsidiaries are engaged in the development and operation
of integrated waste management disposal systems for cities and counties in the
southeastern United States. As of September 30, 1996, Addington operated ten
landfills in Kentucky, North Carolina, Georgia and Florida. Addington conducts
its integrated solid waste disposal operations through Addington Environmental,
Inc. and its affiliates.
Addington's executive offices are located at 2343 Alexandria Drive, Suite
400, Lexington, Kentucky 40504.
4
<PAGE> 7
SOLICITATION OF WRITTEN CONSENTS
In lieu of calling a special meeting, the Board is requesting the
stockholders of Addington to approve and adopt the Merger Agreement, pursuant to
this Solicitation Statement/Prospectus, by execution and delivery to Addington
of written consents. As a result of the Merger, Addington will become a
wholly-owned subsidiary of Republic.
The Board has fixed the close of business on December 4, 1996, as the date
for the determination of stockholders entitled to consent to the proposal to
approve and adopt the Merger Agreement (the "Record Date").
CONSENTS REQUIRED
Written consents from the holders of a majority of the shares of Addington
Common Stock outstanding on the Record Date are required to approve and adopt
the Merger Agreement. Only stockholders of record at the close of business on
the Record Date are entitled to consent to the proposal to approve and adopt the
Merger Agreement. As of the Record Date, 15,240,684 shares of Addington Common
Stock were issued and outstanding and entitled to consent to the proposal to
approve and adopt the Merger Agreement. See "SOLICITATION OF WRITTEN
CONSENTS -- Consents Required."
As of the Record Date, 6,867,615 shares of Addington Common Stock
(approximately 45% of the outstanding shares of Addington Common Stock) were
beneficially owned by HPB Associates, L.P. (an affiliate of Howard P. Berkowitz,
Chairman of the Board), Harold Blumenstein, James Grosfeld, Larry Addington,
Robert Addington and Bruce Addington (collectively, the "Principal
Stockholders"). The Principal Stockholders have executed a Voting Agreement,
dated as of June 25, 1996, with Republic (the "Voting Agreement") pursuant to
which they have granted to Republic an irrevocable proxy to, and agreed to, vote
or to execute written consents with respect to all of their shares of Addington
Common Stock in favor of the approval and adoption of the Merger Agreement.
THE MERGER
The Merger Consideration. Upon the terms and subject to the conditions of
the Merger Agreement, Mergersub will be merged with and into Addington with
Addington continuing as the Surviving Corporation and as a wholly-owned
subsidiary of Republic. In the Merger, each share of Addington Common Stock
outstanding at the Effective Time will be converted into the right to receive
0.9 of one share (the "Exchange Ratio") of Republic Common Stock, subject to
cash being paid in lieu of issuing fractional shares of Republic Common Stock
(the "Merger Consideration"). See "THE MERGER AGREEMENT -- Conversion of
Shares".
Recommendation of Addington's Board. The Board, at a special meeting held
on June 24, 1996, unanimously approved the Merger Agreement and the transactions
contemplated thereby. The Board has determined that the Merger is fair to, and
in the best interests of, the stockholders of Addington and recommends that the
stockholders consent to the approval and adoption of the Merger Agreement. For a
discussion of the factors considered by the Board in reaching its recommendation
and determination, see "THE MERGER -- Background of the Merger," "-- Reasons for
the Merger; Recommendation of the Board" and "-- Opinion of Addington's
Financial Advisor".
Opinion of Addington's Financial Advisor. Addington retained Oppenheimer
and Co., Inc., ("Oppenheimer & Co.") to act as its financial advisor and to
render its opinion to the Board as to the fairness of the consideration offered
in the Merger, from a financial point of view, to the stockholders of Addington.
Oppenheimer & Co. rendered its opinion to the Board that, as of June 24, 1996
(the date of the Board's approval of the Merger Agreement) and as of December 5,
1996, the consideration offered in the Merger to be received by the stockholders
of Addington is fair to such stockholders from a financial point of view. The
full text of the opinion of Oppenheimer & Co., which sets forth certain
assumptions made, certain procedures followed and certain matters considered by
Oppenheimer & Co., is included as Annex B to this Solicitation
Statement/Prospectus and should be read in its entirety. For a description of
this opinion, see "THE MERGER -- Opinion of Addington's Financial Advisor."
5
<PAGE> 8
Effective Time of the Merger. The Merger will become effective at the date
and time that the Certificate of Merger is duly filed with the Secretary of
State of the State of Delaware in accordance with the General Corporation Law of
the State of Delaware ("Delaware Law") or at such later time as may be specified
in the Certificate of Merger so filed (the "Effective Time"). The filing of the
Certificate of Merger will be made as soon as practicable after all conditions
set forth in the Merger Agreement have been satisfied or waived. See "THE MERGER
AGREEMENT -- Effective Time; Effect of the Merger."
Conditions to the Merger. The obligations of Republic and Addington to
consummate the Merger are subject to various conditions, including obtaining
approval of the Merger Agreement by Addington's stockholders. See "THE MERGER
AGREEMENT -- Conditions Precedent to Closing."
Exchange of Certificates of Addington Common Stock. Detailed instructions
with regard to the surrender of certificates of Addington Common Stock, together
with a letter of transmittal, will be forwarded to holders of Addington Common
Stock by Harris Trust and Savings Bank (the "Exchange Agent") promptly, but in
no event later than five business days, following the Effective Time. Upon
surrender of the certificates and other required documents to the Exchange
Agent, the Exchange Agent will distribute the Merger Consideration. STOCKHOLDERS
SHOULD NOT SEND ANY STOCK CERTIFICATES AT THIS TIME. See "THE MERGER
AGREEMENT -- Exchange of Certificates."
Nasdaq Listing. Republic will file an application to list the shares of
Republic Common Stock to be issued in connection with the Merger on Nasdaq,
subject to approval of the Merger Agreement by Addington's stockholders and
official notice of issuance. Shares of Republic Common Stock are traded on
Nasdaq under the symbol "RWIN".
Regulatory Approvals. The obligations of Republic and Addington to
consummate the Merger are subject to the expiration or early termination of the
waiting period requirements of the Hart-Scott-Rodino Antitrust Improvements Act
of 1976 (the "HSR Act") and the rules promulgated thereunder. Pre-merger
notification information was filed with the Antitrust Division of the Department
of Justice ("DOJ") and the Federal Trade Commission ("FTC") under the HSR Act on
July 19, 1996, and early termination of the waiting period was granted on July
31, 1996.
Appraisal Rights. Appraisal rights under applicable law are not available
to stockholders of Addington.
Certain Federal Income Tax Consequences. Based upon the opinion of
Addington's counsel, the Merger will qualify as a tax-free reorganization and
Republic, Addington and Mergersub will each be a party to the reorganization. No
tax rulings will be requested from the Internal Revenue Service in connection
with the Merger. See "THE MERGER -- Certain Federal Income Tax Consequences."
Accounting Treatment. The Merger will be accounted for by Republic under
the "pooling of interests" method of accounting in accordance with generally
accepted accounting principles. Under the pooling of interests method of
accounting, the recorded amounts of the assets and liabilities of Addington and
Republic will be carried forward to the combined corporation at their previously
recorded amounts. Revenues and expenses will be retroactively presented as if
Addington and Republic had been combined for the entire fiscal period in which
the Merger occurs, and the reported income of each corporation for prior periods
will be combined and restated as income for the combined corporation. See "THE
MERGER -- Accounting Treatment."
Termination. The Merger Agreement may be terminated by Republic and/or
Addington under certain circumstances, including if the Merger has not been
consummated by December 31, 1996. See "THE MERGER AGREEMENT -- Termination."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stockholders of Addington should be aware that certain members of
management of Addington currently have certain interests which may present them
with potential conflicts of interests in connection with the Merger. See
"INTERESTS OF CERTAIN PERSONS IN THE MERGER."
6
<PAGE> 9
Employment Agreements. Under the terms of employment agreements entered
into with Jack T. Baker, currently President of Addington, and R. Douglas
Streibel, currently Vice President, Chief Financial Officer and Treasurer of
Addington, the Merger will constitute a "change of control" in Addington which
entitles Messrs. Baker and Streibel to certain severance benefits in the event
their employment is terminated in certain circumstances. See "INTERESTS OF
CERTAIN PERSONS IN THE MERGER -- Employment Agreements."
Stock Options. Mr. Baker and Mr. Streibel have options for Addington
Common Stock that will become fully exercisable at the Effective Time as a
result of the Merger. See "INTERESTS OF CERTAIN PERSONS IN THE MERGER -- Stock
Options."
RISK FACTORS
Stockholders of Addington should carefully evaluate the matters set forth
under "Risk Factors". Factors to be considered, among other things, include the
potential for fluctuation in the value of Republic Common Stock as well as the
potential for changes in the businesses and financial condition of Republic
prior to the Effective Time.
EXECUTIVE OFFICERS AND DIRECTORS AFTER THE MERGER
All of Republic's existing Directors and executive officers as of the date
hereof will remain in their respective positions following the Merger. The
officers of Addington are expected to remain as officers of Addington following
the Merger. The directors of Mergersub will be the directors of Addington
following the Merger.
In the event that the AutoNation acquisition by Republic is consummated,
which transaction is independent of the Merger, it is anticipated that Lawrence
S. Rich, a director of AutoNation, will be appointed to the Board of Directors
of Republic following consummation of such acquisition.
Except as described herein, it is expected that all of Republic's other
Directors and executive officers as of the date hereof will remain in their
positions following the Pending Republic Acquisitions.
RECENT DEVELOPMENTS
Acquisition of Alamo. In November 1996, Republic acquired, in merger
transactions, all of the outstanding capital stock of Alamo in exchange for an
aggregate of 22,123,893 shares of Republic Common Stock. Such transaction has
been accounted for as a pooling of interests business combination.
Private Placement Transaction. In November 1996, Republic issued and sold
12,079,915 shares of Republic Common Stock in a private placement transaction
for $29.50 per share resulting in net proceeds to Republic of approximately
$353,000,000 after deducting fees and commissions.
Pending Acquisition of AutoNation. In May 1996, Republic entered into a
merger agreement (the "AutoNation Agreement") with RI/ANI Merger Corp., a
Florida corporation and wholly-owned subsidiary of Republic, AutoNation, H.
Wayne Huizenga, Steven R. Berrard and JM Family Enterprises, Inc., a Delaware
corporation ("JMFE"), which provides for the acquisition of AutoNation by
Republic in a merger transaction (the "AutoNation Merger"). AutoNation, which is
in part privately-owned by certain affiliates of Republic, is developing a chain
of vehicle retailing megastores. The AutoNation Agreement provides that Republic
will issue 17,467,248 shares of Republic Common Stock in exchange for all of the
outstanding shares of common stock of AutoNation. In addition, Republic will
reserve an additional 480,372 shares of Republic Common Stock issuable in the
future upon the exercise of outstanding stock options of AutoNation. Concurrent
with the execution of the AutoNation Agreement, Republic and AutoNation also
entered into a loan agreement pursuant to which Republic is providing AutoNation
a line of credit until the closing of the AutoNation Merger. The AutoNation
Merger will be accounted for using the purchase method of accounting and is
intended to be tax-free to AutoNation shareholders. Consummation of the
AutoNation Merger, which is expected to close in January 1997, is subject to
approval by Republic stockholders and other customary closing conditions,
including receipt of regulatory approval.
7
<PAGE> 10
Pending Acquisition of Continental. In June 1996, Republic entered into a
definitive merger agreement (the "Continental Merger Agreement") with
Continental. Continental is a solid waste services company. The Continental
Merger Agreement provides that each share of common stock of Continental will be
exchanged in a merger transaction (the "Continental Merger"), on a tax-free
basis, for eight-tenth's (0.8) of a share of Republic Common Stock. In
connection with the Continental Merger, it is contemplated that an aggregate of
approximately 12,949,151 shares of Republic Common Stock will be issued (which
number includes shares of Republic Common Stock issuable in the future upon the
exercise of outstanding options and warrants of Continental). Consummation of
the Continental Merger, which will be accounted for as a pooling of interests
business combination, is subject to approval by Continental's stockholders and
other customary closing conditions, including receipt of regulatory approval.
Certain stockholders of Continental, representing approximately 23% of
Continental's outstanding common stock, have granted irrevocable proxies to
Republic to vote or to execute written consents with respect to their shares in
favor of the transaction, which is expected to close in December 1996.
Termination of Agreement to Acquire ADT Limited. 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 of $20 per share (which
approximated fair market value), subject to certain antidilution adjustments.
The ADT Warrant became exercisable upon the termination of the ADT Agreement and
remains exercisable until March 1997. Pursuant to the terms of the ADT 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.
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
Certain statements in this Summary and under the captions "Risk Factors,"
"Recent Developments," "Management's Discussion and Analysis of Financial
Condition and Results of Operations of Republic," "Management's Discussion and
Analysis of Financial Condition and Results of Operations of Addington,"
"Background of the Merger," and "Reasons for the Merger" and elsewhere in this
Solicitation Statement/Prospectus, constitute "forward-looking statements"
within the meaning of the Federal Private Securities Litigation Reform Act of
1995. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance,
or achievements of Republic or Addington to be materially different from any
future results, performance, or achievements expressed or implied by such
forward-looking statements. Such factors include, among other things, Republic's
limited operating history in vehicle retailing and related businesses and
uncertainty as to future profitability of such operations; the ability to meet
construction and development schedules and budgets for vehicle retailing
megastores; the ability to develop and implement operational and financial
systems to manage rapidly growing operations; the uncertainty as to the consumer
demand for new and used vehicles; competition in existing and potential future
lines of business; regulatory changes; loss or failure to obtain governmental
permits; the ongoing consolidation within the solid waste management industry;
the availability of acquisition and expansion opportunities on attractive terms;
the ability to integrate and successfully operate acquired businesses and the
risks associated with such businesses; the ability to obtain financing on
acceptable terms to finance Republic's growth strategy and for Republic to
operate within the limitations imposed by financing arrangements; and other
factors referenced in this Solicitation Statement/Prospectus. See "RISK
FACTORS."
COMPARATIVE STOCK PRICES, DIVIDEND POLICIES, AND PER SHARE DATA
See "COMPARATIVE STOCK PRICES AND DIVIDEND POLICIES" and "COMPARATIVE PER
SHARE DATA."
8
<PAGE> 11
REPUBLIC'S SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The historical financial statements of Republic include the financial
position and results of operations of CarChoice which Republic acquired in
August 1996 and Incendere, Inc. and certain affiliated waste companies
controlled by Dwight C. Schaubach ("Schaubach") and certain electronic security
companies known as Denver Burglar Alarm ("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. The following selected income statement
data for each of the three years in the period ended December 31, 1995 and the
balance sheet data at December 31, 1995 and 1994 are derived from consolidated
financial statements of Republic contained elsewhere herein, which have been
audited by Arthur Andersen LLP, independent certified public accountants. The
income statement data for the years ended December 31, 1992 and 1991 and the
balance sheet data at December 31, 1993, 1992 and 1991 have been derived from
audited consolidated financial statements of Republic not included herein. The
income statement data for the nine month periods ended September 30, 1996 and
1995 and the selected balance sheet data at September 30, 1996 are derived from
unaudited interim consolidated financial statements of Republic contained
elsewhere herein. The unaudited interim consolidated financial statements
include all material adjustments, consisting only of normal recurring
adjustments, which Republic considers necessary for a fair presentation of its
financial position and results of operations for these periods. Operating
results of Republic for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire year
ending December 31, 1996. The data should be read in conjunction with the
consolidated financial statements of Republic, the unaudited interim
consolidated financial statements of Republic and management's discussion and
analysis of Republic included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue............................ $423,371 $210,679 $295,238 $218,173 $182,495 $162,504 $143,873
Income from continuing operations
before income taxes.............. $ 59,770 $ 19,740 $ 35,455 $ 22,147 $ 2,162 $ 12,339 $ 8,820
Income (loss) from continuing
operations....................... $ 37,954 $ 10,966 $ 19,921 $ 16,849 $ (331) $ 9,000 $ 6,932
Earnings per common and common
equivalent share from continuing
operations....................... $ .17 $ .09 $ .14 $ .17 $ -- $ .09 $ .09
Weighted average common and common
equivalent shares................ 218,668 119,527 141,279 96,920 97,102 94,788 80,576
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -------------------------------------------------------
1996 1995 1994 1993 1992 1991
------------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficiency).......... $ 246,129 $144,329 $ (5,379) $ 5,651 $ 6,996 $ 18,502
Short-term debt, including current
maturities of long-term debt........ $ 18,805 $ 11,996 $ 11,210 $ 11,464 $ 10,837 $ 9,191
Long-term debt, net of current
maturities.......................... $ -- $ 3,791 $ 40,703 $ 42,930 $ 31,043 $ 28,582
Shareholders' equity.................. $ 791,904 $450,548 $115,218 $102,881 $121,071 $ 118,082
Total assets.......................... $ 986,865 $582,466 $257,207 $217,388 $202,967 $ 192,472
</TABLE>
See Notes 2, 5, 9 and 10 to consolidated financial statements of Republic
included elsewhere in this Solicitation Statement/Prospectus for discussion of
business combinations, various equity transactions, the distribution of the
hazardous waste services segment and restructuring charges and their effect on
comparability of year-to-year data. See "COMPARATIVE STOCK PRICES AND DIVIDEND
POLICIES" for a discussion of Republic's dividend policy.
9
<PAGE> 12
ADDINGTON'S SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected financial information of Addington for each of the
five years in the period ended December 31, 1995 are derived from the
consolidated financial statements of Addington. Addington has restated its
previously issued financial statements as required in connection with the
implementation of discontinued operations accounting. The income statement data
for the nine month periods ended September 30, 1996 and 1995 and the selected
balance sheet data at September 30, 1996 are derived from unaudited interim
consolidated financial statements of Addington contained elsewhere herein. The
unaudited interim consolidated financial statements of Addington include all
adjustments, consisting only of normal recurring adjustments, which Addington
considers necessary for a fair presentation of its financial position and
results of operations for these periods. The results of operations of Addington
for such interim periods are not necessarily indicative of the results to be
expected for the full year. The selected financial information should be read in
conjunction with the consolidated financial statements of Addington, the
unaudited interim consolidated financial statements of Addington and
management's discussion and analysis of Addington included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................. $ 46,012 $ 41,579 $ 56,739 $ 36,057 $ 22,600 $ 7,779 $ 1,867
-------- -------- -------- -------- -------- -------- --------
Costs and expenses
Cost of operations........... 26,680 23,370 30,574 19,665 10,966 4,037 1,504
Provision for asset
writedown.................. -- -- -- 670 5,122 -- --
Depreciation and
amortization............... 5,752 5,272 7,506 4,133 2,728 832 329
Selling, general and
administrative............. 4,100 4,922 6,631 7,119 6,503 2,479 985
-------- -------- -------- -------- -------- -------- --------
Total costs and expenses....... 36,532 33,564 44,711 31,587 25,319 7,348 2,818
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
operations................... 9,480 8,015 12,028 4,470 (2,719) 431 (951)
-------- -------- -------- -------- -------- -------- --------
Total interest and other income
(expense).................... (1,368) 153 (528) (7,280) (5,790) (1,037) (443)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income tax
provision (benefit).......... 8,112 8,168 11,500 (2,810) (8,509) (606) (1,394)
Income tax provision
(benefit).................... 2,693 3,267 4,426 (1,124) (3,233) (230) (529)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) from
continuing operations........ 5,419 4,901 7,074 (1,686) (5,276) (376) (865)
Discontinued operations, net
of tax....................... -- (24,830) (24,830) (5,448) (10,913) 11,412 (8,821)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).............. $ 5,419 $(19,929) $(17,756) $ (7,134) $(16,189) $ 11,036 $ (9,686)
========= ========= ========= ========= ========= ========= =========
Income (loss) from continuing
operations per share......... $ 0.35 $ 0.31 $ 0.45 $ (0.11) $ (0.34) $ (0.02) $ (0.06)
Income (loss) from discontinued
operations per share......... -- (1.56) (1.58) (0.34) (0.70) 0.74 (0.58)
-------- -------- -------- -------- -------- -------- --------
Net income (loss) per share.... $ 0.35 $ (1.25) $ (1.13) $ (0.45) $ (1.04) $ 0.72 $ (0.64)
========= ========= ========= ========= ========= ========= =========
Cash dividends declared
per share.................... -- -- -- -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER DECEMBER 31,
30, ------------------------------------------------------
1996 1995 1994 1993 1992 1991
----------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 196 $ 5,653 $ 1,259 $ 15,083 $ 33,781 $ 10,640
Total assets....................... 141,771 128,282 194,321 281,089 282,277 274,134
Long-term debt, net of current
portion.......................... 17,073 14,407 32,767 10,798 1,048 322
Stockholders' equity............... 97,998 91,186 120,221 124,933 136,811 125,685
</TABLE>
10
<PAGE> 13
SELECTED UNAUDITED PRO FORMA
FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following unaudited pro forma Republic and Addington financial data for
the nine months ended or at September 30, 1996 and the years ended December 31,
1995, 1994 and 1993 gives effect to certain closed Republic acquisitions and
certain 1995 equity transactions (collectively, the "Closed Republic
Transactions") and the Merger as if such acquisitions and transactions occurred
at the beginning of the periods presented for results of operations data and as
of the balance sheet date for balance sheet data. The following unaudited pro
forma Combined Company financial data for the nine months ended September 30,
1996 and for the years ended December 31, 1995, 1994 and 1993 gives effect to
consummation of the Merger, the Closed Republic Transactions, certain closed
Continental acquisitions and the Pending Republic Acquisitions as if such events
occurred for balance sheet purposes at the balance sheet date and for statement
of operation purposes at the beginning of the periods presented. The selected
unaudited pro forma financial data was derived from, and should be read in
conjunction with, the unaudited condensed consolidated pro forma financial
statements and the notes thereto appearing elsewhere in this Solicitation
Statement/Prospectus. The unaudited pro forma data is not necessarily indicative
of the combined results of operations or financial position that would have
occurred if the Merger, Closed Republic Transactions and the Pending Republic
Acquisitions had occurred at the beginning of the period nor are they
necessarily indicative of future operating results. There can be no assurance
that any of the Pending Republic Acquisitions will be completed.
PRO FORMA REPUBLIC AND ADDINGTON DATA:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
SEPTEMBER YEARS ENDED DECEMBER 31,
30, ----------------------------------------
1996 1995 1994 1993
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Revenue...................................................... $1,647,349 $1,808,320 $1,567,152 $1,354,293
Income from continuing operations before income taxes........ $ 80,696 $ 24,240 $ 45,239 $ 26,749
Income from continuing operations............................ $ 45,280 $ 12,066 $ 26,967 $ 13,453
Earnings per common and common equivalent share from
continuing operations...................................... $ .18 $ .05 $ .20 $ .10
Weighted average common and common equivalent shares......... 255,040 232,558 133,262 133,233
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
30,
1996
------------
<S> <C> <C> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital.............................................. $ 291,464
Short-term debt, including current maturities of long-term
debt....................................................... $2,294,671
Long-term debt, net of current maturities.................... $ 232,226
Shareholders' equity......................................... $ 930,251
Total assets................................................. $4,003,845
Book value per common share.................................. $ 4.10
</TABLE>
PRO FORMA COMBINED COMPANY DATA:
<TABLE>
<CAPTION>
NINE
MONTHS ENDED
SEPTEMBER YEARS ENDED DECEMBER 31,
30, ----------------------------------------
1996 1995 1994 1993
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
PRO FORMA INCOME STATEMENT DATA:
Revenue...................................................... $1,716,338 $1,874,476 $1,595,880 $1,370,497
Income from continuing operations before income taxes........ $ 52,379 $ 22,348 $ 49,999 $ 28,423
Income from continuing operations............................ $ 24,580 $ 10,614 $ 29,595 $ 14,406
Earnings per common and common equivalent share from
continuing operations...................................... $ .09 $ .04 $ .21 $ .11
Weighted average common and common equivalent shares......... 285,078 260,223 139,410 137,024
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER
30,
1996
------------
<S> <C> <C> <C> <C>
PRO FORMA BALANCE SHEET DATA:
Working capital.............................................. $ 184,945
Short-term debt, including current maturities of long-term
debt....................................................... $2,329,088
Long-term debt, net of current maturities.................... $ 277,323
Shareholders' equity......................................... $1,197,844
Total assets................................................. $4,405,930
Book value per common share.................................. $ 4.67
</TABLE>
11
<PAGE> 14
RISK FACTORS
In addition to the other information contained in this Solicitation
Statement/Prospectus, the following risk factors should be considered carefully
by the stockholders of Addington before consenting to the proposal to approve
and adopt the Merger Agreement, and in evaluating an investment in Republic.
Fixed Exchange Ratio. The Exchange Ratio is fixed and will not be adjusted
in the event of any increase or decrease in the relative or respective stock
prices of the Republic Common Stock and the Addington Common Stock. The relative
and respective prices of the Republic Common Stock and the Addington Common
Stock at the Effective Time may vary from the prices as of the date the Merger
Agreement was approved by the respective Boards of Directors of Republic and
Addington, the date that the opinion of Oppenheimer & Co. was rendered, or the
date the Merger is consummated, due to changes in the business, operations and
prospects of Republic or Addington, market assessments of the likelihood that
the Merger will be consummated and the timing thereof, general market and
economic conditions, and other factors. See "COMPARATIVE STOCK PRICES AND
DIVIDEND POLICIES."
Uncertainties in Integrating Operations and Achieving Cost
Savings. Republic and Addington are large enterprises, with operations in
different markets. The success of any business combination, including the
Merger, is in part dependent on the ability following the transaction to
consolidate operations, integrate departments, systems and procedures and
thereby obtain business efficiencies, economies of scale and related cost
savings. The consolidation of operations, the integration of departments,
systems and procedures and the relocation of staff present significant
management challenges. The challenges posed may be particularly significant
because they must be addressed contemporaneously with integrating the Pending
Republic Acquisitions. There can be no assurance that future consolidated
results will improve as a result of the Merger (or the Pending Republic
Acquisitions), or as to the timing or extent to which cost savings and
efficiencies will be achieved.
Consummation of Pending Republic Acquisitions; Dilution. While management
of Republic remains committed to consummating each of the Pending Republic
Acquisitions, there can be no assurance that the consents and approvals required
for each of such acquisitions will be obtained, that the other conditions
necessary for the consummation of such acquisitions will be satisfied or that
such acquisitions will otherwise be consummated. The issuance of additional
shares of Republic Common Stock upon closing of the Pending Republic
Acquisitions, upon exercise of warrants or options, or upon completion of other
acquisitions or business combinations, may have a dilutive effect on earnings
per share and will have a dilutive effect on the voting rights of the holders of
Republic Common Stock. Assuming the consummation of each of the Merger and the
Pending Republic Acquisitions, the current stockholders of each of the following
companies will own approximately the following percentages of the outstanding
shares of Republic Common Stock based on the number of shares of Republic Common
Stock outstanding as of November 30, 1996: Republic 83.8%; AutoNation 6.5%;
Continental 4.7%; and Addington 5.1%. Assuming the consummation of only the
Merger, the stockholders of Republic immediately prior to the Effective Time
will own approximately 94.3% of the outstanding shares of Republic Common Stock
and the former stockholders of Addington will own approximately 5.7% of the
outstanding shares of Republic Common Stock based on the number of shares of
Republic Common Stock outstanding as of November 30, 1996.
Control Of Republic. As of October 31, 1996, H. Wayne Huizenga, Michael G.
DeGroote, Harris W. Hudson, and John J. Melk, each a Director and/or executive
officer of Republic, beneficially owned an aggregate of 83,248,062 shares of
Republic Common Stock (including shares beneficially owned by certain of their
spouses, with respect to which they each respectively disclaim beneficial
ownership, and including warrants and options exercisable within 60 days of
October 31, 1996 for an aggregate of 29,730,622 shares of Republic Common
Stock), or an aggregate of approximately 37.5% of the issued and outstanding
shares of Republic Common Stock (assuming the exercise of all warrants and
options exercisable within 60 days of October 31, 1996 owned by such persons).
Messrs. Huizenga, DeGroote, Hudson and Melk acting together are, and, after the
Merger is consummated, will be, able to exert considerable influence over the
election of Republic's directors and the outcome of corporate actions requiring
stockholder approval. See "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF REPUBLIC."
12
<PAGE> 15
Dependence on Key Personnel. Republic's future success depends to a
significant extent on its management team. The loss of the services of any of
the members of its management team, in general, all of whom have entered into
employment and/or non-compete agreements with Republic, or the loss of Mr.
Huizenga in particular (whether such loss is through resignation or otherwise),
could have a material adverse effect on Republic's business, financial condition
and future prospects. Furthermore, Republic does not hold keyman insurance on
any members of its management team.
Possible Depressing Effect of Future Sales of Republic Common
Stock. Future sales of the Shares, or the perception that such sales could
occur, could adversely affect the market price of Republic Common Stock. There
can be no assurance as to when, and how many of, the Shares will be sold and the
effect such sales may have on the market price of Republic Common Stock. Since
August 1995 and as of September 30, 1996, Republic has registered for sale, from
time to time on a continuous basis under several shelf registration statements,
by certain selling stockholders, an aggregate of 182,599,986 shares of Republic
Common Stock. In addition, Republic intends to continue to issue Republic Common
Stock in connection with certain of its acquisitions or in other transactions.
Such securities may be subject to resale restrictions in accordance with the
Securities Act and the regulations promulgated thereunder. As such restrictions
lapse or if such shares are registered for sale to the public, such securities
may be sold to the public. In the event of the issuance and subsequent resale of
a substantial number of shares of Republic Common Stock, or a perception that
such sales could occur, there could be a material adverse effect on the
prevailing market price of Republic Common Stock.
Limited Operations in Vehicle Retailing Business. Republic has a limited
history of operations in vehicle retailing and related businesses. Prior to its
acquisition of CarChoice in August 1996, Republic had no history of operations
in the vehicle retailing industry. Republic currently anticipates that it will,
through acquisitions, including the acquisition of AutoNation, rapidly expand
its operations in new and used vehicle retailing and related businesses.
Operations of CarChoice and AutoNation did not generate revenue until 1996.
Neither CarChoice nor AutoNation has operated profitably since inception.
AutoNation has started up and is developing a chain of vehicle retailing
megastores and opened its first AutoNation USA(TM) megastore in October 1996.
The success of Republic's aggressive development plans in the vehicle retailing
business is dependent on a number of factors including, but not limited to,
economic conditions, competitive environment, adequate capital, accurate site
selection, construction schedules, supply of new and used vehicles, consumer
acceptance of the megastore concept in vehicle retailing, vehicle manufacturers'
approval and control over new vehicle dealer franchises, and the building of
brand recognition. There can be no assurance that Republic will be successful in
the vehicle retailing industry or in any related automotive industries which it
enters.
Valuation of AutoNation. There are a number of methods of determining the
valuation of any company, which methods often involve consideration of
intangible factors which are not readily capable of being quantified with
precision. Accordingly, determination of a precise valuation of AutoNation is
difficult, due in part to such factors as its limited history of operations in
vehicle retailing and related businesses. Consequently, a Special Committee of
the Board of Directors of Republic (the "Special Committee") engaged an
investment banking firm to evaluate the fairness of the consideration proposed
to be paid by Republic to the shareholders of AutoNation in connection with the
AutoNation transaction. The Special Committee and its investment banking firm
relied on forecasts and projections regarding AutoNation's future operating
performance, as well as numerous other factors, including AutoNation's audited
financial statements, and the investment banking firm issued its opinion that
the consideration to be issued by Republic in the AutoNation transaction is fair
to Republic from a financial point of view. Neither Republic nor its investment
banking firm, nor, to Republic's knowledge, any other party, has conducted
independent appraisals or valuations of the assets or liabilities of AutoNation.
Need for Substantial Additional Capital. Republic's strategy is to
aggressively grow as a diversified company by acquiring and integrating
additional companies in its existing lines of business, and companies in other
lines of business, as well as through internal growth of such businesses. As of
November 30, 1996, Republic had approximately $1.9 billion in long term debt
outstanding ($1.6 billion of which was secured by revenue earning rental
vehicles) and had approximately $93 million in cash available for general
corporate
13
<PAGE> 16
purposes. Republic believes that additional capital may be necessary to continue
its rapid expansion, to service its outstanding debt and to fully capitalize on
acquisition and expansion opportunities that may become available to Republic.
There can be no assurance that additional financing will be available on a
timely basis, if at all, or that it will be available on terms acceptable to
Republic. In the event that adequate financing is not available or is not
available in the amounts or on terms acceptable to Republic, the implementation
of Republic's acquisition and expansion strategy could be impeded and Republic's
ability to react to changes in the industries in which it does business could be
limited, which could have a material adverse effect on Republic's business,
financial condition and future prospects.
Impediments to Completing Future Acquisitions. Republic's future growth
strategy depends on its ability to identify and acquire appropriate companies in
its existing lines of business, and companies operating in other lines of
business, to integrate the acquired operations effectively and to increase its
market share in such businesses. A number of Republic's competitors are better
known companies, with significantly greater financial resources. There can be no
assurance that Republic will be able to identify viable acquisition candidates,
that any identified candidates will be acquired, that acquired companies will be
effectively integrated to realize expected efficiencies and economies of scale,
or that any such acquisitions will prove to be profitable. Acquisition of
companies requires the expenditure of sizeable amounts of capital, and the
intense competition among companies pursuing similar acquisitions may further
increase such capital requirements. In the event that acquisition candidates are
not identifiable or acquisitions are prohibitively costly, Republic may be
forced to alter its future growth strategy. As Republic continues to pursue its
acquisition strategy in the future, its stock price, financial condition and
results of operations may fluctuate significantly from period to period.
Risks Associated with Acquisitions. There may be liabilities which
Republic fails or is unable to discover in the course of performing due
diligence investigations on each company or business it seeks to acquire,
including liabilities arising from non-compliance with certain federal, state or
local environmental laws by prior owners, and for which Republic, as a successor
owner, may be responsible. Republic generally seeks to minimize its exposure to
such liabilities by obtaining indemnification from each former owner, which may
be supported by deferring payment of a portion of the purchase price. However,
there is no assurance that such indemnifications, even if obtainable,
enforceable and collectible (as to which there also is no assurance), will be
sufficient in amount, scope or duration to fully offset the possible liabilities
arising from the acquisitions.
Cost of Vehicle Rental Fleet. Vehicle depreciation is one of the single
largest cost components of Republic's Alamo Rent-A-Car vehicle rental business,
and it is materially affected by vehicle manufacturers' supply programs. Since
the late 1980s, vehicle manufacturers have sold vehicles to the car rental
industry under repurchase programs, pursuant to which the manufacturers agree to
repurchase program vehicles during allowable repurchase periods at determinable
prices, subject to certain terms and conditions ("Repurchase Programs").
Repurchase prices under Repurchase Programs are based on either (i) a
predetermined percentage of original vehicle cost and the month in which the
vehicle is returned or (ii) the original capitalization cost less a set monthly
depreciation amount. Repurchase Programs limit the risk of market value decline
at the time of vehicle disposition and enable car rental companies to accurately
project their vehicle depreciation expense. Republic currently has Repurchase
Programs with General Motors Corporation ("General Motors"), Chrysler
Corporation, Ford Motor Company, Mazda Motor of America, Inc., Nissan Motor
Corporation in U.S.A., Subaru of America, Inc. and Toyota Motor Sales U.S.A.,
Inc. (including its Lexus division). During model year 1996, Republic's vehicle
rental operations purchased approximately 90% of its U. S. vehicle fleet and a
majority of its European vehicle fleet under Repurchase Programs. If vehicle
manufacturers reduce the number or mix of vehicles available to car rental
companies through Repurchase Programs or increase vehicle costs under Repurchase
Programs, there can be no assurance that Republic will be able to control its
rental fleet costs or selection, or to pass on any increases in vehicle cost to
rental customers, which could have a material adverse effect on Republic's
business, financial condition and future prospects.
Republic also purchases vehicles for its rental fleet that are not subject
to Repurchase Programs and therefore Republic is responsible for the disposition
of such vehicles. During model year 1996, Republic's
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vehicle rental operations purchased approximately 10% of its North American
rental fleet and less than half of its European rental fleet outside Repurchase
Programs. The proceeds from the sales of such vehicles will depend upon the
prices obtained by Republic in the used car market at the time of disposition
and, accordingly, will be subject to the market conditions at the time of sale,
which conditions may change from time to time. Changes in the prices obtainable
in the used car market could adversely affect the price realized upon any sale.
In the future, the number of vehicles purchased outside Repurchase Programs may
increase or decrease based on a number of factors, including a determination by
Republic of the acceptable level of residual risk related to the disposition of
vehicles in the used car market.
Dependence on Vehicle Manufacturer's Credit. Republic's Alamo Rent-A-Car
vehicle rental business depends upon third-party financing to purchase its
revenue earning vehicles for its vehicle rental fleet. Continued availability of
such financing upon favorable terms is critical to Republic's vehicle rental
operations. Since a substantial portion of such indebtedness is incurred in
connection with major vehicle manufacturers' Repurchase Programs, a significant
change in the financial conditions of the vehicle manufacturers, particularly
General Motors, impairing their ability to repurchase vehicles could
significantly affect Republic's ability to obtain such financing on favorable
terms. In addition, under the terms of certain of Republic's vehicle purchase
credit facilities, if the senior indebtedness of a repurchase party (such as
General Motors) fails to maintain an investment grade rating, or upon the
bankruptcy of a repurchase party or the occurrence of any other material adverse
effect on the repurchase party's ability to perform, or upon a material default
under a Repurchase Program, or upon the occurrence of certain other events,
Republic may be prohibited from borrowing additional amounts under such
facilities for the purchase of vehicles from such repurchase party, Republic may
be required to repay a portion of the indebtedness outstanding under such
facilities based on the vehicles to be repurchased by such repurchase party, and
Republic may be required to remove the vehicles of such repurchase party from
the applicable collateral pool for such facilities. Therefore, any change in
financial condition of a vehicle manufacturer with which Republic maintains a
Repurchase Program could have a material adverse effect on Republic's business,
financial condition and future prospects.
Interest Rates and Restrictive Covenants. A substantial portion of
Republic's outstanding indebtedness is at floating interest rates. Republic uses
interest rate swaps to manage the risk of interest rate fluctuations. However, a
substantial increase in interest rates could adversely affect Republic's ability
to service its debt obligations. In addition, most of Republic's debt
instruments contain covenants establishing certain financial and operating
restrictions as well as cross-default and cross-acceleration provisions. A
failure to comply with any covenant or any obligation contained in any credit
agreement could result in an event of default which could accelerate debt under
certain other credit agreements
European Vehicle Rental Operations. Republic's European vehicle rental
operations are subject to certain risks, including adverse developments in the
foreign political and economic environment, varying governmental regulations,
foreign currency fluctuations, potential difficulties in staffing and managing
foreign operations and potentially adverse tax consequences. There can be no
assurance that any of these factors will not have a material adverse effect on
Republic's business, financial condition and future prospects.
Regulation of Collision Damage Waivers. A traditional rental related
product offered by the car rental industry has been the sale of collision damage
waivers, under which car rental companies agree to waive their right to recovery
from a renter for damage to the rental vehicle. Approximately 6.3%, 7.6% and
6.8% of the total U.S. revenue of Republic's Alamo Rent-A-Car vehicle rental
business in 1995, 1994 and 1993, respectively, was generated from the sale of
collision damage waivers. The United States House of Representatives has from
time to time contemplated, but never adopted, legislation that would regulate
the conditions under which collision damage waivers may be sold by car rental
companies. In addition, approximately 40 states have considered legislation
affecting the collision damage waiver product. To date, 18 of those states have
enacted legislation requiring disclosure to each customer at the time of rental
that damage to the rented vehicle may be covered by the customer's personal
automobile insurance and that a collision damage waiver may not be necessary. In
addition, in the late 1980s, New York and Illinois enacted legislation which
eliminated car rental companies' right to offer collision damage waivers for
sale and limited potential customer liability to $100 and $200, respectively.
Moreover, California, Nevada and Indiana have capped the rates that may be
charged for collision damage waivers to $9.00, $10.00 and $5.00 per day,
respectively. In
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addition, Texas requires the rates charged for this protection to be reasonable
in relation to costs. Adoption of national or additional state legislation
limiting the sale, or capping the rates, of collision damage waivers could
further restrict sales of this product, and additional limitations on potential
customer liability could increase Republic's costs in its vehicle rental
business.
Dependence on Principal Rental Fleet Supplier. Since the early 1980s,
General Motors has been the principal supplier of rental fleet vehicles to
Republic's Alamo Rent-A-Car vehicle rental business. The number of vehicles
purchased from General Motors varies from year to year. In model years 1996,
1995 and 1994, Republic's vehicle rental operations purchased approximately 61%,
68% and 78%, respectively, of its North American vehicle fleet from General
Motors. Under the terms of Republic's Repurchase Program with General Motors,
Republic's vehicle rental operations must purchase at least 51% of its domestic
vehicles from General Motors during model years 1996 through 2000 in order to
receive certain discounts and other incentives. Given the volume of vehicles
purchased from General Motors, shifting significant portions of the fleet
purchases to other manufacturers would require significant lead time. As a
result, if General Motors were unable to supply Republic's vehicle rental
operations with the planned number and type of vehicles, it could have a
material adverse effect on Republic's business, financial condition and future
prospects.
Environmental Regulation. The operations of Republic's businesses are
subject to certain federal, state and local requirements which regulate health,
safety, environment, zoning and land-use. Operating and other permits are
generally required for landfills, certain waste collection vehicles, fuel
storage tanks, and other facilities owned or operated by Republic, and these
permits are subject to revocation, modification and renewal. It may be necessary
to expend considerable time, effort and money to bring Republic's existing or
acquired facilities into compliance with applicable requirements and to obtain
the permits and approvals necessary to increase their capacity. Applicable
requirements are enforceable by injunctions and fines or penalties, including
criminal penalties. These regulations are administered by the United States
Environmental Protection Agency ("EPA") and various other federal, state and
local environmental and health and safety agencies and authorities, including
the Occupational Safety and Health Administration ("OSHA") of the United States
Department of Labor. In addition, certain of Republic's waste disposal
operations that traverse state boundaries could be adversely affected if the
federal government or the state in which a landfill is located limits or
prohibits, imposes discriminatory fees on, or otherwise seeks to discourage the
disposal, within state boundaries, of waste collected outside of the state.
The Solid Waste Disposal Act ("SWDA"), as amended by the Resource
Conservation and Recovery Act of 1976, as amended ("RCRA"), and the regulations
promulgated thereunder establish a framework for regulating the storage,
collection and disposal of non-hazardous solid wastes. Subtitle D of RCRA
establishes a framework for regulating the disposal of municipal solid wastes.
In October 1991, the EPA imposed minimum federal comprehensive solid waste
management criteria and guidelines, on, among other things, location
restrictions, facility design and operating criteria, closure and post-closure
requirements, groundwater monitoring requirements and corrective action
standards, many of which had not previously been in effect or enforced.
Compliance with Subtitle D regulations has resulted in significant increases in
costs. If environmental laws become more stringent, Republic's environmental
capital expenditures and costs for environmental compliance may increase in the
future. In addition, due to the possibility of unanticipated factual or
regulatory developments, the amounts and timing of future environmental
expenditures could vary substantially from those currently anticipated. See
"BUSINESS OF REPUBLIC -- Regulations."
The Comprehensive Environmental Response, Compensation, and Liability Act
of 1980, as amended ("CERCLA"), imposes liability for damages and the cleanup of
sites from which there is a release or threatened release of a hazardous
substance into the environment on, among others, the current and former owners
and operators of such sites. Liability under CERCLA can be founded upon the
release or threatened release, even as a result of unintentional and
non-negligent action, of thousands of hazardous substances, including very small
quantities of such substances. More than 20% of the sites on the EPA's National
Priorities List which require remediation under CERCLA are solid waste landfills
which ostensibly never received any hazardous wastes. Thus, even if Republic's
landfills or other properties which Republic or companies it acquires may have
owned or operated have never received hazardous wastes, it is possible that one
or more hazardous substances may have come to be located there. Republic could
be liable under
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CERCLA for the cost of cleaning up such hazardous substances at the sites and
for damages to natural resources, even if those substances were deposited at
Republic's facilities before Republic acquired or operated them. CERCLA
liability may also attach to Republic with regard to facilities owned or
operated by third parties where Republic or companies it acquires arranged for
disposal or treatment of hazardous substances at, or transportation of hazardous
substances to, such a facility, or where Republic or companies it acquires was
the waste transporter who selected such facility for treatment or disposal of
hazardous substances. The costs of a CERCLA cleanup can be significant. Given
the difficulty of obtaining insurance for environmental impairment liability,
such liability could have a material impact on Republic's business, financial
condition and future prospects. See "BUSINESS OF REPUBLIC -- Regulations."
Republic currently carries site-specific pollution liability insurance (for
a majority of its facilities), contractors' pollution liability insurance and
professional liability insurance. However, these insurance policies are limited
in scope and coverage. As a result, there can be no assurance that the level or
breadth of such insurance coverages will be sufficient to fully cover potential
claims. In addition, such insurance is becoming increasingly expensive and
difficult to obtain. There can be no assurance that adequate insurance coverage
will be available in the future at an acceptable cost, if at all, or in
sufficient amounts to protect Republic against liabilities. The obligation to
pay any environmental damages claim in excess of Republic's insurance coverage
could have a material adverse effect on the business, financial condition and
future prospects of Republic.
"False" Alarm Ordinances. Republic believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Significant concern
has arisen in certain municipalities about this high incidence of "false"
alarms. Recently, a trend has emerged on the part of local governmental
authorities to address such concern by adopting various measures aimed at
reducing the number of "false" alarms. Such measures include (i) subjecting
alarm monitoring companies to fines or penalties for transmitting "false"
alarms; (ii) licensing individual alarm systems and the revocation of such
licenses following a specified number of "false" alarms; (iii) imposing fines on
alarm subscribers for "false" alarms; (iv) imposing limitations on the number of
times the police will respond to alarms at a particular location after a
specified number of "false" alarms; and/or (v) requiring further verification of
an alarm signal before the police will respond. Enactment of such measures could
adversely affect Republic's electronic security services business and
operations. In addition, as a result of high incidence of "false" alarms, the
police may, in general, become less responsive to alarm activations. The
continuation of such trend, or perception by the public of such trend, may make
home security systems less attractive to consumers, which could, in turn, have
an adverse effect on Republic's electronic security services business and
operations.
Risks of Pending and Future Legal Proceedings. In addition to the costs of
complying with environmental regulations, waste management companies generally
will continue to be involved in legal proceedings in the ordinary course of
business. Government agencies may seek to impose fines on Republic for alleged
failure to comply with laws and regulations or to deny, revoke or impede the
renewal of Republic's permits and licenses. In addition, such governmental
agencies as well as surrounding landowners, may claim that Republic is liable
for environmental damages. Citizen's groups have become increasingly active in
challenging the grant or renewal of permits and licenses for landfills and other
waste facilities, and responding to such challenges has further increased the
costs associated with establishing new facilities or expanding current
facilities. A significant judgment against Republic, the loss of a significant
permit or license or the imposition of a significant fine could have a material
adverse effect on Republic's business, financial condition and future prospects.
Republic is currently a party to various legal proceedings, particularly in its
vehicle rental business, as well as environmental proceedings which have arisen
in the ordinary course of its business. No assurance can be given with respect
to the outcome of these legal and environmental proceedings and the effect such
outcomes may have on Republic. Although Republic believes that losses resulting
from the ultimate resolution of such proceedings will not have a material
adverse effect on Republic's business, financial condition or future prospects,
unfavorable resolution of any matter individually or in the aggregate could have
a material adverse effect on Republic's business, financial condition and future
prospects.
Seasonality and Dependence on Travel Industry and Fuel Supply . Republic's
collection and landfill operations could be adversely affected by protracted
periods of inclement weather which could delay the
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development of landfill capacity or the transfer of waste and/or reduce the
volume of waste generated. Republic's vehicle retailing operations could be
adversely affected by protracted periods of inclement weather. In addition,
Republic's vehicle rental operations could be adversely affected by a decrease
in air travel, protracted periods of inclement weather or any other event that
disrupts travel patterns for an extended period of time, particularly in the
peak summer travel months which have historically been the strongest revenue and
net income producing months of Republic's vehicle rental operations. Republic's
vehicle rental operations could also be adversely affected by limitations in
fuel supplies, imposition of mandatory fuel allocation or rationing regulations
or significant increases in fuel prices. There can be no assurance that
protracted periods of inclement weather, decrease in air travel or any other
occurrence that disrupts travel patterns, disruption of fuel supplies or
increases in fuel prices will not have a material adverse effect on Republic's
business, financial condition and future prospects.
Competitive Environment. All of Republic's businesses operate in highly
competitive environments. In addition, the solid waste industry, the electronic
security services industry and the vehicle retailing industry are each changing
as a result of rapid consolidation. The future success of Republic will be
affected by such changes, the nature of which cannot be forecast with certainty.
There can be no assurance that such developments will not create additional
competitive pressures on some or all of Republic's businesses.
The solid waste industry in North America is led by several large national
waste management companies and numerous regional and local companies, all of
which contribute to the high level of competition. Some of these companies have
significantly greater financial and operational resources and more established
market positions than Republic. In addition, Republic must often compete with
municipalities that maintain their own waste collection and landfill operations
and often have financial advantages due to the availability to municipalities of
tax revenues and tax-exempt financing. Furthermore, alternatives to landfill
disposal (such as recycling, incinerating and composting) are increasingly
competing with landfills. There also has been an increasing trend at the state
and local levels to mandate waste reduction at the source and to prohibit the
disposal of certain types of wastes, such as yard wastes, at landfills. This may
result in the volume of waste going to landfills being reduced in certain areas,
which may affect Republic's ability to operate its landfills at their full
capacity and/or affect the prices that can be charged for landfill disposal
services. In addition, most of the states in which Republic operates landfills
have adopted plans or requirements which set goals for specified percentages of
certain solid waste items to be recycled. Implementation and adoption of such
plans or requirements could have a material adverse effect on Republic's
business, financial condition and future prospects. There can be no assurance
that Republic will be able to compete effectively in the solid waste industry.
The security alarm industry is highly competitive and highly fragmented.
The electronic security services business of Republic competes with several
large national companies as well as numerous smaller regional and local
companies. Furthermore, new competitors are continuing to enter the industry.
Certain of Republic's competitors have greater financial and other resources
than Republic. Given this competitive business environment, there can be no
assurance that the operations of Republic will be able to compete effectively in
this industry. The existing subscriber base of Republic's electronic security
services business is geographically concentrated in certain metropolitan areas
primarily located in Florida, Colorado, Illinois and Maryland. Accordingly, the
performance of this business segment may be adversely affected by regional or
local economic conditions or regulations. Republic may from time to time make
acquisitions in regions outside of its current operating areas. In order for
Republic to expand successfully into a new area, Republic must obtain a
sufficient number and density of subscriber accounts in such area to support the
additional investment required when expanding to a new geographic area. There
can be no assurance that an expansion into new geographic areas would generate
operating profits.
The car rental industry is highly competitive. In any given location,
Republic's Alamo Rent-A-Car vehicle rental business may encounter competition,
particularly in the leisure segment, from national, regional and local car
rental companies, some of which may have access to greater financial resources
than Republic and several of which are owned by or affiliated with the major
automobile manufacturers, including General Motors. At times, the major car
rental companies have been adversely affected by industry-wide price pressures,
and Republic's vehicle rental business has, on such occasions, priced its
product in response to such
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pressures. Moreover, at times when the car rental industry has experienced
vehicle oversupply, there has been intensified competitive pressure. This
oversupply has limited the industry's ability to raise rental rates. There can
be no assurance that Republic will be able to compete effectively in the vehicle
rental industry.
The vehicle retailing industry in the United States is highly fragmented
and competitive, and is in the early stages of consolidation. Republic believes
that there is no used vehicle retailer currently operating a national chain of
megastores. In addition to Republic, several other companies have announced
plans to roll out national chains of used vehicle megastores over the next few
years. In addition, several franchised new vehicle dealers, which have
significant used vehicle operations, have recently conducted initial public
offerings of their securities, with proceeds targeted to be used for
acquisitions of other dealers. Some of these competitors in the new and used
vehicle retailing industry have significantly greater financial and operational
resources and more established market positions than Republic. There can be no
assurance that Republic will be able to compete effectively in the new or used
vehicle retailing industry or related automotive businesses.
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SOLICITATION OF WRITTEN CONSENTS
ACTION BY WRITTEN CONSENT; PURPOSE; RECORD DATE
This Solicitation Statement/Prospectus is being furnished to stockholders
of Addington in connection with the solicitation by the Board of written
consents to approve and adopt the Merger Agreement. As a result of the Merger,
Addington will become a wholly-owned subsidiary of Republic.
In lieu of a special meeting of stockholders of Addington, action to
approve and adopt the Merger Agreement will be taken by written consent. The
Merger will be consummated as soon as practicable after consents have been
received and not revoked representing the number of shares of Addington Common
Stock required to approve and adopt the Merger Agreement. Notwithstanding the
foregoing, written consents to approve and adopt the Merger Agreement shall only
be effective to take such corporate action if the number of consents required to
approve and adopt the Merger Agreement are delivered to Addington within 60 days
of the date of the earliest consent delivered to Addington.
The Board has fixed the close of business on December 4, 1996, as the
Record Date for the determination of stockholders entitled to consent to the
proposal to approve and adopt the Merger Agreement.
CONSENTS REQUIRED
Written consents from the holders of a majority of the shares of Addington
Common Stock outstanding on the Record Date are required to approve and adopt
the Merger Agreement. Only stockholders of record at the close of business on
the Record Date are entitled to consent to the proposal to approve and adopt the
Merger Agreement. As of the Record Date, 15,240,684 shares of Addington Common
Stock were issued and outstanding and entitled to consent to the proposal to
approve and adopt the Merger Agreement.
STOCKHOLDERS WHO FAIL TO PROPERLY EXECUTE AND RETURN A CONSENT FORM WITH
RESPECT TO THEIR SHARES OF ADDINGTON COMMON STOCK WILL IN EFFECT BE VOTING
AGAINST THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
As of the Record Date, 6,867,615 shares of Addington Common Stock
(approximately 45% of the outstanding shares of Addington Common Stock) were
beneficially owned by the Principal Stockholders of Addington. The Principal
Stockholders have executed the Voting Agreement with Republic whereby they have
granted irrevocable proxies to Republic to, and have 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 Merger Agreement. Accordingly, consents
would need to be received from holders of an additional 752,728 shares of
Addington Common Stock to approve and adopt the Merger Agreement.
TERMS OF THE VOTING AGREEMENT
The following is a summary of certain provisions of the Voting Agreement, a
conformed copy of which is included as Annex C to this Solicitation
Statement/Prospectus. Such summary is qualified in its entirety by reference to
the Voting Agreement.
Pursuant to the Voting Agreement, the Principal Stockholders have agreed to
vote and have granted to Republic their irrevocable proxies to vote or to
execute written consents with respect to all 6,867,615 shares of Addington
Common Stock (approximately 45% of the outstanding shares of Addington Common
Stock) owned by them (a) in favor of approval and adoption of the Merger
Agreement and any transactions contemplated thereby, and (b) against any
proposal for any merger, sale of substantial assets, sales of shares of
Addington Common Stock or other securities, recapitalization, or other business
combination transactions between Addington or any of the subsidiaries of
Addington and any person or entity (other than the Merger) or any other
corporate action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of Addington
under the Merger Agreement or which could result in any of the conditions to
Addington's obligations under the Merger Agreement not being fulfilled
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(collectively the "Voting Commitments"). The Voting Commitments terminate if the
Merger Agreement is terminated.
Under the terms of the Voting Agreement, each of the Principal Stockholders
has covenanted and agreed not to offer or agree to sell, transfer, tender,
assign, hypothecate or otherwise dispose of, grant a proxy or power of attorney
with respect to, create or permit to exist any lien, claim, pledge, option,
right of first refusal, agreement, limitation on its voting rights, charge or
other encumbrance of any nature whatsoever, with respect to, the shares of
Addington Common Stock subject to the Voting Agreement, or, directly or
indirectly, initiate, solicit or encourage, subject to the provisions of the
Merger Agreement, any person to take actions which could reasonably be expected
to lead to the occurrence of any of the foregoing. Furthermore, the Principal
Stockholders have agreed to pay to Republic certain amounts representing the
Principal Stockholders' profit as set forth in the Voting Agreement, if certain
competing transactions are completed with third parties in place of the Merger.
See "THE MERGER AGREEMENT -- No Solicitation of Competing Transactions;
Termination Fee." In addition, the Principal Stockholders have agreed to be
bound by and to comply with the non-solicitation obligations of Addington set
forth in the Merger Agreement. See "THE MERGER AGREEMENT -- No Solicitation of
Competing Transactions; Termination Fee."
USE AND REVOCATION OF CONSENT FORMS; SOLICITATION
Shares of Addington Common Stock which are represented by properly
executed, dated and returned consent forms will be given effect in accordance
with the direction thereon, unless such consent forms shall have previously been
properly revoked. If no direction is indicated, the shares of Addington Common
Stock represented by such form shall be deemed to have consented to the approval
and adoption of the Merger Agreement. A stockholder who has delivered a consent
form may revoke it at any time before unrevoked consents representing the
requisite number of shares of Addington Common Stock required to approve and
adopt the Merger Agreement are delivered to Addington. Consents may be revoked
by delivering a written notice of revocation of such consent, or by submission
of a properly executed consent form bearing a later date than the consent form
being revoked, to the Secretary of Addington at 2343 Alexandria Drive, Suite
400, Lexington, Kentucky 40504.
In addition to soliciting proxies by mail, officers and employees of
Addington, without receiving additional compensation therefor, may solicit
consents personally or by telephone, telegram or other forms of wire or
facsimile communications. Addington has also retained MacKenzie Partners, Inc.
as its consent solicitor in connection with this consent solicitation. The fee
for such services will be not more than approximately $7,500 plus out-of-pocket
expenses. Any questions or requests for assistance regarding consents and
related materials may be directed to MacKenzie Partners, Inc. in writing at 156
Fifth Avenue, New York, New York 10010-7002 or by telephone at (800) 322-2885.
Addington will bear the cost of this consent solicitation, including the
reasonable expenses incurred by brokerage houses, custodians, nominees and
fiduciaries in forwarding solicitation material to the beneficial owners of
shares of Addington Common Stock.
APPRAISAL RIGHTS
Stockholders of Addington will have no appraisal rights under Delaware Law
in connection with the Merger.
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THE MERGER
BACKGROUND OF THE MERGER
On August 4, 1995, Addington appointed four new members to its Board, Mr.
Berkowitz (Chairman), Richard Ravitch, James Grosfeld and Harold Blumenstein,
and accepted the resignation of Robert Addington from the Board. The Board
changes followed the execution of an agreement by Larry Addington, Bruce
Addington and Robert Addington for their sale of an aggregate of 2,000,000
shares of Addington Common Stock to HPB Associates, L.P., of which Mr. Berkowitz
was the managing general partner.
On August 7, 1995, Addington publicly announced these changes. Addington
also publicly announced that it was the intention of the reconstituted Board
that Addington focus solely on its environmental business, and that, to that
end, the Board intended to pursue the prompt but prudent sale of Addington's
non-environmental businesses with the net proceeds from such sales being
deployed to expand Addington's environmental operations.
On November 2, 1995, Addington announced the completion of the sale of its
coal mining, mining technology and citrus operations to a company controlled by
Larry Addington, Bruce Addington and Robert Addington. Addington also announced
on that date that it had agreed to sell its Addwest Minerals gold and industrial
minerals operations to a private Canadian business group. Addington publicly
stated that upon completion of the sale of the gold operations, the sale of
substantially all of its non-environmental operations would be complete.
Addington announced that the proceeds from the sales would be used to repay the
bank debt of the environmental operations, and that the completion of the
transactions with the Addington family provided Addington with the financial
resources to expand its environmental business.
Following this announcement, Mr. Berkowitz was contacted by Gregory K.
Fairbanks, then Chief Financial Officer of Republic. Mr. Fairbanks indicated
that Republic might be interested in pursuing a business combination transaction
with Addington on a stock-for-stock basis, and requested that Addington provide
certain confidential information to it. On November 9, 1995, Addington and
Republic executed a confidentiality agreement, and Addington began supplying
confidential information to Republic.
On November 16, Mr. Huizenga telephoned Mr. Berkowitz and indicated that
Republic believed that a business combination with Addington would be
advantageous to both companies. Mr. Berkowitz indicated that he would consider a
business combination if the terms were appropriate. Mr. Berkowitz was also
contacted by another public environmental company concerning the possibility of
a business combination between that company and Addington, which resulted in the
execution of a confidentiality agreement on November 21, 1995.
On November 22, Mr. Berkowitz and Mr. Huizenga, together with certain of
their associates, held a lengthy meeting in New York City. At this meeting, the
Republic representatives discussed Republic's acquisition strategy. The terms of
a possible business combination with Addington, including that Republic required
that the transaction be in the form of a stock-for-stock merger that would be
accounted for as a pooling of interests, were also discussed.
Addington was advised by Arthur Andersen LLP, based on factual
representations made by Addington's management, that although it did not believe
that Addington's dispositions of its non-environmental operations disqualified
Addington from engaging in a business combination which would be treated as a
pooling of interests transaction, it believed that it would be prudent, in light
of the proximity of the proposed transaction to the dispositions, to obtain the
concurrence of the staff of the Commission. On December 1, Addington submitted a
request for concurrence by the staff of the Commission, which, following further
submissions and discussions with the staff, was preliminarily denied in early
January 1996.
Mr. Berkowitz also held discussions with the other public company
concerning its possible acquisition of Addington, in a stock-for-stock
transaction that would be accounted for as a pooling of interests transaction,
in which shares of Addington Common Stock would be valued at between $14.50 and
$17.00 per share, based on the then prevailing market price of the potential
acquiror's common stock.
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In early January 1996, Mr. Berkowitz advised Mr. Fairbanks and
representatives of the other interested party that the staff of the Commission
had raised significant concerns about the ability of Addington to engage in a
pooling of interests business combination, but that Addington and its advisors
continued to believe that Addington qualified for pooling of interests
accounting and were preparing an additional submission to the staff of the
Commission. Discussions with the other interested party were suspended as a
result of Mr. Berkowitz's inability to assure such party that Addington was able
to engage in a pooling of interests transaction.
On March 12, 1996, Mr. Berkowitz, and the two other members of the
Executive Committee of the Board, Mr. Blumenstein and Mr. Grosfeld, met with Mr.
Huizenga and other representatives of Republic at which the Republic
representatives briefed Mr. Berkowitz concerning recent developments affecting
Republic and expressed continuing interest in acquiring Addington. At a
regularly scheduled meeting of the Board held March 13, there was a review by
Mr. Berkowitz and a discussion by the directors of the status of the pooling
issue and Addington's contacts with Republic, the other interested public
company, as well as two substantial stock-for-stock acquisition candidates and
certain other smaller acquisitions. At the Board meeting, it was the consensus
of the Board that Addington not pursue either of the two large acquisitions
because the relatively low trading multiple for Addington Common Stock would
make the acquisitions dilutive to Addington stockholders, and because neither of
the acquisitions would likely increase the limited liquidity of Addington Common
Stock.
On May 8, 1996, Mr. Berkowitz, Mr. Grosfeld, Mr. Blumenstein and Jack T.
Baker, the President of Addington, met with Mr. Huizenga and Mr. Fairbanks in
Fort Lauderdale to view a presentation by AutoNation representatives concerning
AutoNation.
On May 24, 1996, Addington was advised by Arthur Andersen LLP that the
staff of the Commission, based on the information provided, would not object to
Addington's position that Addington's disposition of its non-environmental
operations would not preclude Addington from engaging in a pooling of interests
business combination, and Mr. Berkowitz so advised Mr. Huizenga.
On May 28, 1996, Mr. Berkowitz and counsel for Addington met in New York
City with Mr. Huizenga and other representatives of Republic to discuss the
terms of a possible merger between the companies at various exchange ratios
that, based on the then market price for Republic Common Stock, would offer
between $20 and $22 per share of Addington Common Stock. Negotiations concerning
the exchange ratio continued by telephone on May 29 and May 30. On May 30, Mr.
Berkowitz and Mr. Huizenga reached agreement, subject to approval by their
respective Boards of Directors, on the exchange ratio of .90 shares of Republic
Common Stock for each share of Addington Common Stock. The Board met by
telephone conference call on May 30, and following a presentation by Mr.
Berkowitz and counsel for Addington, it was the consensus of the Board that
Addington should pursue the negotiation of a letter of intent with Republic for
the proposed merger and that Addington not pursue additional discussions with
the other interested public company as its indicated valuation for Addington was
substantially less than that offered by Republic. The letter of intent for the
proposed merger with Republic, which included voting agreements, termination
fees and non-solicitation provisions substantially similar to those contained in
the Merger Agreement, was negotiated during the night of May 30, and approved by
the Board and publicly announced by Addington and Republic on the morning of May
31.
The letter of intent provided that the proposed merger was subject to
completion of various matters including the negotiation and execution of a
definitive agreement, completion of due diligence, approval by the Boards of
Directors of Addington and Republic, approval by the stockholders of Addington,
receipt by Addington of a fairness opinion and receipt of regulatory approvals.
On June 3, Addington retained Oppenheimer & Co. as its financial advisor. During
the following three weeks, representatives of Republic continued to conduct a
due diligence review of Addington; Oppenheimer & Co. conducted a financial
analysis of Addington, Republic and the exchange ratio; and Republic and
Addington negotiated the definitive Merger Agreement, the Voting Agreement and
certain non-compete agreements. Oppenheimer & Co., Inc. did not participate in
the negotiation of the exchange ratio or the Merger Agreement, but prepared the
valuation analysis described under "Opinion of Addington's Financial Advisor"
below. The terms of these agreements were reviewed by the Board at a meeting
held on June 18.
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At a special meeting of the Board on June 24, Addington's legal advisors
reviewed the terms of the Merger Agreement to be entered into by Addington and
the Voting Agreement to be entered into by the Principal Stockholders.
Oppenheimer & Co. presented its financial analysis of the Merger and rendered
its opinion that the consideration to be received by the stockholders of
Addington is fair to such holders from a financial point of view. The Board then
unanimously approved the Voting Agreement, the Merger Agreement and the
transactions contemplated thereby. The Merger Agreement, the Voting Agreement
and certain non-compete agreements were executed on June 25, 1996.
REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
By the vote of all directors at a special meeting of the Board held on June
24, 1996, the Board determined that the Merger is fair to and in the best
interests of Addington and its stockholders, approved the Merger Agreement and
certain related matters, and resolved to recommend that the stockholders of
Addington approve and adopt the Merger Agreement. As described under
"-- Background of the Merger," at meetings held on June 18, 1996 and June 24,
1996, the Board received presentations from, and reviewed the terms of the
Merger Agreement and the Voting Agreement with, its financial and legal
advisors.
Schulte Roth & Zabel LLP, counsel to Addington, advised the Board
concerning fiduciary duties applicable to the Board in the evaluation of the
proposed transaction and presented analyses of the terms and conditions of the
proposed Merger as set forth in the drafts of the Merger Agreement and the
Voting Agreement. The presentation by Oppenheimer & Co. consisted of various
financial analyses performed with respect to Addington and Republic, including
reviews of the following material factors: (i) historical information relating
to the business, financial condition and results of operations of Addington and
Republic; (ii) historical information relating to the market and prices and
trading volumes of Addington Common Stock and Republic Common Stock; (iii)
certain financial information, operating statistics and market trading
information relating to the market prices and trading volumes of Addington
Common Stock and Republic Common Stock; (iv) certain financial information,
operating statistics and market trading information relating to Addington and
Republic; and (v) selected acquisition transactions within the solid waste
management industry and selected acquisition transactions generally. See
"-- Opinion of Addington's Financial Advisor."
In reaching its conclusion to enter into the Merger Agreement and to
recommend the approval and adoption of the Merger Agreement by Addington's
stockholders, the Board considered the following material factors:
1. Addington's and Republic's respective businesses and prospects and
current conditions and trends in the solid waste management industry,
including the recent increase in consolidation in the solid waste
management industry, the fact that such consolidation has reduced the
number of available and desirable acquisition candidates, and that when
acquisitions have occurred, companies have been required to pay high
multiples for such acquisitions.
2. Republic's diversification strategy and acquisition program,
including the Republic and AutoNation management teams' demonstrated
ability to effect acquisitions and the recognition that, while AutoNation
was in the early stages of development, it appeared to have attractive
growth potential.
3. The dependence of Republic's future success, to a significant
extent, on the services of its management team, in general, and on Mr.
Huizenga in particular, the loss of whose services could have a material
adverse effect on Republic's business, financial condition and prospects.
4. The financial condition, results of operations and cash flows of
each of Addington and Republic, both on an historical and on a prospective
basis.
5. The earnings per share and net asset value per share of Addington
Common Stock, including the comparative earnings per share and net asset
value per share of Addington Common Stock and Republic Common Stock, and
that the Merger would be dilutive to Addington stockholders in terms of
earnings per share and net book value per share.
6. Current market conditions and historical market prices and trading
information with respect to Addington Common Stock and Republic Common
Stock, including that Republic Common Stock
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traded at a significantly higher multiple to earnings per share than
Addington Common Stock and that the market price for Republic Common Stock
had demonstrated significant volatility.
7. The significant enhancement in liquidity for Addington's
stockholders resulting from Republic's substantially greater market
capitalization and historical trading volume.
8. The consideration to be received by Addington's stockholders in the
Merger, including the fact that the Merger Consideration represented a
substantial premium over the then-prevailing market price of Addington
Common Stock, and the relationship between the market value of the Republic
Common Stock to be issued in exchange for each share of Addington Common
Stock and Addington's reported earnings and certain other measures.
9. The presentations of Oppenheimer & Co. delivered to the Board at
its meeting on June 24, 1996, including Oppenheimer & Co.'s opinion to the
effect that, as of June 24, 1996, the Merger Consideration was fair, from a
financial point of view, to Addington's stockholders. Oppenheimer & Co. has
since delivered an updated written opinion, dated as of the date of this
Solicitation Statement/Prospectus, to the effect that the Merger
Consideration is fair, from a financial point of view, to Addington's
stockholders. See "-- Opinion of Addington's Financial Advisor."
10. The fact that since the execution of the letter of intent relating
to the Merger and the public announcement of the proposed Merger on May 31,
1996, no other party had come forward to propose an alternative
transaction.
11. A comparison of selected acquisition transactions within the solid
waste management industry and selected acquisition transactions generally.
12. The fact that the Merger will afford Addington's stockholders the
opportunity to receive Republic Common Stock in a non-taxable transaction
for federal income tax purposes.
13. The terms and conditions of the Merger, the Merger Agreement and
the Voting Agreement, including the amount and the form of the
consideration, as well as the parties' mutual representations, warranties
and covenants, and the conditions to their respective obligations.
14. The terms of the Merger Agreement that permit the Board, in the
exercise of its fiduciary duties and subject to certain conditions, to
respond to inquiries regarding potential business combination transactions,
to provide information to, and negotiate with, third parties making an
unsolicited bona fide proposal to acquire Addington in such a transaction
and to terminate the Merger Agreement if the Board determines to recommend
an alternative business combination transaction. In that regard, the Board
noted that the Merger Agreement provides that Addington will pay to
Republic a termination fee of $1,000,000 as liquidated damages if the
Merger Agreement is terminated under certain circumstances. The Board did
not view the termination fee provisions of the Merger Agreement as
unreasonably impeding any interested third party from proposing a superior
transaction. See "THE MERGER AGREEMENT -- No Solicitation of Competing
Transactions; Termination Fee."
15. The fact that the Merger will be accounted for as a pooling of
interests and that no goodwill will be created on the financial statements
of Republic as a result thereof.
16. The likelihood that the Merger will be consummated.
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Board did not find it practicable to,
and did not, quantify or otherwise attempt to assign relative weights to the
specific factors considered in reaching its determination. Based on the factors
described above, the Board determined that the Merger is fair to and in the best
interests of Addington and its stockholders, approved the Merger Agreement, and
certain related matters and resolved to recommend that the stockholders of
Addington approve and adopt the Merger Agreement.
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OPINION OF ADDINGTON'S FINANCIAL ADVISOR
Addington retained Oppenheimer & Co. to act as its financial advisor and to
render its opinion to the Board as to the fairness of the consideration offered
in the Merger, from a financial point of view, to the stockholders of Addington.
Addington selected Oppenheimer & Co. based on its qualifications, expertise and
its experience in the environmental services industry.
On June 24, 1996, Oppenheimer & Co. rendered its written opinion (the
"Original Fairness Opinion") to the Board that, as of such date, the
consideration offered in the Merger to be received by the stockholders of
Addington is fair to such stockholders from a financial point of view, which
opinion has been reconfirmed by a substantially identical opinion dated December
5, 1996 (the "Updated Fairness Opinion").
The full text of the Updated Fairness Opinion, which sets forth certain
assumptions made, certain procedures followed and certain matters considered by
Oppenheimer & Co., is attached as Annex B to this Solicitation
Statement/Prospectus. As set forth in the fairness opinions, Oppenheimer & Co.
relied upon and assumed the accuracy and completeness of all of the financial
and other information available to it from public sources and provided to it by
Addington, Republic and their respective representatives. Addington and Republic
each provided Oppenheimer & Co. with its respective financial forecasts. With
respect to the financial forecasts and other data concerning Addington reviewed
by Oppenheimer & Co., the management of Addington advised it that such forecasts
and other data had been reasonably prepared on bases reflecting their best
currently available estimates and judgment as to the future financial
performance of Addington. With respect to the financial forecasts and other data
concerning Republic reviewed by Oppenheimer & Co., the management of Republic
advised it that such forecasts and other data had been reasonably prepared on
bases reflecting their best currently available estimates and judgment as to the
future financial performance of Republic.
In arriving at its fairness opinions, Oppenheimer & Co. neither made nor
obtained any independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Addington or Republic, nor was it furnished with
any such evaluations or appraisals. For purposes of the fairness opinions,
Oppenheimer & Co. was not requested to, and did not, solicit third party
indications of interest in acquiring all or any part of Addington. Oppenheimer &
Co. also assumed, without independent verification, the accuracy of the advice
and conclusions of Addington's legal counsel and accountants with respect to tax
and accounting matters as provided to Oppenheimer & Co. by Addington's
management, including, without limitation, the treatment of the Merger as a
tax-free reorganization for federal income tax purposes and the accounting of
the Merger as a pooling of interests business combination. The fairness opinions
were necessarily based on information available to Oppenheimer & Co. and the
general economic, financial and stock market conditions and circumstances as
they existed and could be evaluated by Oppenheimer & Co. on the date of the
fairness opinions. No limitations were imposed by Addington on Oppenheimer & Co.
with respect to the investigations made or procedures followed by Oppenheimer &
Co.
While the summary of the fairness opinions set forth in this Solicitation
Statement/Prospectus discloses the material analyses and assumptions utilized by
Oppenheimer & Co. in preparing the fairness opinions, the summary of the
fairness opinions is qualified in its entirety by reference to the full text of
the opinion which is attached as Annex B hereto. ADDINGTON'S STOCKHOLDERS ARE
URGED TO, AND SHOULD, READ THIS OPINION CAREFULLY IN ITS ENTIRETY IN CONJUNCTION
WITH THIS SOLICITATION STATEMENT/PROSPECTUS FOR THE ASSUMPTIONS MADE, MATTERS
CONSIDERED AND LIMITS OF THE REVIEW BY OPPENHEIMER & CO. The fairness opinions
are directed only to the fairness of the consideration offered in the Merger to
be received by the stockholders of Addington from a financial point of view and
do not address any other aspect of the Merger. The opinions of Oppenheimer & Co.
are intended for the benefit and information of the Board and do not constitute
a recommendation to any Addington stockholder as to how to vote shares in
connection with the Merger.
In rendering the fairness opinions, Oppenheimer & Co.: (i) reviewed the
Merger Agreement; (ii) reviewed the historical financial statements and
financial projections and other information prepared by the representatives of
Addington and Republic; (iii) reviewed publicly available information for
Addington and Republic, such as periodic and other reports filed with the
Commission on Forms 10-K, 10-Q and 8-K;
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(iv) reviewed the reported market prices and trading volumes for Addington's and
Republic's common stock; (v) held discussions with senior management of each of
Addington and Republic concerning Addington's and Republic's historical and
current operations, financial condition and prospects; and (vi) reviewed such
other documents and financial, economic and market data and made such other
investigations as it deemed appropriate for the purposes of such opinion.
Valuation of Addington
Oppenheimer & Co. performed five primary valuation analyses of Addington:
(i) an Addington Common Stock trading history analysis; (ii) a premiums paid
analysis for domestic merger and acquisition transactions of public companies
(326 transactions) in excess of $100 million since January 1, 1994 and for
domestic merger and acquisition transactions of public companies (186
transactions) involving stock-for-stock transactions in excess of $100 million
since January 1, 1994; (iii) a comparison with publicly traded comparable
companies, which consisted of reviewing and considering certain financial and
stock market data for certain other publicly traded companies providing solid
waste management services determined to be similar to Addington; (iv) a merger
and acquisition transactions analysis which consisted of reviewing certain
financial data of selected acquisitions involving companies providing solid
waste management services; and (v) a discounted cash flow analysis. In
establishing the range of values resulting from the application of each of the
analyses, Oppenheimer & Co. made qualitative judgments as to the meaningfulness
of the valuation measurements. The judgments were based upon the number and
similarity of comparable companies and transactions, as well as the
predictability and volatility of future earnings when assessing the relative
significance of the discounted cash flow analyses. The relative appropriateness
of certain other valuation measurements, such as operating cash flow or
price/earnings multiples, as used generally for comparative purposes, were also
taken into account in making such judgments.
Addington Common Stock Trading History Analysis. Oppenheimer & Co.
reviewed current and historical market prices and trading data of Addington
Common Stock during the period from December 1, 1995 to May 30, 1996 and for the
period from June 1, 1995 to May 30, 1996. Oppenheimer & Co. noted that during
such periods, Addington Common Stock traded between a high of $17.00 and a low
of $11.00 per share and a high of $17.00 and a low of $9.875 per share,
respectively, and that more than 90% of Addington Common Stock during the period
from June 1, 1995 to May 30, 1996 traded at prices below $15 per share.
Premiums Paid Analysis. Oppenheimer & Co. analyzed the average premiums
paid in domestic merger and acquisition transactions of public companies (326
transactions) with transaction values in excess of $100 million since January 1,
1994. Such average premiums were approximately 32.5%, 34.2% and 39.5% for one
day, one week and one month, respectively, prior to the transaction announcement
day. Oppenheimer & Co. also analyzed the average premiums paid in domestic
merger and acquisition transactions of public companies (186 transactions) with
transaction values in excess of $100 million in stock-for-stock transactions
since January 1, 1994. Such average premiums were approximately 30.4%, 34.4% and
40.6% for one day, one week and one month, respectively, prior to the
transaction announcement day. Oppenheimer & Co. noted that based upon the
closing price of Republic's common stock on June 20, 1996, the next to last
trading day before the date that the opinion was rendered, the implied premiums
for the Merger would be 37.7%, 51.2% and 62.0%, for one day, one week and one
month, respectively, prior to the May 31, 1996, announcement of the proposed
Merger as of June 20, 1996.
Comparable Public Company Analysis. Oppenheimer & Co. compared Addington
to the following six solid waste management services companies (the "Comparable
Companies") which are publicly traded: Allied Waste Industries, Inc.,
Continental Waste Industries, Inc., Sanifill, Inc., Superior Services, Inc.,
United Waste Systems, Inc. and USA Waste Services, Inc. Although Oppenheimer &
Co. performed a similar analysis of two larger solid waste management services
companies, Browning-Ferris Industries, Inc. and WMX Technologies, Inc., it
concluded that these companies were not comparable to Addington or the
Comparable Companies in the size and scope of their operations. Using publicly
available information, Oppenheimer & Co. analyzed, among other things, the
market values and certain financial criteria for the Comparable Companies
including their revenues, earnings before interest and taxes ("EBIT"), earnings
before interest, taxes, depreciation and amortization ("EBITDA") and net income,
in each case for the most
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recent twelve month periods for which financial data were available and, on an
estimated basis, for 1996 and 1997. Oppenheimer & Co. excluded the following
statistics: the multiples of aggregate value/revenues, EBITDA, EBIT and
price/net income multiples for Continental Waste Industries, Inc.; and the
price/tangible book value multiple for United Waste Systems, Inc., which it
deemed to be aberrationally high or low, and therefore, not representative for
the Comparable Companies as a group. The Comparable Companies' multiples were
applied to Addington for the most recent twelve months and for 1996 and 1997
projected operating results. These analyses resulted in an implied aggregate
value (equity value plus total debt minus cash) for Addington which ranged from
a low of $141 million to a high of $373 million. When calculating the implied
aggregate value of Addington, Oppenheimer & Co. deemed that the Comparable
Companies' multiples for EBIT, EBITDA and net income were the most appropriate
valuation benchmarks. Such multiples, when applied to Addington's most recent
twelve months and for 1996 and 1997 projected operating results, resulted in
implied values ranging from $232 million to $257 million as compared to an
implied aggregate transaction value of $375 million based upon the shares of
Republic Common Stock to be received by the Addington stockholders and the price
of Republic Common Stock on June 20, 1996, and an implied aggregate transaction
value as of the time of the Updated Fairness Opinion of approximately $470
million based upon the shares of Republic Common Stock to be received by
Addington stockholders and the price of Republic Common Stock on November 11,
1996.
Mergers and Acquisitions Transaction Analysis. Using publicly available
information, Oppenheimer & Co. analyzed the consideration paid (or proposed to
be paid in the case of pending acquisitions) in selected merger and acquisition
transactions involving companies providing solid waste management services with
characteristics it determined to be similar to Addington. Oppenheimer & Co.
examined ten transactions over the past six years consisting of Anderson Solid
Waste Inc./Republic Waste Industries, Inc., ARF Landfill Corp. and Lakeland
Properties/USA Waste Services, Inc., Attwoods PLC/Browning-Ferris Industries,
Inc., Chambers Development Co. Inc./USA Waste Services, Inc., Resource Recycling
Technologies, Inc./Waste Management Inc., Southland Environmental Services,
Inc./Republic Waste Industries, Inc., United Waste Services, Inc./Republic Waste
Industries, Inc., GDS, Inc./Republic Waste Industries, Inc., Western Waste
Industries, Inc./USA Waste Services, Inc. and Continental Waste Industries,
Inc./Republic Industries, Inc. Oppenheimer & Co. calculated the multiples of the
consideration paid in relation to the acquired companies' revenue, EBIT, EBITDA,
net income and tangible book value, where available. Oppenheimer & Co. then
applied these multiples to Addington's most recent twelve months operating
results which resulted in an implied aggregate value range for Addington of $84
million to $356 million, with an average of $234 million (such average based
upon multiples calculated for revenue, EBIT, EBITDA and net income) as compared
to an implied aggregate transaction value of $375 million based upon the shares
of Republic Common Stock to be received by the Addington stockholders and the
price of Republic Common Stock on June 20, 1996, and an implied aggregate
transaction value as of the time of the Updated Fairness Opinion of
approximately $470 million based upon the shares of Republic Common Stock to be
received by Addington stockholders and the price of Republic Common Stock on
November 11, 1996.
Discounted Cash Flow Analysis. Oppenheimer & Co. performed a discounted
cash flow analysis of the projected after-tax cash flow of Addington for the
years ending December 31, 1996 through 2001, based on forecasts and other data
provided by the management of Addington. This analysis consisted of adding the
discounted present value of the projected future cash flows from Addington and
the discounted present value of the terminal value of Addington at the end of
the reference period. For purposes of such analysis, Oppenheimer & Co. used
discount rates ranging from 11% to 13%. Oppenheimer & Co. then calculated the
terminal value by applying a multiple ranging from 13 to 17 to Addington's
projected EBIT for the year 2001. This analysis resulted in implied aggregate
values for Addington ranging from $250 million to $345 million, with an average
of $296 million as compared to an implied aggregate transaction value of $375
million based upon the shares of Republic Common Stock to be received by the
Addington stockholders and the price of Republic Common Stock on June 20, 1996,
and an implied aggregate transaction value as of the time of the Updated
Fairness Opinion of approximately $470 million based upon the shares of Republic
Common Stock to be received by Addington stockholders and the price of Republic
Common Stock on November 11, 1996.
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Contribution Analysis. Oppenheimer & Co. analyzed Addington's and
Republic's relative contribution to the combined company with respect to
revenues, EBIT, EBITDA and net income. Such analysis was made for the years
ending December 31, 1996, 1997 and 1998 based upon projected operating results
provided by the managements of Addington and Republic. As a result of the
Merger, stockholders of Addington will own 5.6% of the combined company on a
fully diluted basis. This compares with Addington's contribution to the combined
company's pro forma results for the years ending December 31, 1996, 1997 and
1998 (prior to taking into account any operating synergies which may result from
the Merger) of 7.4%, 2.7% and 1.5% of revenues, respectively, 13.1%, 7.6% and
5.7% of EBIT, respectively, 13.1%, 7.9% and 6.2% of EBITDA, respectively, and
15.7%, 7.3% and 5.8% of net income, respectively. Oppenheimer & Co. noted that
despite results showing Addington's relatively strong contribution to revenues,
EBIT, EBITDA and net income in the early years, such results are projected to
moderate as Republic's earnings growth increases, and upon the consummation of
the Merger the stockholders of Addington would be expected to benefit from the
higher multiples currently enjoyed by Republic.
EPS Dilution Analysis. Oppenheimer & Co. performed an analysis to
determine the pro forma effect of the Merger on Addington's earnings per share
("EPS") for the periods ending December 31, 1996, 1997 and 1998 on a combined
basis as compared to Addington's projected EPS on a stand-alone basis. The
analysis was based upon projections provided by the managements of Addington and
Republic and assumed (i) no synergies resulting from the Merger and (ii) the
issuance of additional Republic Common Stock in pending and future Republic
acquisitions. The EPS of Addington as a result of the Merger would be 69%, 38%
and 23% lower in 1996, 1997 and 1998, respectively, than Addington's projected
EPS for the same periods on a stand-alone basis. The EPS of Republic as a result
of the Merger would be 13%, 3% and 1% higher in 1996, 1997 and 1998,
respectively, than Republic's projected EPS for the same periods.
Valuation of Republic
In consideration of the fact that the Merger involves the receipt by
Addington's stockholders of Republic Common Stock, Oppenheimer & Co. performed a
valuation of each of Republic's solid waste, electronic security, AutoNation and
outdoor advertising business segments utilizing, as described below, the
following methods of analysis: (i) comparable public company analysis; (ii)
merger and acquisition transactions analysis; and (iii) discounted cash flow
analysis. With regard to Republic's solid waste business segment, Oppenheimer &
Co. conducted the comparable public company analysis and mergers and
acquisitions transaction analysis using the same comparable companies and
comparable transactions used in the Addington analyses. In addition, the
discounted cash flow analysis performed for Republic's solid waste business used
the same discount rates and terminal value multiples applied to the Addington
discounted cash flow analysis. With regard to Republic's electronic security
business segment, Oppenheimer & Co. conducted comparable public company and
mergers and acquisitions transaction analyses, comparing Republic's electronic
security business segment to publicly traded companies and merger and
acquisition transactions in the electronic security and monitoring industry.
With regard to Republic's AutoNation business segment, Oppenheimer & Co.
conducted comparable public company and mergers and acquisitions transaction
analyses, comparing Republic's AutoNation business segment to publicly traded
companies and merger and acquisition transactions involving large, national
"superstore" retailing chains. With regard to Republic's outdoor advertising
business segment, Oppenheimer & Co. conducted a merger and acquisitions
transaction analysis comparing Republic's outdoor advertising business segment
to merger and acquisition transactions in the outdoor advertising industry. Due
to the lack of publicly traded comparable companies and the relatively smaller
size of Republic's outdoor advertising business, Oppenheimer & Co. did not
perform a comparable public company analysis of Republic's outdoor advertising
business segment. In addition, for each of Republic's electronic security,
AutoNation and outdoor advertising business segments, Oppenheimer & Co.
performed discounted cash flow analyses which incorporated discount rates and
terminal value multiples based upon a variety of factors including the estimated
risk-based cost of capital associated with those businesses and industry
valuation multiples. Oppenheimer & Co.'s analyses resulted in an implied market
capitalization range for Republic of $3.1 billion to $7.3 billion as of June 20,
1996.
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Valuation Conclusion
In reviewing the Addington Common Stock trading history analysis, the
premiums paid analysis, the comparable company analysis, the comparable merger
and acquisition transactions analysis and the discounted cash flow analysis
performed for Addington and the comparable company analysis, the comparable
merger and acquisition transactions analysis and the discounted cash flow
analysis performed for Republic and the current price of Republic Common Stock,
Oppenheimer & Co. placed relatively greater weight on Addington's comparable
company analysis and comparable merger and acquisition transactions analysis and
on Republic's discounted cash flow analysis. Oppenheimer & Co. noted that in
performing these analyses, there existed a significant number of relevant
companies and transactions that were available to analyze.
A fairness opinion is the product of a complex process and cannot
necessarily be partially analyzed or readily summarized. Examining portions of
the analyses summarized above, without considering the analyses as a whole,
could create an incomplete view of the processes underlying Oppenheimer & Co.'s
opinions. In arriving at its opinions, Oppenheimer & Co. considered the results
of all of such analyses as were relevant. The analyses were prepared by
Oppenheimer & Co. solely for purposes of providing its opinions as to the
fairness of the Merger, from a financial point of view, to the stockholders of
Addington. Analyses based upon forecasts of future results are inherently
subject to substantial uncertainties and are not necessarily indicative of
actual future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses may actually be sold or combined. Accordingly, Oppenheimer & Co.
expresses no opinion as to what the value of Republic Common Stock actually will
be when issued to holders of Addington Common Stock pursuant to the Merger or
the price at which Republic Common Stock will trade subsequent to the Merger or
the minimum price per share of Republic Common Stock required for the
consideration to be received in the transaction to be fair from a financial
point of view to Addington stockholders. As described above, Oppenheimer & Co.'s
opinions and presentation to the Board was one of many factors taken into
consideration by the Board in making its determination to approve the Merger
Agreement. The foregoing summary does not purport to be a complete description
of the analyses performed by Oppenheimer & Co.
In connection with the Updated Fairness Opinion, Oppenheimer confirmed the
appropriateness of its reliance on the analyses used to render the Original
Fairness Opinion by performing procedures to update certain of such analyses and
by reviewing the assumptions on which such analyses were based and the factors
considered in connection therewith. This included, but was not limited to,
performing updated analyses based upon: (i) Addington's reported most recent
twelve month financial results for the period ended September 30, 1996; (ii)
Republic's reported most recent twelve month financial results for the period
ended September 30, 1996; (iii) revised assumptions for Republic's vehicle
retailing and vehicle rental revenue in connection with Republic's AutoNation
business and proposed acquisition of Alamo, and (iv) Republic's private
placement of approximately 12.1 million shares of Republic Common Stock at a
price of $29.50 per share in November 1996. In light of the proposed Alamo
acquisition, Oppenheimer & Co. performed a merger and acquisition transactions
analysis comparing the proposed acquisition to comparable rental car company
merger and acquisition transactions. Due to the lack of publicly traded
comparable rental car companies, Oppenheimer & Co. did not perform a comparable
public company analysis of Alamo. Oppenheimer & Co. did not perform a discounted
cash flow analysis of Alamo since it was not provided with detailed projections
of Alamo. With respect to the revised analyses, Oppenheimer reaffirmed its
belief regarding the appropriateness of placing greater weight on Addington's
comparable public company analysis and merger and acquisition transactions
analysis and on Republic's discounted cash flow analysis and the current price
of Republic's Common Stock.
Oppenheimer & Co. is a nationally recognized investment banking firm. As
part of its investment banking services, it is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions and for other purposes.
In the ordinary course of its business, Oppenheimer & Co. may actively
trade the securities of Addington and Republic for its own account or for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
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In connection with the Merger, Addington entered into an engagement letter
with Oppenheimer & Co., pursuant to which Addington retained Oppenheimer & Co.
to provide a fairness opinion. Pursuant to such letter, Addington agreed to pay
Oppenheimer & Co. a fee of $625,000 payable in the form of a retainer fee of
$100,000 upon the execution thereof and a fee of $525,000 for rendering its
opinion at the request of the Board in connection with the Merger. Addington has
also agreed to reimburse Oppenheimer & Co. for its reasonable out-of-pocket
expenses (not to exceed $65,000 in the aggregate) and to indemnify Oppenheimer &
Co. and certain related persons against certain potential liabilities arising
out of the engagement of Oppenheimer & Co., including liabilities under the
federal securities laws. No limitations were imposed on Oppenheimer & Co. by the
Board or management of Addington with respect to the investigations made or
procedures followed by Oppenheimer & Co. in preparing and rendering its opinion,
and Addington and its management cooperated fully with Oppenheimer & Co. in
connection therewith.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of certain material federal income tax
consequences of the Merger is based on the provisions of the Internal Revenue
Code of 1986, as amended, (the "Code"), the Treasury Regulations thereunder, and
rulings and court decisions in effect as of the date hereof, all of which are
subject to change, possibly with retroactive effect. No ruling on any of the
issues discussed below will be sought from the Internal Revenue Service (the
"IRS"). This discussion does not address every aspect of the federal income tax
laws that may be relevant to holders of Addington Common Stock in light of their
personal investment circumstances or to certain types of holders of Addington
Common Stock subject to special treatment under the federal income tax laws (for
example, foreign persons, banks and life insurance companies and persons who
acquired their shares of Addington Common Stock as compensation) and is
generally limited to holders of Addington Common Stock who hold Addington Common
Stock as a capital asset. In addition, this discussion does not address any
state, local or foreign tax laws that may be relevant to holders of Addington
Common Stock.
It is intended that the Merger qualify as a reorganization within the
meaning of Section 368(a) of the Code for federal income tax purposes. It is a
condition to the obligation of Addington to consummate the Merger that Addington
shall have received the opinion of Schulte Roth & Zabel LLP, counsel to
Addington, and Republic shall have received the opinion of Akerman, Senterfitt &
Eidson, P.A., counsel to Republic, with respect to the tax treatment of the
Merger. See "THE MERGER AGREEMENT -- Conditions Precedent to Closing." The
opinions have been filed in their entirety as exhibits to the Registration
Statement. The opinion of Schulte Roth & Zabel LLP provides as follows:
The Merger will qualify as a tax-free reorganization within the
meaning of Section 368(a) of the Code if consummated in accordance
with the Merger Agreement and Republic, Addington and Mergersub will
each be a party to the reorganization within the meaning of Section
368(b) of the Code. No gain or loss will be recognized by holders of
Addington Common Stock upon the receipt by them of the shares of
Republic Common Stock in exchange for their shares of Addington Common
Stock pursuant to the Merger (except in respect of cash received for
fractional shares as discussed below). The aggregate tax basis of the
shares of Republic Common Stock received by the holders of Addington
Common Stock will be the same as the aggregate tax basis of the shares
of Addington Common Stock surrendered in exchange therefor (excluding
any basis allocable to fractional shares for which cash is received).
The holding period of the shares of Republic Common Stock received by
holders of Addington Common Stock will include the period during which
the shares of Addington Common Stock surrendered in exchange therefor
were held, provided that such shares of Addington Common Stock were
held as capital assets at the time of the Merger. A holder of
Addington Common Stock who receives cash in lieu of a fractional share
of Addington Common Stock will recognize gain or loss equal to the
difference between the cash payment received and the holder's tax
basis in the portion of the share or shares of Addington Common Stock
exchanged therefor. Such gain or loss will be capital gain or loss,
provided that such share(s) of Addington Common Stock was held as a
capital asset at the time of the Merger,
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and will be long-term capital gain or loss if such share(s) had been
held for more than one year at such time. No gain or loss will be
recognized by Addington or Republic as a result of the Merger.
The opinion of Akerman, Senterfitt & Eidson, P.A. provides that the Merger
will qualify as a tax-free reorganization within the meaning of Section 368(a)
of the Code if consummated in accordance with the Merger Agreement and that
Republic, Addington and Mergersub will each be a party to the reorganization
within the meaning of Section 368(b) of the Code.
ADDINGTON STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO
THE SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING TAX RETURN
REPORTING REQUIREMENTS, THE APPLICABILITY AND EFFECT OF FEDERAL, STATE, LOCAL,
AND OTHER APPLICABLE TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGES IN THE TAX
LAWS.
ACCOUNTING TREATMENT
It is intended that the Merger qualify as a pooling of interests business
combination for accounting and financial reporting purposes. It is a condition
to the obligation of Republic and Addington to consummate the Merger that
Republic and Addington shall each have received the opinion of Arthur Andersen
LLP to the effect that the Merger qualifies for pooling of interests accounting
treatment if consummated in accordance with the Merger Agreement. See "THE
MERGER AGREEMENT -- Conditions Precedent to Closing." Under the pooling of
interests method of accounting, the recorded amounts of the assets and
liabilities of Addington and Republic will be carried forward to the combined
corporation at their previously recorded amounts. Revenues and expenses will be
retroactively presented as if Addington and Republic had been combined for the
entire fiscal period in which the Merger occurs, and the reported income of the
separate corporations for prior periods will be combined and restated as income
of the combined corporation.
CERTAIN OTHER EFFECTS OF THE MERGER
If the Merger is consummated, public trading of Addington Common Stock will
cease, Addington Common Stock will cease to be quoted on Nasdaq, and the
registration of Addington Common Stock under the Exchange Act will be
terminated. As a result of the Merger, the Surviving Corporation no longer will
be required to file informational reports under the Exchange Act.
THE MERGER AGREEMENT
The following is a brief summary of certain terms of the Merger Agreement,
a copy of which is attached as Annex A to this Solicitation Statement/Prospectus
and is incorporated herein by reference. This summary is qualified in its
entirety by reference to the full text of the Merger Agreement.
GENERAL
The Boards of Directors of Republic and Addington, meeting separately, each
authorized the execution and performance of the Merger Agreement. In addition,
the Principal Stockholders of Addington, collectively holding approximately 45%
of the outstanding shares of Addington Common Stock, have executed the Voting
Agreement with Republic whereby they have granted to Republic an irrevocable
proxy to, and have 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 Merger Agreement.
EFFECTIVE TIME; EFFECT OF MERGER
If the Merger Agreement is approved and adopted by the written consent of
the requisite number of shares of Addington Common Stock, and all other
conditions to the obligations of the parties to consummate the Merger are
satisfied or waived, the Merger will become effective at the Effective Time. As
of the Effective Time, Mergersub will be merged with and into Addington, with
Addington continuing as the Surviving Corporation and a wholly-owned subsidiary
of Republic.
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CONVERSION OF SHARES
As of the Effective Time, each outstanding share of Addington Common Stock
will be converted into the right to receive the Merger Consideration consisting
of nine-tenth's (0.9) of one share of Republic Common Stock.
No fractional shares of Republic Common Stock will be issued upon
consummation of the Merger. In lieu thereof, each holder of Addington Common
Stock as of the Effective Time will receive, upon surrender of such holder's
certificates representing shares of Addington Common Stock, a cash payment
without interest equal to the fair market value of the fractional share of
Republic Common Stock to which such holder otherwise would be entitled,
calculated by multiplying such fraction by the closing price of a share of
Republic Common Stock on Nasdaq at the Effective Time.
If prior to the Effective Time the outstanding shares of Addington Common
Stock or Republic Common Stock shall have been changed into a different number
of shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares,
the Exchange Ratio shall be correspondingly adjusted to reflect such stock
dividend, subdivision, reclassification, recapitalization, split, combination or
exchange of shares.
Each share of Addington Common Stock held in the treasury of Addington and
each share of Addington Common Stock owned by Republic or any direct or indirect
wholly owned subsidiary of Republic or of Addington immediately prior to the
Effective Time shall automatically be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
STOCK OPTIONS
At the Effective Time, Republic shall assume all of Addington's rights and
obligations with respect to each outstanding option to acquire shares of
Addington Common Stock (the "Addington Stock Options"), and such options shall
continue with the same force and effect as existed immediately prior to the
Effective Time, except that from and after the Effective Time each Addington
Stock Option shall be exercisable for that number of whole shares of Republic
Common Stock equal to the product of the number of shares of Addington Common
Stock covered by such option immediately prior to the Effective Time multiplied
by the Exchange Ratio, rounded to the nearest whole share of Republic Common
Stock, with an exercise price per share equal to the exercise price per share of
such option immediately prior to the Effective Time divided by the Exchange
Ratio. At the Effective Time, Republic will issue to each holder of an
outstanding Addington Stock Option a document evidencing the assumption by
Republic of Addington's obligations with respect thereto.
As of the date hereof, there were outstanding Addington Stock Options to
acquire 285,500 shares of Addington Common Stock, at exercises prices ranging
from $7.50 to $14.75 per share.
EXCHANGE OF CERTIFICATES
At the Effective Time, all shares of Addington Common Stock will no longer
be outstanding, will automatically be canceled and retired and will cease to
exist, and each certificate previously evidencing any such shares will
thereafter represent the right to receive, upon the surrender of such
certificate to the Exchange Agent, the Merger Consideration.
Prior to the Effective Time, Republic will deposit with the Exchange Agent
certificates evidencing the shares of Republic Common Stock issuable to
stockholders of Addington in exchange for outstanding shares of Addington Common
Stock and, upon request of the Exchange Agent, cash in an amount sufficient to
make cash payments in lieu of any fractional shares of Republic Common Stock,
and will irrevocably instruct the Exchange Agent to deliver such certificates
and cash to holders of Addington Common Stock upon their surrender of
certificates evidencing their shares of Addington Common Stock.
After the Effective Time, Republic will instruct the Exchange Agent to
mail, within five (5) business days, to each holder of record of a certificate
or certificates which immediately prior to the Effective Time
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evidenced outstanding shares of Addington Common Stock a letter of transmittal
and instructions to effect the surrender of their certificates representing
Addington Common Stock in exchange for certificates evidencing shares of
Republic Common Stock and cash in lieu of fractional shares. Upon surrender of a
certificate representing shares of Addington Common Stock for cancellation to
the Exchange Agent together with such letter of transmittal, duly executed, and
such other customary documents as may be required pursuant to such instructions,
the Exchange Agent will issue and pay to the holder thereof the Merger
Consideration in exchange therefor.
In the event of a transfer of ownership of shares of Addington Common Stock
that is not registered in the transfer records of Addington prior to the
Effective Time, the Merger Consideration will be issued and paid to a transferee
of such shares if the certificate evidencing such shares of Addington Common
Stock is presented to the Exchange Agent, accompanied by all documents required
to evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid or by the transferee paying to the Exchange Agent
any such transfer tax.
No dividends or other distributions declared or made after the Effective
Time with respect to Republic Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered certificate
representing shares of Addington Common Stock, until the holder of such
certificate surrenders such certificate, and thereupon, there will be paid to
such holder all dividends and other distributions payable in respect of such
Republic Common Stock on a date after, and in respect of a record date after,
the Effective Time.
Republic or the Exchange Agent will be entitled to deduct and withhold from
the Merger Consideration otherwise payable at the Effective Time to any holder
of shares of Addington Common Stock such amounts as Republic or the Exchange
Agent is required to deduct and withhold with respect to the making of such
payment under the Code, or any provision of state, local or foreign tax law. To
the extent that amounts are so withheld by Republic or the Exchange Agent, such
withheld amounts shall be treated for all purposes as having been paid to the
holder of the shares of Addington Common Stock in respect of which such
deduction and withholding was made by Republic or the Exchange Agent.
If any certificate representing shares of Addington Common Stock is lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such certificate to be lost, stolen or destroyed and the posting by
such person of a bond in such reasonable amount as Republic may direct as
indemnity against any claim that may be made against it with respect to such
certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed certificate the Merger Consideration.
STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THEIR CONSENT FORMS.
FOLLOWING THE EFFECTIVE TIME, STOCKHOLDERS WILL BE PROVIDED WITH A LETTER OF
TRANSMITTAL AND INSTRUCTIONS RELATING TO THE EXCHANGE OF THEIR STOCK
CERTIFICATES.
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains various representations and warranties. The
representations and warranties of Addington, with certain exceptions, relate to,
among other things: (a) Addington's organization and good standing; (b)
Addington's subsidiaries; (c) Addington's capital structure; (d) Addington's
power and authority to enter into the Merger Agreement and perform its
obligations thereunder; (e) the enforceability of the Merger Agreement against
Addington; (f) the absence of restrictions and conflicts with the Merger
Agreement; (g) Addington's reports filed with the Commission and financial
statements; (h) the accuracy of certain information supplied by Addington for
inclusion in the Registration Statement and in this Solicitation
Statement/Prospectus; (i) the absence of certain changes or events since
Addington's last reports filed with the Commission; (j) certain litigation
matters; (k) compliance with laws and permits; (l) certain environmental
matters; (m) benefit plan compliance; (n) certain tax matters; (o) certain
contract matters; (p) voting requirements for approval of the Merger; (q)
certain real property matters; (r) title, condition and adequacy of assets; (s)
certain labor and employment matters; (t) certain insurance matters; (u) related
party transactions; (v) names and prior acquisitions; (w) inapplicability of
certain state takeover statutes; (x) the
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absence of finder's or similar fees; and (y) certain accounting and tax
treatment matters. The representations and warranties of Addington expire at the
Effective Time.
The representations and warranties of Republic and Mergersub, with certain
exceptions, relate to, among other things: (a) their organization and good
standing; (b) Republic's capital structure; (c) their corporate power and
authority to enter into the Merger Agreement and perform their respective
obligations thereunder; (d) the enforceability of the Merger Agreement against
them; (e) the absence of restrictions and conflicts with the Merger Agreement;
(f) Republic's reports filed with the Commission and financial statements; (g)
the accuracy of certain information supplied by Republic for inclusion in the
Registration Statement and in this Solicitation Statement/Prospectus; (h) the
absence of certain changes or events since Republic's last reports filed with
the Commission; (i) certain litigation matters; (j) compliance with laws; (k)
certain contract matters; (l) the absence of finder's or similar fees; (m)
certain accounting and tax treatment matters; (n) the ownership of Addington
Common Stock; and (o) the interim operation of Mergersub. The representations
and warranties of Republic and Mergersub expire at the Effective Time.
CERTAIN COVENANTS
Prior to the Effective Time, Addington has agreed to (i) use its best
efforts to conduct its operations according to its ordinary and usual course of
business, consistent with past practice, (ii) use its best efforts to preserve
intact its business organization, (iii) keep or cause to be kept in full force
and effect all of its material rights, contracts and agreements, (iv) maintain
all of its property in good operating condition and repair, (v) use its best
efforts to maintain satisfactory relationships with licensors, licensees,
suppliers, contractors, distributors, customers and others having business
relationships with it, consistent with Addington's past practices, (vi) maintain
continuously insurance coverage substantially equivalent to the insurance
coverage in existence on the date of the Merger Agreement, and (v) subject to
the exercise of the Board's fiduciary duties to its stockholders, not take any
action that would, or that could reasonably be expected to, result in any of the
conditions to the obligations of Addington or Republic to consummate the Merger
not being satisfied. In addition, Addington has agreed not to: (a) authorize for
issuance, issue, sell, deliver or agree or commit to issue, sell or deliver any
stock of any class or any options or rights to acquire, or any securities
convertible into, shares of stock of any class, other than issuances of
Addington Common Stock upon exercise of Addington Stock Options and each
outstanding grant of shares of Addington Common Stock; (b) split, combine or
reclassify any shares of its capital stock; declare, set aside or pay any
dividend or other distribution (whether in cash, stock or property or any
combination thereof) to its stockholders whether or not in respect of its
capital stock; or redeem, purchase or otherwise acquire any shares of, or rights
to acquire shares of, its or any of its subsidiaries' capital stock; (c) amend
its charter or by-laws; (d) voluntarily sell, transfer, surrender, abandon or
dispose of any of its material assets or property rights (tangible or
intangible), other than in the ordinary course of business consistent with past
practices; (e) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisitions of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof, or make any investment in any such entity either by purchase
of securities, contributions of capital or transfer of property, or make any
loans or advances to any person; (f) grant or make any mortgage or pledge or
subject itself or any of its material properties or assets to any lien, charge
or encumbrance of any kind, except liens for taxes not currently due; (g)
create, incur or assume any liability or indebtedness for borrowed money
(contingent or otherwise), in an amount exceeding $1,000,000 individually or
$2,500,000 in the aggregate, except borrowings under Addington's credit
facilities with Bank of Boston to the extent such borrowings are in the ordinary
course of business consistent with past practices; (h) make or commit to make
any capital expenditures in excess of $1,000,000 individually or $2,500,000 in
the aggregate, other than as set forth on the capital expenditure budget
provided by Addington to Republic; (i) grant any increase in the compensation
payable or to become payable to directors, officers or employees (including,
without limitation, any such increase pursuant to any employee benefit plan of
Addington ("Addington Benefit Plan") or otherwise), other than merit increases
to employees of Addington or its subsidiaries who are not directors or officers
of Addington, in the ordinary course of business and consistent with past
practices; (j) alter the manner of keeping its books, accounts or records, or
change in any manner the accounting practices therein reflected; (k) enter into
any material commitment, transaction or agreement, other than in the ordinary
course of business consistent with past practices and other than
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commitments, transactions or agreements that are terminable by Addington without
cost or penalty on no more than 60 days prior notice; (l) apply any of its
assets to the direct or indirect payment, discharge, satisfaction or reduction
of any amount payable directly or indirectly to or for the benefit of any
affiliate of Addington or any of its subsidiaries, except in the ordinary course
of business consistent with past practices; (m) modify any provision of any
Addington Benefit Plan, any stock option plans of Addington or the terms of any
stock options granted thereunder; (n) modify any of certain material contracts
other than in the ordinary course of business consistent with past practices;
(o) enter into any agreement or transaction with any person controlling,
controlled by or under common control with Addington; or (p) agree, whether in
writing or otherwise, to do any of the foregoing.
Addington has agreed to, as soon as practicable following execution of the
Merger Agreement, establish a record date for, duly call, give notice of,
convene and hold a special meeting of Addington stockholders for the purpose of
approving and adopting the Merger Agreement, which obligation is being satisfied
by Addington through solicitation of Addington stockholders to take such action
by written consent in lieu of a special meeting. Subject to the exercise of its
applicable fiduciary duties under Delaware Law to the stockholders of Addington,
the Board has agreed to (i) recommend that Addington's stockholders approve and
adopt the Merger Agreement and include such recommendation in this Solicitation
Statement/Prospectus, provided that the Board is not obligated to make such
recommendation if Addington shall have received an offer for a Competing
Transaction (as defined below) that the Board determines in good faith is more
favorable to the stockholders of Addington from a financial point of view than
the Merger, and (ii) use its reasonable best efforts to solicit from
stockholders of Addington votes to approve and adopt the Merger Agreement.
Until the Effective Time, Addington has agreed to afford the
representatives, officers, employees and agents of Republic reasonable access at
all reasonable times to its representatives, officers, employees, agents,
properties, offices, and other facilities and to all books and records, and to
furnish Republic with all financial, operating and other data and information
Republic, through its representatives, officers, employees or agents, may
reasonably request. Subject to certain conditions, Republic is entitled to
conduct prior to the Effective Time an environmental assessment of the real
properties owned and leased by Addington.
Republic has agreed (a) not to take any action that would, or that could
reasonably be expected to, result in any of the conditions to the obligations of
Republic to consummate the Merger not being satisfied, (b) to furnish Addington
with all publicly available information relating to Republic and allow
representatives of the Addington to engage in discussions with senior management
of Republic, (c) to comply in all material respects with all applicable
requirements of Nasdaq and the Commission with respect to the filing of
information and reports, (d) to promptly prepare, with Addington's cooperation
and assistance, and file with the Commission the Registration Statement, of
which this Solicitation Statement/Prospectus is a part, and to have the
Registration Statement declared effective as promptly as practicable after such
filing and (e) as soon as is practicable after the Effective Time, to provide
benefits to employees of Addington which are substantially similar to the
benefits provided to similarly situated employees of Republic.
Addington, Republic and Mergersub have agreed to use their respective best
efforts to comply promptly with all legal and other requirements which may be
imposed on them with respect to the Merger including (a) complying with the HSR
Act, and (b) obtaining any consent, authorization, order or approval of, or any
exemption by, any governmental authority or other public or private third party,
required to be obtained by Addington, Republic or any of their subsidiaries in
connection with the Merger.
Pursuant to the Merger Agreement, Addington shall, and from and after the
Effective Time the Surviving Corporation shall, indemnify, defend and hold
harmless each of the officers and directors of Addington or any of its
subsidiaries against all losses, claims, damages, costs, expenses, liabilities
or judgments based on or arising in whole or in part out of the fact that such
person is or was an officer or director of Addington or based on or arising out
of, in whole or in part, or pertaining to the Merger Agreement or the
transactions contemplated thereby, in each case to the full extent provided
under the Certificate of Incorporation or Bylaws of Addington or permitted under
Delaware Law.
Pursuant to the Merger Agreement, the Certificate of Incorporation and
By-Laws of the Surviving Corporation shall contain provisions with respect to
indemnification of officers and directors of Addington that
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are identical in coverage to those set forth in the Certificate of Incorporation
and By-Laws of Addington, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who on
or prior to the Effective Time were directors or officers of Addington entitled
to indemnification pursuant to Addington's Certificate of Incorporation and
By-Laws.
Addington shall, and from and after the Effective Time the Surviving
Corporation shall, obtain and maintain in effect an extended reporting period
under Addington's existing directors' and officers' liability insurance policy
for a period of at least five years from the Effective Time. From and after the
Effective Time, the Surviving Corporation shall honor the terms and conditions
of the various indemnification agreements previously entered into by Addington.
NO SOLICITATION OF COMPETING TRANSACTIONS; TERMINATION FEE
Until the earlier of (i) the Effective Time, or (ii) the date the Merger
Agreement terminates in accordance with its terms (the "Non-Solicitation
Period"), Addington has agreed not to, directly or indirectly, solicit or
initiate discussion with, enter into negotiations or agreements with, or furnish
any information about Addington that is not publicly available to, or otherwise
assist, facilitate or encourage, any person or group (other than Republic, an
affiliate of Republic or their authorized representatives) concerning any
proposal for a merger, sale of substantial assets, sale of shares of capital
stock or other securities, recapitalization or other business combination
transactions involving Addington or any of the subsidiaries of Addington (a
"Competing Transaction").
Notwithstanding the foregoing, Addington is not prohibited from furnishing
confidential information to, entering into discussions with or entering into any
negotiations (or entering into an agreement resulting from such negotiations)
which were not so solicited or initiated to the extent such action is taken by,
or upon the authority of, the Board due to the applicable fiduciary duties of
the Board to the stockholders of Addington, as determined by the directors of
Addington in the exercise of good faith judgment based upon the written advice
of independent, outside legal counsel that a failure of the Board to take such
action would be likely to constitute a breach of its fiduciary duties to the
stockholders of Addington.
In the event that during the Non-Solicitation Period Addington either (i)
receives an unsolicited proposal for a Competing Transaction (an "Acquisition
Proposal") other than from Republic or an affiliate of Republic, and during the
Non-Solicitation Period (or before June 25, 1997, if the Merger Agreement has
not been terminated by Addington because of a breach of a representation,
warranty or covenant by Republic) consummates a transaction of a kind that would
constitute a Competing Transaction with the offeror who made the original
Acquisition Proposal (the "Original Offeror"), or another party who makes an
Acquisition Proposal prior to the termination of negotiations with the Original
Offeror, or (ii) solicits or initiates any discussions for a Competing
Transaction (regardless of whether it is consummated); then, in either instance,
(a) Addington has agreed to pay Republic the sum of $1,000,000 (which shall be
paid contemporaneously with consummation of the Competing Transaction if the
Acquisition Proposal was not solicited, or contemporaneously with the
solicitation or initiation of any discussion if the Acquisition Proposal was
solicited), and (b) pursuant to the Voting Agreement, the Principal Stockholders
have agreed to pay to Republic an amount equal to the consideration paid by the
acquiror on a per share of Addington Common Stock basis in excess of (x) $21.50
(in the case of proposals noted in (i) above) or (y) $15.00 (in the case of
solicitations under (ii) above) multiplied by the number of shares of Addington
Common Stock beneficially owned by each Principal Stockholder (which amounts
shall be paid contemporaneously with consummation of the acquisition whether or
not such Acquisition Proposal was solicited).
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CONDITIONS PRECEDENT TO CLOSING
Conditions To Obligations of Addington, Republic and Mergersub. The
obligations of Addington, Republic and Mergersub to consummate the Merger are
subject to the fulfillment, at or prior to the Effective Time, of several
conditions, including among others:
(a) The Merger Agreement shall have been approved and adopted by the
holders of a majority of the outstanding shares of Addington Common Stock.
(b) All authorizations, consents, orders or approvals of, or
declarations or filings with, or expiration or termination of any notice
and waiting period imposed by, any governmental authority or any other
person in connection with the consummation of the Merger, the failure of
which to obtain could reasonably be expected to have a material adverse
effect on Republic and its subsidiaries or Addington and its subsidiaries,
in each case taken as a whole, shall have been filed or obtained or shall
have occurred, without the imposition of any conditions which would require
the divestiture of any of Addington's or Republic's assets or would
otherwise materially adversely affect Republic's ability to operate the
businesses of Addington and its subsidiaries following the Effective Time.
(c) The Registration Statement shall have been declared effective, and
no stop order terminating the effectiveness of the Registration Statement
shall have been issued or threatened.
(d) The consummation of the Merger shall not be precluded, enjoined,
prohibited or materially restricted by any order or injunction of a court
of competent jurisdiction (each party agreeing to use its best efforts to
have any such order reversed or injunction lifted), and no litigation,
arbitration, or other proceeding initiated by any governmental authority
shall be pending which seeks to enjoin, prohibit or materially restrict the
consummation of the Merger.
(e) Addington and Republic shall each have received a letter from
Arthur Andersen LLP, stating that the Merger shall qualify as a pooling of
interests business combination under applicable accounting and Commission
rules.
(f) Addington and Republic shall have received letters of Arthur
Andersen LLP customary in scope and substance for letters delivered by
independent public accountants in connection with registration statements
similar to the Registration Statement.
(g) The shares of Republic Common Stock to be issued in connection
with the Merger shall have been duly listed for trading on Nasdaq, subject
to official notice of issuance.
Conditions to Obligations of Addington. The obligations of Addington to
consummate the Merger are subject to the fulfillment, at or prior to the
Effective Time, of several additional conditions, any one or more of which may
be waived by Addington, including among others:
(a) Republic and Mergersub shall have performed and complied in all
material respects with all agreements required by the Merger Agreement to
be performed or complied with by them at or prior to the Effective Time.
(b) The representations and warranties of Republic and Mergersub set
forth in the Merger Agreement shall be true and correct at and as of the
Effective Time, with the same force and effect as through such
representations and warranties had been made at and as of the Effective
Time, and no event or condition shall have occurred (or shall be
discovered) that could reasonably be expected to have a material adverse
effect on Republic and its subsidiaries taken as a whole.
(c) Addington shall have received the opinion of Schulte Roth & Zabel
LLP, counsel to Addington, and Republic shall have received the opinion of
Akerman, Senterfitt & Eidson, P.A., counsel to Republic, each to the effect
that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the Code, and that
Addington, Republic and Mergersub each will be a party to that
reorganization within the meaning of section 368(b) of the Code.
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<PAGE> 41
(d) Addington shall have received the certificates, opinions and
corporate documents required by the Merger Agreement.
Conditions to Obligations of Republic and Mergersub. The obligations of
Republic and Mergersub to consummate the Merger are subject to the fulfillment,
at or prior to the Effective Time, of several additional conditions, any one or
more of which may be waived by Republic and Mergersub, including among others:
(a) Addington shall have performed and complied in all material
respects with all agreements required by the Merger Agreement to be
performed or complied with by it at or prior to the Effective Time.
(b) The representations and warranties of Addington set forth in the
Merger Agreement shall be true and correct at and as of the Effective Time,
with the same force and effect as though such representations and
warranties had been made at and as of the Effective Time, and no event or
condition shall have occurred (or shall be discovered) that could
reasonably be expected to have a material adverse effect on Addington and
its subsidiaries taken as a whole.
(c) Republic and Mergersub shall have received the certificates,
opinions and corporate documents required by the Merger Agreement.
TERMINATION
The Merger Agreement may be terminated and the Merger contemplated by the
Merger Agreement may be abandoned prior to the Effective Time:
(a) by mutual written consent of Republic and Addington;
(b) by either Republic or Addington, if any governmental authority
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger, and
such order, decree, ruling or other action shall have become final and
nonappealable;
(c) by either Republic or Addington, if the Merger has not been
consummated by December 31, 1996 (such date, or such later date mutually
agreed to in writing by the parties, referred to as the "End Date") (other
than due to the failure of the party seeking to terminate the Merger
Agreement to perform its obligations under the Merger Agreement required to
be performed at or prior to the Effective Time);
(d) by either Republic or Addington, if a special meeting of Addington
stockholders shall have been held, and the stockholders of Addington shall
have failed to approve and adopt the Merger Agreement at such special
meeting (or any adjournment thereof);
(e) by Republic, if a tender offer or exchange offer for more than 30%
of the outstanding shares of Addington Common Stock is commenced, and the
Board, within ten business days after such tender offer or exchange offer
is so commenced, fails to recommend against acceptance of such tender offer
or exchange offer by its stockholders or takes no position with respect to
such offer;
(f) by Republic, if any person or group, other than the Principal
Stockholders, shall have acquired beneficial ownership or the right to
acquire beneficial ownership of more than 50% of the then combined voting
power of all classes of the capital stock of Addington;
(g) by Republic, if the Board does not recommend to the stockholders
of Addington the approval of the Merger or withdraws, modifies or changes
its recommendation to approve the Merger, or shall have resolved to do any
of the foregoing;
(h) by either Republic or Addington, if Addington or its stockholders
receives an offer for a Competing Transaction that the Board determines in
good faith is more favorable to the stockholders of Addington from a
financial point of view than the transactions contemplated by the Merger
Agreement, and the Board accepts, recommends or resolves to accept or
recommend to Addington's stockholders such a Competing Transaction;
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<PAGE> 42
(i) by Republic, if any of the representations and warranties of
Addington in the Merger Agreement are not true and correct and could not
reasonably be expected to become true and correct prior to the End Date, or
if Addington breaches in any material respect any covenant of Addington
contained in the Merger Agreement and such breach could not reasonably be
expected to be cured prior to the End Date; or
(j) by Addington, if any of the representations and warranties of
Republic in the Merger Agreement are not true and correct and could not
reasonably be expected to become true and correct prior to the End Date, or
if Republic breaches in any material respect any covenant of Republic
contained in the Merger Agreement and such breach could not reasonably be
expected to be cured prior to the End Date.
If the Merger Agreement is terminated pursuant to paragraphs (i) or (j)
above, then the non-breaching party is entitled to recover its reasonable
attorneys' fees and costs incurred in any action brought by such party against
the other party to recover its damages caused by such breach.
EXPENSES
In connection with the Merger, Republic has agreed to pay all expenses
payable in connection with printing and mailing the Solicitation
Statement/Prospectus and the Registration Statement, and all Commission filing
fees relating to the transactions contemplated by the Merger Agreement, and
Republic and Addington have agreed to share equally all fees for filing under
the HSR Act.
MANAGEMENT OF REPUBLIC BEFORE AND AFTER THE MERGER AND
THE PENDING REPUBLIC ACQUISITIONS
CURRENT REPUBLIC MANAGEMENT
The following table sets forth below certain information with respect to
those individuals who serve as members of the Board of Directors and executive
officers of Republic as of the date hereof. Consummation of the Merger will not
result in any changes to the Board of Directors and executive officers of
Republic.
<TABLE>
<CAPTION>
NAME AGE PRINCIPAL POSITION
- - ----------------------------------- --- ----------------------------------------------------
<S> <C> <C>
H. Wayne Huizenga.................. 58 Chairman of the Board and Co-Chief Executive Officer
Steven R. Berrard.................. 41 Co-Chief Executive Officer, President and a Director
Harris W. Hudson................... 53 Vice Chairman of the Board
J.P. Bryan......................... 56 Director
Rick L. Burdick.................... 45 Director
Michael G. DeGroote................ 63 Director
John J. Melk....................... 60 Director
George D. Johnson, Jr.............. 54 Director
Donald E. Koogler.................. 47 Executive Vice President
J. Ronald Castell.................. 58 Senior Vice President
Robert A. Guerin................... 53 Senior Vice President
Richard L. Handley................. 49 Senior Vice President, General Counsel and Secretary
Thomas W. Hawkins.................. 35 Senior Vice President
Robert J. Henninger, Jr. .......... 47 Senior Vice President
Michael S. Karsner................. 38 Senior Vice President and Chief Financial Officer
Michael R. Carpenter............... 38 Vice President and Corporate Controller
</TABLE>
The Board of Directors of Republic currently consists of eight members.
Directors are elected to serve until the next annual meeting of Republic's
stockholders, or until their earlier death, resignation, or removal
40
<PAGE> 43
from office. Successors to those directors whose terms have expired are required
to be elected by stockholder vote while vacancies in unexpired terms and any
additional positions created by board action are filled by action of the
existing Board of Directors of Republic. The executive officers named above were
elected or appointed to serve in such capacities until the next annual meeting
of the Board of Directors of Republic, or until their respective successors have
been duly elected and have been qualified, or until their earlier death,
resignation, disqualification or removal from office.
Mr. Hudson is married to Mr. Huizenga's sister. Otherwise, there is no
family relationship between any of the directors and executive officers of
Republic.
H. Wayne Huizenga has served as the Chairman of the Board and Chief
Executive Officer of Republic since August 1995 (Co-Chief Executive Officer
since October 1996). Mr. Huizenga served as the Vice Chairman of Viacom Inc.
("Viacom"), a diversified entertainment and communications company, from
September 1994 until October 1995. Mr. Huizenga also served as the Chairman of
the Board of the Blockbuster Entertainment Group, a division of Viacom, from
September 1994, at which time Viacom acquired Blockbuster Entertainment
Corporation ("Blockbuster") through a merger, until October 1995. From April
1987 through September 1994, Mr. Huizenga served as the Chairman of the Board
and Chief Executive Officer of Blockbuster, during which time he helped build
Blockbuster into the world's largest video and music retailer. Mr. Huizenga also
served as the President of Blockbuster from April 1987 to June 1988. Mr.
Huizenga also co-founded Waste Management, Inc., now known as WMX Technologies,
Inc. ("Waste Management"), the world's largest integrated environmental services
company, in 1971, and served in various capacities, including the President, the
Chief Operating Officer and a Director from its inception until 1984. Mr.
Huizenga also owns or controls the Miami Dolphins, Florida Marlins and Florida
Panthers professional sports franchises, as well as Pro Player Stadium, in South
Florida and has served as Chairman of the Board of Florida Panthers Holdings,
Inc. ("PUCK") since September 1996. In addition, Mr. Huizenga has served as the
Chairman of the Board of Extended Stay America, Inc. ("STAY"), an economy
extended-stay lodging chain, since August 1995.
Steven R. Berrard has served as Co-Chief Executive Officer, President and a
Director of Republic since October 1996. Mr. Berrard has served as Chief
Executive Officer of AutoNation since March 1996. From September 1994 through
March 1996, Mr. Berrard served as President and Chief Executive Officer of
Blockbuster Entertainment Group. Mr. Berrard joined Blockbuster in June 1987 as
Senior Vice President, Treasurer and Chief Financial Officer and became a
Director of Blockbuster in May 1989. He became Vice Chairman of the Board of
Blockbuster in November 1989 and served as Blockbuster's President and Chief
Operating Officer from January 1993 until September 1994. In addition, Mr.
Berrard served as President and Chief Executive Officer and a director of
Spelling Entertainment Group Inc., a television and filmed entertainment
producer and distributor, from March 1993 through March 1996, and served as a
director of Viacom from September 1994 until March 1996. Mr. Berrard also serves
as a director of PUCK.
Harris W. Hudson has served as the Vice Chairman of the Board of Republic
since October 1996, and as a Director of Republic since August 1995. Mr. Hudson
also serves as the Chairman of Republic's Solid Waste Services Division. Mr.
Hudson had served as the President of Republic from August 1995 to October 1996.
From May 1995 until August 1995, Mr. Hudson had served as a consultant to
Republic. Mr. Hudson founded and since inception in 1983 has served as Chairman
of the Board, Chief Executive Officer and President of Hudson Management
Corporation, which was acquired by Republic in August 1995. From 1964 to 1982,
Mr. Hudson served as Vice President of Waste Management of Florida, Inc., a
subsidiary of Waste Management, and its predecessor. Mr. Hudson has been a
director of PUCK since September 1996.
J.P. Bryan has served as a Director of Republic since May 1991 and also was
a Director of Republic from August 1990 until March 1991. Since January 1995,
Mr. Bryan has served as President and Chief Executive Officer of Gulf Canada
Resources Ltd. ("Gulf Canada"), which is engaged in oil and gas exploration and
production. Since 1981, Mr. Bryan has served as the Chairman of the Board and
Chief Executive Officer of Torch Energy Advisors Inc., a subsidiary of Torchmark
Corporation, engaged in the management of institutional holdings in
energy-related fields and has, since March 1990, held the same positions with
Nuevo
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<PAGE> 44
Energy Company, a company involved in the oil and gas industry. Mr. Bryan also
currently serves on the Board of Directors of Bellweather Exploration Company,
an oil and gas exploration company.
Rick L. Burdick has been a Director of Republic since May 1991. Since June
1995, Mr. Burdick has served as a Director of J. Ray McDermott, S.A. Mr. Burdick
is the sole shareholder of a professional corporation which is a partner in the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a limited liability
partnership including professional corporations.
Michael G. DeGroote has been a Director of Republic since 1991 and had
served as the Vice Chairman of the Board of Directors of Republic from August
1995 until October 1996. Mr. DeGroote had served as the Chairman of the Board
and President of Republic from August 1991 until August 1995, and as the Chief
Executive Officer of Republic from May 1991 until August 1995. Since April 1995,
Mr. DeGroote has served as Chairman of the Board, President and Chief Executive
Officer of Republic Environmental Systems, Inc., now known as International
Alliance Services, Inc. ("RESI"). Mr. DeGroote owned a controlling interest in
Laidlaw Inc. ("Laidlaw"), a Canadian company, from 1959 until he sold his
interest in 1988. During his tenure, Laidlaw became the third largest waste
service company in North America and the largest operator of school buses with
over 28,000 vehicles. Mr. DeGroote served as the Chairman of the Board and Chief
Executive Officer of Laidlaw from 1959 until June 1990, when he resigned from
those positions to pursue personal business matters. Mr. DeGroote has served as
a Director of Gulf Canada since May 1995, and a Director of RESI since April
1995.
John J. Melk has served as a Director of Republic since August 1995. Mr.
Melk has been Chairman and Chief Executive Officer of H(')O Plus Inc., a bath
and skin care product manufacturer and retail distributor, since 1988. Mr. Melk
has been a private investor in various businesses since March 1984 and prior to
March 1984, he held various positions with Waste Management and its
subsidiaries, including President of Waste Management International, plc., a
subsidiary of Waste Management. Mr. Melk also serves as a Director of
Psychemedics Corporation and of STAY. From February 1987 until March 1989 and
from May 1993 until September 1994, Mr. Melk served as a Director of
Blockbuster. He also served as the Vice Chairman of Blockbuster from February
1987 until March 1989.
George D. Johnson, Jr. has served as a Director of Republic since November
1995. Mr. Johnson presently is President, Chief Executive Officer and a Director
of STAY. From 1993 until 1995, Mr. Johnson served in various executive positions
with Blockbuster Entertainment Group and, prior to its merger with Viacom, with
Blockbuster, including as President of the Consumer Products Division, and also
as a Director of Blockbuster. From 1987 until 1993, Mr. Johnson was the managing
general partner of WJB Video L.P., becoming the largest Blockbuster franchisee
with over 200 video stores prior to a merger with Blockbuster in 1993. He is
also a Director of Duke Power Company, Viacom and PUCK.
Donald E. Koogler has served as an Executive Vice President of Republic
since May 1991. From May 1991 until August 1995, Mr. Koogler also served as a
Director of Republic and from May 1991 until June 1996 as Chief Operating
Officer. In September 1990, Mr. Koogler founded K&K Investment and Consulting
Services and served as its President until May 1991. Mr. Koogler joined Laidlaw
as a Vice President in 1985 and became an Executive Vice President in October
1987. Mr. Koogler also served as Vice President of Waste Management from 1980
until 1985. Mr. Koogler has been employed in the solid waste industry for over
25 years, in various executive positions.
J. Ronald Castell joined Republic as a Vice President in August 1995, and
was promoted to Senior Vice President in October 1995. From September 1994 until
joining Republic, he served as a consultant to Viacom. Prior to that, Mr.
Castell was Senior Vice President of Programming and Communications for
Blockbuster from August 1991 until September 1994 and was Senior Vice President
of Programming and Merchandising from February 1989 until August 1991. From
October 1985 to February 1989, he was Vice President of Marketing and
Merchandising at Erol's, then a chain of two hundred video stores headquartered
in the Washington, D.C. area.
Robert A. Guerin has served as Senior Vice President of Republic since
August 1995, and has served as President of Republic's Security Services
Division since June 1996. From September 1994 until joining
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<PAGE> 45
Republic, he served as a consultant to Viacom. Prior to that, Mr. Guerin was
Senior Vice President of Domestic Franchising for Blockbuster from January 1992
until September 1994, was Senior Vice President of Administration and
Development for Blockbuster from October 1989 until December 1991, and was a
Vice President of Blockbuster from March 1988 until October 1989. From March
1986 to March 1988, Mr. Guerin served as Vice President and Region Manager of
Waste Management of North America, Inc., a subsidiary of Waste Management, where
he was responsible for operations with over 6,000 employees. From June 1982 to
March 1986, he served as President of Wells Fargo Armored Service Corp., a
transporter of currency and valuables with over 7,000 employees.
Richard L. Handley joined Republic in October 1995 as a Senior Vice
President and the General Counsel. In May 1996, Mr. Handley was also appointed
Secretary of Republic. From June 1993 until joining Republic, he was a principal
of Randolph Management Group, Inc., a management consulting firm specializing in
the environmental industry. Prior to that, Mr. Handley was Vice President,
Secretary and General Counsel of The Brand Companies, Inc., an environmental
services company, from July 1990 until May 1993, Associate General Counsel of
Waste Management of North America, Inc. from January 1987 to June 1990, and
legal counsel to Waste Management Energy Systems, Inc., a waste-to-energy
company, from September 1985 to January 1987, all of which companies were
affiliates or subsidiaries of Waste Management. Prior to September 1985, Mr.
Handley was a lawyer in private practice in Chicago, Illinois.
Thomas W. Hawkins joined Republic in June 1996 as Senior Vice President.
From September 1994 until June 1996, Mr. Hawkins served as Executive Vice
President -- Administration of Blockbuster Entertainment Group. Prior to that,
he was Senior Vice President, General Counsel and Secretary of Blockbuster from
February 1994. He joined Blockbuster as Senior Corporate Counsel in November
1989, became Associate General Counsel and Secretary in August 1991 and Vice
President, General Counsel and Secretary in February 1993. Prior to November
1989, Mr. Hawkins was a lawyer in private practice in Chicago, Illinois.
Robert J. Henninger, Jr. has served as a Senior Vice President of Republic
since October 1995. From September 1994 until joining Republic, he served as a
consultant to Viacom, and from July 1994 until September 1994, he served as
Senior Vice President and Chief Administrative Officer of Blockbuster. Prior to
July 1994, Mr. Henninger was employed by Arthur Andersen LLP, an international
public accounting firm, for 23 years, and had been Managing Partner of the
firm's Fort Lauderdale, Florida office since 1984.
Michael S. Karsner has served as a Senior Vice President and Chief
Financial Officer of Republic since October 1996. Prior to joining Republic, Mr.
Karsner served as Senior Vice President and Chief Financial Officer at Dole Food
Company, Inc., a multinational packaged food company ("Dole"), from May 1996
until September 1996, as Vice President, Chief Financial Officer and Treasurer
of Dole from February 1995 until May 1996, and as Vice President and Treasurer
of Dole from January 1994 until February 1995. From January 1990 through
December 1993, Mr. Karsner served as Vice President and Treasurer of the Black &
Decker Corporation, a multinational consumer products company.
Michael R. Carpenter has served as Vice President and Corporate Controller
of Republic since August 1995. From September 1994 until August 1995, Mr.
Carpenter served as Vice President and Corporate Controller of Blockbuster
Entertainment Group. Prior to that, he was Vice President and Assistant
Corporate Controller of Blockbuster from May 1992. He joined Blockbuster as
Director of Financial Reporting in April 1988. Mr. Carpenter is a certified
public accountant.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors of Republic has established three committees, the
Executive Committee, the Audit Committee and the Compensation Committee. The
Executive Committee consists of Messrs. Huizenga, Hudson and DeGroote. The
Executive Committee has full authority to exercise all the powers of the Board
of Directors of Republic between meetings of the Board of Directors of Republic,
except as reserved by the Board of Directors of Republic. The Executive
Committee does not have the power to elect or remove executive officers, approve
a merger of Republic, recommend a sale of substantially all of Republic's
assets, recommend a dissolution of Republic, amend Republic's By-laws or
Certificate of Incorporation, declare dividends on Republic's outstanding
securities, or, except as expressly authorized by the
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<PAGE> 46
Board of Directors of Republic, issue any Republic Common Stock or preferred
stock. By action of the Board of Directors of Republic, the Executive Committee
has certain limited authority to approve the issuance of Republic Common Stock
in connection with certain types of mergers and acquisitions by Republic.
The Audit Committee consists of Messrs. Bryan, Burdick and Melk. The Audit
Committee has the power to oversee the retention, performance and compensation
of the independent public accountants for Republic, and the establishment and
oversight of such systems of internal accounting and auditing control as it
deems appropriate.
The Compensation Committee consists of Messrs. Melk, Johnson and Bryan. The
Compensation Committee reviews Republic's compensation philosophy and programs,
exercises authority with respect to the payment of salaries and incentive
compensation to directors and officers, and administers Republic's 1991 Stock
Option Plan and 1995 Employee Stock Option Plan.
MANAGEMENT OF REPUBLIC AFTER THE CLOSING OF THE PENDING REPUBLIC ACQUISITIONS
All of Republic's existing Directors and executive officers as of the date
hereof will remain in their respective positions following the closing of the
Pending Republic Acquisitions. Lawrence S. Rich, a director of AutoNation, is
expected to be appointed to Republic's Board of Directors following consummation
of the AutoNation Merger.
Lawrence S. Rich, age 53, is Chief Operating Officer and a director of
JMFE, a highly diversified automotive corporation founded in 1968. JMFE is
ranked by Forbes magazine as the 27th largest (by revenue) privately-held
company in America. The flagship of JMFE, Southeast Toyota Distributors, Inc.,
is the world's largest independent distributor of Toyota vehicles. Mr. Rich was
an Executive Vice President of JMFE from 1986 to 1994, when he was elected Chief
Operating Officer. He also has served as a director of AutoNation since
September 1995.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Stockholders should be aware that certain members of management of
Addington currently have certain interests which may present them with potential
conflicts of interest in connection with the Merger.
STOCK OPTIONS
Certain executive officers of Addington have options to acquire Addington
Common Stock pursuant to individual Stock Option Agreements between Addington
and the individual officers (the "Stock Option Agreements"). Pursuant to the
terms of the Stock Option Agreements, at the Effective Time each outstanding
option will become fully exercisable (whether or not then otherwise
exercisable). The following table specifies the number of options held by the
executive officers of Addington that will vest as a result of the Merger:
<TABLE>
<CAPTION>
OUTSTANDING
NAME OPTIONS
------------------------------------------------------------------------- -----------
<S> <C>
Jack T. Baker............................................................ 53,333
R. Douglas Striebel...................................................... 63,333
</TABLE>
The above option amounts do not include options to acquire shares of
Addington Common Stock that are currently vested (as those options are not
accelerated by the Merger), nor the Merger Consideration to be received in the
Merger for shares of Addington Common Stock currently owned by such executive
officers.
EMPLOYMENT AGREEMENTS
Jack T. Baker entered into an employment agreement with Addington
Environmental, Inc. (the "Baker Agreement"). The Baker Agreement provides, in
part, that if within 36 months following a Change of Control (as defined in the
Baker Agreement) or the execution of an agreement by Addington Environmental,
Inc. or Addington for a transaction that would result in a Change of Control,
either Addington Environmental, Inc.
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<PAGE> 47
terminates Mr. Baker without cause (as defined in the Baker Agreement) or Mr.
Baker terminates his employment for good reason (as defined in the Baker
Agreement) within 12 months of the occurrence of the event constituting good
reason, Mr. Baker will be entitled to receive an amount equal to three times the
greater of (i) his base salary in effect immediately prior to the Change of
Control or (ii) his base salary in effect immediately prior to the date of
termination. The Merger satisfies the definition of a Change of Control pursuant
to the Baker Agreement.
R. Douglas Striebel entered into an employment agreement with Addington
(the "Striebel Agreement"). The Striebel Agreement provides, in part, that if
within 36 months following a Change of Control (as defined in the Striebel
Agreement) or the execution of an agreement by Addington for a transaction that
would result in a Change of Control, either Addington terminates Mr. Striebel
without cause (as defined in the Striebel Agreement) or Mr. Striebel terminates
his employment for good reason (as defined in the Striebel Agreement) within 12
months of the occurrence of the event constituting good reason, Mr. Striebel
will be entitled to receive an amount equal to three times the greater of (i)
his annual salary in effect immediately prior to the Change of Control or (ii)
his annual salary in effect immediately prior to the date of termination. The
Merger satisfies the definition of a Change of Control pursuant to the Striebel
Agreement.
EFFECT OF MERGER ON RIGHTS OF STOCKHOLDERS
Upon consummation of the Merger, holders of Addington Common Stock will
become holders of Republic Common Stock and the rights of former Addington
stockholders will continue to be governed by Delaware Law but will also be
governed by Republic's Certificate of Incorporation and Bylaws. There are no
material differences between the current rights of stockholders of Addington
Common Stock and the rights such stockholders will have after consummation of
the Merger as holders of Republic Common Stock, other than that Republic's
Certificate of Incorporation authorizes Republic's Board of Directors to issue
shares of preferred stock, without stockholder approval, which preferred stock
could have voting and other rights that could adversely affect the rights of the
holders of Republic Common Stock. See "DESCRIPTION OF REPUBLIC'S CAPITAL STOCK."
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<PAGE> 48
COMPARATIVE STOCK PRICES
AND DIVIDEND POLICIES
Addington Common Stock is listed on Nasdaq and is traded under the symbol
"ADDR." Republic Common Stock is listed on Nasdaq and is traded under the symbol
"RWIN." The following table sets forth, for the periods indicated, the high and
low closing prices per share of Addington Common Stock and Republic Common
Stock, respectively, as reported by Nasdaq.
<TABLE>
<CAPTION>
REPUBLIC
ADDINGTON COMMON
COMMON STOCK STOCK(A)
------------- -------------
HIGH LOW HIGH LOW
--- --- --- ---
<S> <C> <C> <C> <C> <C>
1994
First Quarter................................................ $19 3/4 $14 $ 1 25/32 $ 1 3/8
Second Quarter............................................... 17 3/4 13 1/2 1 3/4 1 1/4
Third Quarter................................................ 16 3/4 12 3/4 1 25/32 1 7/16
Fourth Quarter............................................... 13 1/2 8 2 1/16 1 9/16
1995
First Quarter................................................ $11 1/2 $ 8 $ 2 1/8 $ 1 9/16
Second Quarter............................................... 14 7/8 9 1/2 7 3/16 1 1/2
Third Quarter................................................ 15 1/2 9 1/2 13 3/8 6 7/16
Fourth Quarter............................................... 15 1/2 12 3/8 18 1/16 9 15/16
1996
First Quarter................................................ $15 1/4 $11 $17 15/16 $13 3/16
Second Quarter............................................... 25 7/16 13 1/4 34 1/8 15
Third Quarter................................................ 25 5/8 18 1/4 31 19 1/4
Fourth Quarter (through December 3, 1996).................... 31 24 1/4 34 5/8 27 3/8
</TABLE>
- - ---------------
(a) Prices of Republic Common Stock have been adjusted to reflect the Stock
Split.
On May 30, 1996, the last trading day before the public announcement of the
Merger, the closing price of Addington Common Stock was $17 per share, and the
closing price of Republic Common Stock was $23 19/32 per share, as reported by
Nasdaq. If the Merger had occurred on May 30, 1996 at the exchange ratio of .90
shares of Republic Common Stock for each share of Addington Common Stock,
Addington stockholders would have received approximately $21.25 in market value
of Republic Common Stock for each share of Addington Common Stock. On December
3, 1996, the closing price of Addington Common Stock was $29.50 per share, and
the closing price of Republic Common Stock was $33 per share as reported by
Nasdaq. The market prices of shares of Addington Common Stock and Republic
Common Stock are subject to fluctuation. As a result, Addington stockholders are
urged to obtain current market quotations.
On December 3, 1996, there were approximately 234 holders of record of
Addington Common Stock.
Since December 1989, Republic has not declared or paid any cash dividends
on Republic Common Stock. Republic currently intends to retain its earnings for
future growth and, therefore, does not anticipate paying cash dividends in the
foreseeable future.
Addington has not paid any dividends during the past two years, and intends
to retain its earnings to finance expansion and development of its business,
and, therefore, does not anticipate paying cash dividends in the foreseeable
future. Addington currently has financing arrangements which contain certain
restrictive covenants which, among others, limit the amount of dividends
Addington can pay, limit its ability to incur additional indebtedness, require
an as-defined minimum tangible net worth, require a minimum current ratio, and
limit the ability of certain subsidiaries to pay cash dividends to Addington. In
addition, the Merger Agreement prohibits Addington from declaring or paying a
dividend prior to consummation of the Merger.
46
<PAGE> 49
COMPARATIVE PER SHARE DATA
Set forth below are historical earnings (loss) from continuing operations
and book value per common share data of Republic and Addington, individually,
and unaudited pro forma per common share data for Republic and Addington
combined which gives effect to the consummation of the Merger, certain Republic
completed acquisitions and certain 1995 equity transactions as if such events
took place for balance sheet purposes at the balance sheet date and for
statement of operations purposes at the beginning of the periods presented. Also
presented is Combined Company unaudited pro forma data which gives effect to the
transactions discussed above, as well as certain completed acquisitions by
Continental and the Pending Republic Acquisitions as if such events occurred for
balance sheet purposes at the balance sheet date and for statement of operations
purposes at the beginning of the periods presented. The unaudited pro forma data
was derived from, and should be read in conjunction with, the unaudited
condensed consolidated pro forma financial statements and Continental's
unaudited pro forma combining financial statements and notes thereto appearing
elsewhere in this Solicitation Statement/Prospectus. Historical amounts for
Republic and the pro forma information derived therefrom are adjusted to reflect
the Stock Split of Republic Common Stock. No cash dividends were declared on the
common stock of Republic or Addington for the periods presented. The information
set forth below should be read in conjunction with the respective audited and
unaudited consolidated financial statements of Republic and Addington, including
the notes thereto, included elsewhere in this Solicitation Statement/Prospectus.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
NINE MONTHS ENDED ON OR AT
ON OR AT DECEMBER 31,
SEPTEMBER 30, ------------------------------
1996 1995 1994 1993
----------------- -------- -------- --------
<S> <C> <C> <C> <C>
REPUBLIC -- HISTORICAL
Earnings per common and common equivalent
share from continuing operations.......... $ .17 $ .14 $ .17 $ --
Book value per common share................. $ 4.15 $ 2.78 $ 1.19 $ 1.06
ADDINGTON -- HISTORICAL
Earnings (loss) per common and common
equivalent share from continuing
operations................................ $ .35 $ .45 $ (.11) $ (.34)
Book value per common share................. $ 6.45 $ 6.06 $ 7.58 $ 7.97
REPUBLIC AND ADDINGTON -- PRO FORMA
Earnings per common and common equivalent
share from continuing operations.......... $ .18 $ .05 $ .20 $ .10
Book value per common share................. $ 4.10 N/A N/A N/A
ADDINGTON -- PRO FORMA EQUIVALENT PER SHARE
INFORMATION FOR REPUBLIC AND ADDINGTON
COMBINED
Earnings per common and common equivalent
share from continuing operations.......... $ .16 $ .05 $ .18 $ .09
Book value per common share................. $ 3.69 N/A N/A N/A
COMBINED COMPANY -- PRO FORMA
Earnings per common and common equivalent
share from continuing operations.......... $ .09 $ .04 $ .21 $ .11
Book value per common share................. $ 4.67 N/A N/A N/A
ADDINGTON -- PRO FORMA EQUIVALENT PER SHARE
INFORMATION FOR COMBINED COMPANY
Earnings per common and common equivalent
share from continuing operations.......... $ .08 $ .04 $ .19 $ .10
Book value per common share................. $ 4.20 N/A N/A N/A
</TABLE>
47
<PAGE> 50
DESCRIPTION OF REPUBLIC'S CAPITAL STOCK
The Second Amended and Restated Certificate of Incorporation of Republic
(the "Certificate of Incorporation"), authorizes capital stock consisting of
500,000,000 shares of Republic Common Stock and 5,000,000 shares of preferred
stock, par value $.01 per share ("Preferred Stock"). There were 232,466,603
shares of Republic Common Stock, and no shares of Preferred Stock, issued and
outstanding as of November 30, 1996. The following summary description of the
capital stock of Republic is qualified in its entirety by reference to the
Certificate of Incorporation and Bylaws of Republic, copies of which have been
filed as exhibits to the Registration Statement of which this Solicitation
Statement/Prospectus is a part.
Common Stock. The holders of shares of Republic Common Stock have equal
pro rata rights to dividends if, as and when declared by Republic's Board of
Directors; do not have any preemptive subscription or conversion rights; and
have one vote per share on all matters upon which the stockholders of Republic
may vote at all meetings of stockholders. There are no redemption or sinking
fund provisions applicable to Republic Common Stock. The holders of Republic
Common Stock do not have cumulative voting rights. As a result, the holders of a
majority of the shares of Republic Common Stock voting for the election of
directors can elect all the members of the Board of Directors of Republic.
Preferred Stock. No shares of Preferred Stock are currently outstanding.
The Board of Directors of Republic is authorized to divide the Preferred Stock
into series and, with respect to each series, to determine the dividend rights,
dividend rate, conversion rights, voting rights, redemption rights and terms,
liquidation preferences, the number of shares constituting the series, the
designation of such series and such other rights, qualifications, limitations or
restrictions as the Board of Directors of Republic may determine. The Board of
Directors of Republic could, without stockholder approval, issue Preferred Stock
with voting rights and other rights that could adversely affect the voting power
of holders of Republic Common Stock and such stock could be used to prevent a
hostile takeover of Republic. Republic has no present plans to issue any shares
of Preferred Stock.
Certificate of Incorporation and Bylaws. The Certificate of Incorporation
was amended on November 28, 1995 to (i) change Republic's name to Republic
Industries, Inc., and (ii) to eliminate all provisions relating to
classification of the members of the Board of Directors of Republic. The
directors of Republic are elected each year at the annual meeting of the
stockholders for terms of one year and until their successors are elected and
qualified; existing directors may nominate and elect qualified persons to fill
vacancies on the Board of Directors of Republic. The Certificate of
Incorporation was amended on May 15, 1996 to increase the number of authorized
shares of Republic Common Stock to 500,000,000 from 350,000,000. Republic's
Bylaws provide that directors may be removed for cause by vote of two-thirds of
the other directors or by vote of a majority of stockholders, and may be removed
without cause by the vote of a majority of stockholders at a meeting called for
such purpose.
Transfer Agent and Registrar. The Transfer Agent and Registrar for
Republic Common Stock is Harris Trust and Savings Bank.
48
<PAGE> 51
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS
REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC.,
AUTONATION INCORPORATED AND CONTINENTAL WASTE INDUSTRIES, 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 Addington, AutoNation and Continental 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 Addington and
Continental, 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's 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, Addington, AutoNation,
Continental 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 totalling 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 Addington and
Continental which are expected to close in December 1996.
49
<PAGE> 52
REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC., AUTONATION INCORPORATED
AND
CONTINENTAL WASTE INDUSTRIES, 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 ADDINGTON COMBINED DR. CR. ADDINGTON
------------ --------- ---------- ------- ------- -------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 190,115 $ 1,165 $ 191,280 $ 191,280
Accounts receivable, net................... 322,794 8,567 331,361 331,361
Prepaid expenses and other current
assets................................... 283,208 2,882 286,090 286,090
Inventory.................................. 27,954 -- 27,954 27,954
Revenue earning vehicles, net.............. 2,201,583 -- 2,201,583 2,201,583
------------ --------- ---------- ------- ------- -------------
Total current assets..................... 3,025,654 12,614 3,038,268 3,038,268
Property and equipment, net................ 547,391 122,048 669,439 669,439
Investment in subscribers, net............. 78,940 -- 78,940 78,940
Intangible assets, net..................... 197,640 -- 197,640 197,640
Other assets............................... 12,449 7,109 19,558 19,558
------------ --------- ---------- ------- ------- -------------
Total assets............................. $3,862,074 $141,771 $4,003,845 $ 4,003,845
============== ========== =========== ======== ======== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $ 276,800 $ 9,708 $ 286,508 $ 286,508
Current maturities of long-term debt and
notes payable............................ 2,291,961 2,710 2,294,671 2,294,671
Deferred revenue and other current
liabilities.............................. 165,625 -- 165,625 165,625
------------ --------- ---------- ------- ------- -------------
Total current liabilities................ 2,734,386 12,418 2,746,804 2,746,804
Long-term debt, net of current
maturities............................... 215,153 17,073 232,226 232,226
Deferred income taxes and other
liabilities.............................. 80,282 14,282 94,564 94,564
------------ --------- ---------- ------- ------- -------------
Total liabilities........................ 3,029,821 43,773 3,073,594 3,073,594
------------ --------- ---------- ------- ------- -------------
Shareholders' equity:
Common stock............................... 2,131 16,194 18,325 $16,194(e) $ 137(d) 2,268
Additional paid-in capital................. 757,308 87,187 844,495 13,625(e) 16,194(e) 846,927
137(d)
Retained earnings (deficit)................ 70,499 8,242 78,741 78,741
Translation adjustment..................... 2,315 -- 2,315 2,315
Treasury stock............................. -- (13,625) (13,625) 13,625(e) --
------------ --------- ---------- ------- ------- -------------
Total shareholders' equity............... 832,253 97,998 930,251 29,956 29,956 930,251
------------ --------- ---------- ------- ------- -------------
Total liabilities and shareholders'
equity................................. $3,862,074 $141,771 $4,003,845 $29,956 $29,956 $ 4,003,845
============== ========== =========== ======== ======== ===============
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA
--------------------- COMBINED
AUTONATION CONTINENTAL COMBINED DR. CR. COMPANY
---------- ----------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................. $ 8,599 $ 1,601 $ 201,480 $ 201,480
Accounts receivable, net................... 6,266 11,881 349,508 349,508
Prepaid expenses and other current
assets................................... 167 3,872 290,129 $112,900(f) 177,229
Inventory.................................. 40,769 -- 68,723 68,723
Revenue earning vehicles, net.............. -- -- 2,201,583 2,201,583
---------- ----------- ---------- -------- -------- ----------
Total current assets..................... 55,801 17,354 3,111,423 112,900 2,998,523
Property and equipment, net................ 134,373 110,029 913,841 913,841
Investment in subscribers, net............. -- -- 78,940 78,940
Intangible assets, net..................... -- 23,527 221,167 $161,316(a) 382,483
Other assets............................... -- 12,585 32,143 32,143
---------- ----------- ---------- -------- -------- ----------
Total assets............................. $190,174 $ 163,495 $4,357,514 $161,316 $112,900 $4,405,930
============ ============ =========== ========= ========= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses...... $ 17,322 $ 12,972 $ 316,802 $ 316,802
Current maturities of long-term debt and
notes payable............................ 142,118 5,199 2,441,988 $112,900(f) 2,329,088
Deferred revenue and other current
liabilities.............................. -- 2,063 167,688 167,688
---------- ----------- ---------- -------- -------- ----------
Total current liabilities................ 159,440 20,234 2,926,478 112,900 2,813,578
Long-term debt, net of current
maturities............................... -- 45,097 277,323 277,323
Deferred income taxes and other
liabilities.............................. -- 22,621 117,185 117,185
---------- ----------- ---------- -------- -------- ----------
Total liabilities........................ 159,440 87,952 3,320,986 112,900 3,208,086
---------- ----------- ---------- -------- -------- ----------
Shareholders' equity:
Common stock............................... 80 9 2,357 80(b) $ 175(c) 2,565
9(e) 122(d)
Additional paid-in capital................. 52,050 74,808 973,785 52,050(b) 191,875(c) 1,113,025
472(e) 9(e)
122(d)
Retained earnings (deficit)................ (21,396) 1,198 58,543 21,396(b) 79,939
Translation adjustment..................... -- -- 2,315 2,315
Treasury stock............................. -- (472) (472) 472(e) --
---------- ----------- ---------- -------- -------- ----------
Total shareholders' equity............... 30,734 75,543 1,036,528 52,733 214,049 1,197,844
---------- ----------- ---------- -------- -------- ----------
Total liabilities and shareholders'
equity................................. $190,174 $ 163,495 $4,357,514 $165,633 $214,049 $4,405,930
============ ============ =========== ========= ========= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
50
<PAGE> 53
PRO FORMA REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC., AUTONATION
INCORPORATED, AND
PRO FORMA CONTINENTAL WASTE INDUSTRIES, 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 ADDINGTON COMBINED DR. CR. ADDINGTON
---------- --------- ----------- ------- --- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................................. $1,601,337 $46,012 $1,647,349 $ 1,647,349
Expenses:
Cost of operations..................................... 737,219 32,432 769,651 769,651
Selling, general and administrative.................... 788,218 4,100 792,318 792,318
Special charge......................................... -- -- -- --
Other (income) expense:
Interest and other income.............................. (17,287) 739 (16,548) (16,548)
Interest expense....................................... 20,603 629 21,232 21,232
-------- ------- -------- ------- ------- --------
1,528,753 37,900 1,566,653 1,566,653
-------- ------- -------- ------- ------- --------
Income (loss) from continuing operations before
income taxes........................................... 72,584 8,112 80,696 80,696
Income tax provision.................................... 32,723 2,693 35,416 35,416
-------- ------- -------- ------- ------- --------
Income (loss) from continuing operations................ $ 39,861 $ 5,419 $ 45,280 $ 45,280
======== ======= ======== ======= ======= ========
Fully-diluted:
Earnings per share from continuing operations.......... $ .17 $ .35 $ .18
======== ======= ========
Weighted average shares outstanding.................... 241,227 15,348 256,575 (1,535)(j) 255,040
======== ======= ======== ====== ========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
PRO FORMA ---------------- COMBINED
AUTONATION CONTINENTAL COMBINED DR. CR. COMPANY
---------- ----------- ---------- ------- ------ ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue................................................. $ 9,190 $59,799 $1,716,338 $1,716,338
Expenses:
Cost of operations..................................... 14,297 49,469 833,417 $ 3,025(g) 836,442
Selling, general and administrative.................... 11,929 8,282 812,529 812,529
Special charge......................................... -- 7,623 7,623 7,623
Other (income) expense:
Interest and other income.............................. -- (1,030) (17,578) 1,296(f) (16,282)
Interest expense....................................... 1,296 2,415 24,943 $1,296(f) 23,647
------- ------- ---------- ------- ------- -------
27,522 66,759 1,660,934 4,321 1,296 1,663,959
------- ------- ---------- ----- ------- -------
Income (loss) from continuing operations before
income taxes........................................... (18,332) (6,960) 55,404 4,321 1,296 52,379
Income tax provision.................................... -- 285 35,701 7,902(i) 27,799
------- ------- ---------- ------- ------- -------
Income (loss) from continuing operations................ $(18,332) $(7,245) $ 19,703 $ 4,321 $9,198 $ 24,580
======= ======= ========== ======= ====== =========
Fully-diluted:
Earnings per share from continuing operations.......... $ (.46) $ .09
======= =======
Weighted average shares outstanding.................... 17,467 15,588 288,095 (3,017)(j) 285,078
======= ======= ========== ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
51
<PAGE> 54
PRO FORMA REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC., AUTONATION
INCORPORATED, AND
PRO FORMA CONTINENTAL WASTE INDUSTRIES, 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
REPUBLIC ADDINGTON COMBINED DR. CR. ADDINGTON
---------- --------- ---------- ------- ----- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue......................................... $1,751,581 $56,739 $1,808,320 $ 1,808,320
Expenses:
Cost of operations............................. 830,665 38,080 868,745 868,745
Selling, general and administrative............ 922,340 6,631 928,971 928,971
Restructuring and unusual charges.............. -- -- -- --
Other (income) expense:
Interest and other income...................... (13,229) (427) (13,656) (13,656)
Interest expense............................... -- 955 955 $ 935(h) 20
---------- ------- ---------- ------- ----- ----------
1,739,776 45,239 1,785,015 935 1,784,080
---------- ------- ---------- ------- ----- ----------
Income (loss) from continuing operations before
income taxes................................... 11,805 11,500 23,305 935 24,240
Income tax provision............................ 7,393 4,426 11,819 $ 355(i) 12,174
---------- ------- ---------- ------- ----- ----------
Income (loss) from continuing operations........ $ 4,412 $ 7,074 $ 11,486 $ 355 $ 935 $ 12,066
========== ======= ========== ======= ===== ==========
Fully Diluted:
Earnings per share from continuing
operations................................... $ .02 $ .45 $ .05
========== ======= ==========
Weighted average shares outstanding............ 212,561 15,748 228,309 4,249(j) 232,558
========== ======= ========== ======= ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
PRO FORMA ------------------- COMBINED
AUTONATION CONTINENTAL COMBINED DR. CR. COMPANY
---------- ----------- ---------- ------- ------- ----------
<S> <C<C> <C> <C> <C> <C> <C>
Revenue......................................... $ -- $66,156 $1,874,476 $1,874,476
Expenses:
Cost of operations............................. 2,177 44,463 915,385 $ 4,033(g) 919,418
Selling, general and administrative............ 887 10,120 939,978 939,978
Restructuring and unusual charges.............. -- 3,264 3,264 3,264
Other (income) expense:
Interest and other income...................... -- (240) (13,896) (13,896)
Interest expense............................... -- 3,344 3,364 3,364
------- ------- ---------- ------- ------- ----------
3,064 60,951 1,848,095 4,033 1,852,128
------- ------- ---------- ------- ------- ----------
Income (loss) from continuing operations before
income taxes................................... (3,064) 5,205 26,381 4,033 22,348
Income tax provision............................ -- 2,257 14,431 $ 2,697(i) 11,734
------- ------- ---------- ------- ------- ----------
Income (loss) from continuing operations........ $ (3,064) $ 2,948 $ 11,950 $ 4,033 $ 2,697 $ 10,614
======= ======= ========== ======= ======= ==========
Fully Diluted:
Earnings per share from continuing
operations................................... $ .23 $ .04
======= ==========
Weighted average shares outstanding............ 17,467 12,702 262,727 (2,504) (j) 260,223
======= ======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
52
<PAGE> 55
REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC., AND
CONTINENTAL WASTE INDUSTRIES, 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 PRO FORMA
ADJUSTMENTS REPUBLIC
SUPPLEMENTAL ------------------- AND
REPUBLIC ADDINGTON COMBINED DR. CR. ADDINGTON
------------ --------- ---------- ------- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenue..................................... $1,531,095 $36,057 $1,567,152 $1,567,152
Expenses:
Cost of operations......................... 639,963 23,798 663,761 663,761
Selling, general and administrative........ 835,296 7,119 842,415 842,415
Restructuring and unusual charges.......... -- 670 670 670
Other (income) expense:
Interest and other income.................. (5,920) (772) (6,692) (6,692)
Interest expense........................... 13,707 8,052 21,759 21,759
---------- ------- ---------- ------- ----- ----------
1,483,046 38,867 1,521,913 1,521,913
---------- ------- ---------- ------- ----- ----------
Income from continuing operations before
income taxes............................... 48,049 (2,810) 45,239 45,239
Income tax provision........................ 19,396 (1,124) 18,272 18,272
---------- ------- ---------- ------- ----- ----------
Income from continuing operations........... $ 28,653 $(1,686) $ 26,967 $ 26,967
========== ======= ========== ======= ===== ==========
Fully Diluted:
Earnings per share from continuing
operations............................... $ .24 $ (.11) $ .20
========== ======= ==========
Weighted average shares
outstanding.............................. 119,044 15,798 134,842 (1,580) (j) 133,262
========== ======= ========== ======= ==========
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA
--------------------- COMBINED
CONTINENTAL COMBINED DR. CR. COMPANY
----------- ---------- ------- ------- ----------
<S> <C<C> <C> <C> <C> <C>
Revenue..................................... $28,728 $1,595,880 $1,595,880
Expenses:
Cost of operations......................... 17,224 680,985 680,985
Selling, general and administrative........ 4,737 847,152 847,152
Restructuring and unusual charges.......... -- 670 670
Other (income) expense:
Interest and other income.................. 126 (6,566) (6,566)
Interest expense........................... 1,881 23,640 23,640
------- ---------- ------- ------- ----------
23,968 1,545,881 1,545,881
------- ---------- ------- ------- ----------
Income from continuing operations before
income taxes............................... 4,760 49,999 49,999
Income tax provision........................ 2,132 20,404 20,404
------- ---------- ------- ------- ----------
Income from continuing operations........... $ 2,628 $ 29,595 $ 29,595
======= ========== ======= ======= ==========
Fully Diluted:
Earnings per share from continuing
operations............................... $ .34 $ .21
======= ==========
Weighted average shares
outstanding.............................. 7,685 140,947 (1,537)(j) 139,410
======= ========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
53
<PAGE> 56
REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC., AND
CONTINENTAL WASTE INDUSTRIES, 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
SUPPLEMENTAL ------------------
REPUBLIC ADDINGTON COMBINED DR. CR.
------------ --------- ---------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue........................................................... $1,331,693 $22,600 $1,354,293
Expenses:
Cost of operations............................................... 493,395 13,694 507,089
Selling, general and administrative.............................. 783,502 6,503 790,005
Restructuring and unusual charges................................ 10,040 5,122 15,162
Other (income) expense:
Interest and other income........................................ (4,524) -- (4,524)
Interest expense................................................. 14,022 5,790 19,812
---------- ------- ---------- ------ ------
1,296,435 31,109 1,327,544
---------- ------- ---------- ------ ------
Income (loss) from continuing operations before income taxes...... 35,258 (8,509) 26,749
Income tax provision.............................................. 16,529 (3,233) 13,296
---------- ------- ---------- ------ ------
Income (loss) from continuing operations.......................... $ 18,729 $(5,276) $ 13,453
========== ======= ========== ====== ======
Fully-Diluted:
Earnings (loss) per share from continuing operations............. $ .16 $ (.34)
========== =======
Weighted average shares outstanding.............................. 119,226 15,563 134,789 (1,556)(j)
========== ======= ========== ======
<CAPTION>
PRO FORMA PRO FORMA
REPUBLIC ADJUSTMENTS
AND ----------------
ADDINGTON CONTINENTAL COMBINED DR. CR.
---------- ----------- ---------- ---- ------
<S> <C> <C> <C> <C> <C>
Revenue........................................................... $1,354,293 $16,204 $1,370,497
Expenses:
Cost of operations............................................... 507,089 11,209 518,298
Selling, general and administrative.............................. 790,005 2,067 792,072
Restructuring and unusual charges................................ 15,162 -- 15,162
Other (income) expense:
Interest and other income........................................ (4,524) (49) (4,573)
Interest expense................................................. 19,812 1,303 21,115
---------- ------- ---------- ---- ------
1,327,544 14,530 1,342,074
---------- ------- ---------- ---- ------
Income (loss) from continuing operations before income taxes...... 26,749 1,674 28,423
Income tax provision.............................................. 13,296 721 14,017
---------- ------- ---------- ---- ------
Income (loss) from continuing operations.......................... $ 13,453 $ 953 $ 14,406
========== ======= ========== ==== ======
Fully-Diluted:
Earnings (loss) per share from continuing operations............. $ .10 $ .19
========== =======
Weighted average shares outstanding.............................. 133,233 4,739 137,972 (948)(j)
========== ======= ========== ====
<CAPTION>
PRO FORMA
COMBINED
COMPANY
----------
<S> <C>
Revenue........................................................... $1,370,497
Expenses:
Cost of operations............................................... 518,298
Selling, general and administrative.............................. 792,072
Restructuring and unusual charges................................ 15,162
Other (income) expense:
Interest and other income........................................ (4,573)
Interest expense................................................. 21,115
----------
1,342,074
----------
Income (loss) from continuing operations before income taxes...... 28,423
Income tax provision.............................................. 14,017
----------
Income (loss) from continuing operations.......................... $ 14,406
==========
Fully-Diluted:
Earnings (loss) per share from continuing operations............. $ .11
==========
Weighted average shares outstanding.............................. 137,024
==========
</TABLE>
The accompanying notes are an integral part of these statements.
54
<PAGE> 57
REPUBLIC INDUSTRIES, INC., ADDINGTON RESOURCES, INC.,
AUTONATION INCORPORATED AND CONTINENTAL WASTE INDUSTRIES, 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 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 Addington and Continental, as
applicable, 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 Addington and Continental, as applicable, to additional paid-in
capital.
(f) Represents an entry to eliminate advances from Republic to AutoNation and
related interest.
(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 of Republic, Addington and Continental
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 or Continental weighted
average common shares and common share equivalents into equivalent Republic
shares based upon the respective share exchange ratios, as applicable. Also
included for 1995 only is the weighted average effect of shares and common
share equivalents issued in the 1995 equity transactions.
55
<PAGE> 58
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 $232,000,000. 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 which are
included elsewhere herein.
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 1995
Equity Transactions had taken place on the assumed dates, nor are they
necessarily indicative of future combined operations.
56
<PAGE> 59
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
ACQUIRED SOLID ADJUSTMENTS
SUPPLEMENTAL WASTE ------------- PRO FORMA
REPUBLIC 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..... $ .16 $ .17
========== =========
Weighted average shares
outstanding............... 240,792 240,792 435(f) 241,227
========== ========= ==== =========
</TABLE>
- - ---------------
(1) Represents pre-acquisition results of operations for the period from January
to April 1996.
The accompanying notes are an integral part of these statements.
57
<PAGE> 60
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
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 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) 9,017(e) 7,393
-------- ------- ------- -------- ------ ------ --------
Income from continuing
operations.......... $ (11,539) $ 985 $ 4,018 $ (6,536) $10,340 $21,288 $ 4,412
======== ======= ======= ======== ====== ====== ========
Fully-diluted:
Earnings per share
from continuing
operations........ $ (.08) $ .02
======== ========
Weighted average
shares
outstanding....... 146,627 146,627 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.
58
<PAGE> 61
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 share equivalents associated with
warrants sold in the 1995 Equity Transactions.
59
<PAGE> 62
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 CONTINENTAL
----------- ---------- ----------- --------- --------- ------------ ----------- -----------
<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.
60
<PAGE> 63
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 CONTINENTAL
---------------------- --------- --------- ----------- -----------
<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.
61
<PAGE> 64
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 Continental
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, Continental 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
Continental. 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
Continental common stock with a market value of $1.1 million at the time of
issuance, paying $5.8 million of cash obtained from Continental'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 Continental's December 31, 1994
assets and each with historical income or loss before income taxes of less than
10% of Continental'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 Continental'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, Continental purchased Statewide Environmental Contractors,
Inc., Recycling Industries, Inc. and all of the assets of Lomac Realty
(collectively, "Statewide"). 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 Continental 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. Continental recorded this transaction as a purchase.
On September 13, 1996, Continental 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. Continental exchanged
457,001 shares of Continental 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
62
<PAGE> 65
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 Continental and the
related notes thereto which are included elsewhere herein. 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 Continental 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>
63
<PAGE> 66
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>
64
<PAGE> 67
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 Continental's 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
Continental's statutory income tax rate (40%)... $ 220 $ 86
======= =======
Primary and fully dilutive weighted average shares --
Issuance of Shares to acquire companies............ 556 371
======= =======
</TABLE>
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF REPUBLIC
The following discussion should be read in conjunction with Republic's
Consolidated Financial Statements and Unaudited Condensed Consolidated Financial
Statements and the Notes thereto which are included elsewhere herein. 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 in this Solicitation Statement/Prospectus to historical share and
per share data of Republic Common Stock have been retroactively adjusted to
reflect the Stock Split.
The following discussion should also be read in conjunction with the
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Addington as well as the unaudited pro forma financial statements
and notes thereto appearing elsewhere in this Solicitation Statement/Prospectus.
BUSINESS COMBINATIONS
Republic makes its decisions to acquire or invest in businesses based on
financial and strategic considerations.
Pending Acquisitions
In June 1996, Republic entered into the Continental Merger Agreement to
acquire 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 Republic 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 entered into the Merger Agreement to acquire
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 Republic 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. The Principal Stockholders, 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 Merger Agreement.
In May 1996, after approval by a special committee of disinterested members
of Republic's Board of Directors, Republic entered into the AutoNation Agreement
to acquire AutoNation. AutoNation is a privately-owned company developing a
chain of megastores for the sale of new and used vehicles, and is partially
owned by Republic's 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 Republic Common Stock in
connection with the transaction.
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<PAGE> 69
The consummation of each of the Continental, Addington or AutoNation
mergers is not contingent on the approval or consummation of any of such other
mergers.
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 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. Republic issued
22,123,893 shares of Republic 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.
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 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 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 Republic 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 Republic Common Stock. With respect to immaterial acquisitions
accounted for under the pooling of interests method of accounting, Republic
issued 8,318,800 shares of Republic 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.
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.
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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 Republic 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 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 ADT Agreement, 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.
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
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<PAGE> 71
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
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
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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.
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
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<PAGE> 73
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
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.
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<PAGE> 74
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 Republic'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 Republic'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, Republic 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 in this
registration statement.
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.
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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, Republic 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 megastores until consummation of the
acquisition of AutoNation by Republic. Advances under the AutoNation Loan
Agreement bear interest at LIBOR plus 2% and mature 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.
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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 Republic Common Stock.
On a combined company pro forma basis, Republic 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. Republic 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
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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 in this registration
statement.
Shareholders' Equity
Shareholders' equity increased $341,356,000 during the nine months ended
September 30, 1996 primarily due to the May 1996 sale of Republic 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 Republic 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, Republic 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 Republic Common Stock.
In August 1995, Republic issued and sold an aggregate of 16,700,000 shares
of Republic Common Stock and warrants to purchase an additional 33,400,000
shares of Republic Common Stock to Mr. 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 Republic Common Stock each to Mr. Huizenga and John J. Melk, for $6.63
per share for aggregate proceeds of approximately $26,500,000.
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In July 1995, Republic sold 10,800,000 shares of Republic 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 Republic 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.
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BUSINESS OF REPUBLIC
INTRODUCTION
Republic is a holding company with major business segments in vehicle
rental, vehicle retailing, integrated solid waste services, and electronic
security services. Republic's strategy is to aggressively build its diversified
lines of business through internal growth and by acquiring and integrating
automotive businesses, solid waste businesses, and electronic security services
businesses, including consummating the Merger and the Pending Republic
Acquisitions. In addition, it is currently anticipated that Republic will expand
its operations outside of automotive businesses, solid waste management, and
electronic security services through acquisitions or other means.
Republic, through its recent acquisition of Alamo, is engaged in the
vehicle rental business. As of September 30, 1996, Republic's Alamo Rent-A-Car
vehicle rental business operates a fleet of approximately 158,000 vehicles in 48
states in the United States and 9 European countries and Canada, owns and
operates 205 car rental locations in the United States and Canada and 61
locations in Europe, and licenses to third party operators another 111 locations
in Europe.
Republic, through recent acquisitions, is also engaged in the vehicle
retailing business. Republic owns and operates used vehicle superstores in
Dallas, Texas and Detroit, Michigan. Each superstore has a wide selection of
late model used vehicles on site which have been extensively reconditioned for
resale.
Republic also provides integrated solid waste collection, disposal and
recycling services to public and private sector customers. As of September 30,
1996, Republic owned or operated 15 solid waste landfills with six located in
Texas, two in California and one each in Florida, Georgia, Michigan, North
Carolina, South Carolina, Indiana and North Dakota. These landfills comprise
approximately 2,107 permitted acres with a total available permitted disposal
capacity of approximately 104.5 million in-place cubic yards. Republic also
currently provides collection service to over 1,300,000 residential, commercial
and industrial customers, primarily in areas surrounding its landfill sites
noted above and certain areas of California, Maine, New Hampshire and Virginia
and throughout Florida. In addition, Republic provides related environmental
services including consulting and analysis, remediation and other technical
services.
Republic is also engaged in the electronic security services business,
which consists of the sale, installation and maintenance of electronic security
systems for commercial and residential use as well as the continuous electronic
monitoring of installed security systems. Republic currently monitors over
207,000 businesses and residences predominantly in Florida, Colorado, Illinois
and Maryland.
ACQUISITIONS
Acquisition Strategy
Republic's growth strategy is (i) to expand its current operations in its
existing lines of business through internal growth and additional acquisitions,
and (ii) to further diversify its operations by acquiring or entering other
lines of business. With respect to diversifying its operations, Republic intends
to focus on industries which are generally capital intensive, fragmented and
have potential for relatively high profit margins or substantial growth
opportunities. Upon entering any industry, Republic will seek to grow through
internal growth and through additional acquisitions within such industry. For
certain risks involved with Republic's acquisition strategy, see "RISK FACTORS."
In expanding its vehicle rental and vehicle retailing operations,
Republic's primary strategy is to become a nationally branded market leader in
several lines of business which currently are highly fragmented. Republic will
target markets where it believes it will have favorable prospects of achieving a
significant retail presence. Republic contemplates that it will expand by
completing its pending acquisition of AutoNation, and then by developing
AutoNation's planned chain of used vehicle megastores. Republic also anticipates
developing, substantially through acquisitions, related automotive businesses,
which may include, but not be limited to, franchised new vehicle dealer outlets,
financing and insurance businesses, and vehicle warranty, parts, repair and
maintenance businesses.
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In expanding its solid waste operations, Republic anticipates continuing to
focus on acquiring waste collection companies that are in markets that can
utilize Republic's existing landfill facilities, as well as in markets with
attractive third party disposal fees. Republic also may consider acquiring
additional landfills with significant permitted disposal capacity and certain
levels of contracted waste volume. In addition, Republic may focus on what it
believes will be the growing number of municipalities seeking to sell landfills,
form joint ventures or offer management contracts to operate landfills in
response to the growing technical and capital resources required by increasingly
stringent federal, state and local regulations. Republic generally targets
acquisitions in markets where it will be, or will have favorable prospects of
becoming, a significant provider of integrated waste services in that market.
Republic seeks to acquire companies which have long-term contracts for solid
waste collection and hauling services in high growth markets. However, Republic
is not limited to these target market criteria, and as opportunities arise,
Republic may acquire solid waste operations throughout North America.
In expanding its electronic security operations, Republic's primary goal is
to grow its customer base in the residential segment of the business. Republic
targets markets where it will be, or will have favorable prospects of becoming,
a significant provider of electronic security services. Republic seeks to
acquire security companies in high growth markets with strong recurring monthly
revenues derived from monitoring services. In addition, Republic will seek to
achieve economies of scale by acquiring security companies with accounts that
can be monitored through Republic's existing central monitoring stations.
Republic intends to retain local management and sales personnel, where
appropriate.
Republic uses internal acquisition teams, and its contacts in the
automotive, solid waste, and electronic security services industries, to
identify, evaluate and acquire automotive businesses, waste management
companies, and electronic security services businesses in attractive markets.
Acquisition candidates are evaluated by Republic's internal acquisition teams
based on stringent criteria in a comprehensive process which includes
operational, legal and financial due diligence reviews.
As previously discussed, Republic will continue to pursue acquisitions in
the automotive, solid waste, and electronic security services and other selected
industries, and anticipates financing acquisitions with the proceeds from the
equity transactions mentioned below as well as through the further issuance of
Republic Common Stock and/or borrowings under lines of credit. Management
believes that Republic currently has sufficient cash on hand, cash flow, credit
facilities and access to the financial markets to fund current and planned
operations, service its outstanding debt and make certain acquisitions. In May
1996, Republic sold 9,878,400 shares of Republic Common Stock to certain
institutional investors in a private placement transaction for $20.25 per share
resulting in net proceeds of approximately $197,500,000 after deducting fees and
commissions. In November 1996, Republic sold 12,079,915 shares of Republic
Common Stock to certain institutional investors in a private placement
transaction for $29.50 per share resulting in net proceeds of approximately
$353,000,000 after deducting fees and commissions. In connection with Republic's
Alamo Rent-A-Car vehicle rental operations, Alamo, through a special purpose
entity, may issue up to $1.4 billion of commercial paper, the proceeds of which
may be used solely to purchase or finance rental fleet vehicles that are subject
to Repurchase Programs or to refinance repurchase receivables due from vehicle
manufacturers under Repurchase Programs. Republic also has a $250 million
revolving credit facility, which may be used for general corporate purposes, and
which currently has $120 million of borrowings outstanding. Republic has various
other credit facilities to finance its current European vehicle rental
operations. As of November 30, 1996, Republic had approximately $1.9 billion of
long term debt outstanding, $1.6 billion of which was secured by revenue earning
rental vehicles, and had approximately $93 million in cash.
Pending Republic Acquisitions
Proposed Acquisition of AutoNation. In May 1996, Republic announced that
it had entered into the AutoNation Agreement, which provides for the acquisition
of AutoNation by Republic in a merger transaction which will be accounted for
under the purchase method of accounting. The AutoNation Agreement provides that
Republic will issue approximately 17,500,000 shares of Republic Common Stock in
exchange for all of the outstanding shares of capital stock of AutoNation. Each
outstanding share of AutoNation common stock will be converted, on a tax-free
basis, into 0.217796 of a share of Republic Common Stock. The AutoNation Merger
is subject to approval of Republic stockholders and other customary
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closing conditions, including regulatory approval, and is expected to close in
January 1997. Concurrent with the execution of the AutoNation Agreement,
Republic and AutoNation also entered into the AutoNation Loan Agreement pursuant
to which Republic is providing AutoNation a line of credit until the closing of
the AutoNation Merger. Because AutoNation is a privately-owned corporation,
there is no public market price available with respect to outstanding shares of
capital stock of AutoNation.
AutoNation has started up and is developing a chain of megastores, under
the AutoNation USA(TM) brand name, for the sale of
reconditioned-to-perform-like-new vehicles in a customer friendly, "no haggle"
environment. AutoNation commenced operations of its first AutoNation megastore
in October 1996 and operates three AutoNation megastores as of December 3, 1996.
Each AutoNation megastore stocks more than 1,000 late-model, low-mileage,
previously-owned vehicles, each of which has undergone extensive reconditioning
and safety inspections by certified technicians. The AutoNation megastores also
offer vehicle financing, service centers and automobile accessory sales. Each
AutoNation megastore is located on an approximately 20-acre site with
high-visibility and convenient access. AutoNation also has smaller used vehicle
retail stores which feature older-model, higher mileage vehicles than those to
be offered in AutoNation megastores. AutoNation has several sources of supply
for used vehicles. To date, AutoNation has acquired most of its inventory of
used vehicles by purchasing them from auctions, vehicle dealerships and
corporate accounts. AutoNation employs used vehicle wholesale buyers who
regularly attend auctions. At the auctions, used vehicles are offered for sale
through competitive bidding on behalf of new car dealers (consisting, primarily,
of trade-in and off-lease vehicles), banks and finance companies (consisting of
off-lease and repossessed vehicles), and car rental companies, government
agencies, corporations and other entities which own vehicle fleets. AutoNation's
corporate accounts include banks, and car rental and other companies with leased
and fleet vehicles, from which AutoNation directly purchases. As AutoNation
opens and operates more retail locations, it also anticipates obtaining
significant quantities of used vehicles from trade-ins by its customers. Once
purchased, all used vehicles acquired by AutoNation for retail resale are
transported to a reconditioning center. AutoNation owns and operates its own
reconditioning centers, and also subcontracts reconditioning centers from
vehicle auctions and other third parties. At the reconditioning centers, the
mechanical, safety and cosmetic condition of each vehicle is thoroughly
inspected by certified technicians, and the vehicles are repaired, serviced,
painted, cleaned and processed, as necessary, prior to being delivered to
AutoNation's stores. AutoNation has a total of approximately 1,100 employees as
of December 3, 1996, none of which are covered by collective bargaining
agreements. AutoNation owns or leases 17 sites in Florida, Texas, Arizona,
Nevada and Michigan which it operates or is developing as AutoNation USA(TM)
megastores (11 sites), vehicle reconditioning centers (three sites) and smaller
retail locations (three sites), eight of which are open and operating as of
December 3, 1996 and the other nine of which are expected to be open and
operating by June 30, 1997. AutoNation is in various stages of evaluating,
contracting and closing on purchases or leases of approximately 70 additional
sites which it plans to develop into retail stores and reconditioning centers.
Republic also anticipates that its existing CarChoice locations will be
permanently converted to AutoNation's format. AutoNation leases its corporate
offices in Fort Lauderdale, Florida.
Mr. Huizenga is Chairman of the Board of AutoNation, Mr. Berrard is Chief
Executive Officer of AutoNation, and Messrs. Huizenga, Berrard, Hudson, Melk,
Johnson, Castell, Guerin, Hawkins and Henninger each have ownership interests in
AutoNation. In addition, a director of AutoNation is expected to be appointed to
Republic's Board upon the consummation of the AutoNation Merger. See "MANAGEMENT
OF REPUBLIC BEFORE AND AFTER THE MERGER AND THE PENDING REPUBLIC
ACQUISITIONS -- Management of Republic After the Closing of the Pending Republic
Acquisitions."
Proposed Acquisition of Continental. In June 1996, Republic announced that
it had entered into the Continental Merger Agreement to acquire Continental in a
merger transaction. Under the terms of the Continental Merger Agreement, each
share of common stock of Continental (other than shares held in the treasury of
Continental, held by any of Continental's subsidiaries or held by Republic or
any of its subsidiaries) would be exchanged, on a tax-free basis, for 0.8 of a
share of Republic Common Stock. As of September 30, 1996, Continental had
approximately 15,300,000 shares of common stock issued and outstanding. The
proposed transaction, which is intended to be accounted for under the pooling of
interests method of accounting, is subject to approval by Continental's
stockholders and other customary closing conditions, including regulatory
approval. Several large stockholders of Continental, representing approxi-
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mately 23% of Continental's outstanding shares of common stock, have granted a
proxy to Republic to vote or to execute written consents with respect to their
shares in favor of the transaction, which is expected to close in December 1996.
Continental provides integrated solid waste collection, disposal and
recycling services to residential, commercial and industrial customers
concentrated primarily in the mid-south and eastern United States. Continental
conducts its operations in ten states and in Costa Rica, and operates ten
landfills, eight waste collection operations, 13 transfer stations and three
recycling facilities. Since its founding in 1988, Continental has experienced
significant growth in revenue and operating income, due primarily to the
acquisition of 30 solid waste service businesses.
Recent Acquisitions
In November 1996, Republic acquired all of the outstanding capital stock of
Alamo in exchange for an aggregate of 22,123,893 shares of Republic Common Stock
in merger transactions accounted for as a pooling of interests business
combination. Alamo is the fourth largest car rental company in the United States
and operates in 48 states in the United States and in 9 European countries and
Canada.
Acquisitions Completed During the Nine Months Ended September 30, 1996
In August 1996, Republic acquired all of the net assets of 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 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 Denver Alarm. Denver Alarm provides
installation, monitoring and maintenance services to residential and commercial
customers in Denver, Fort Collins, Boulder, Colorado Springs and Pueblo,
Colorado.
Republic issued an aggregate of 9,707,664 shares of Republic Common Stock
for CarChoice, Schaubach and Denver Alarm, all of which were accounted for as
pooling of interests business combinations.
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 Republic Common Stock. With respect to immaterial acquisitions
accounted for under the pooling of interests method of accounting, Republic
issued 8,318,800 shares of Republic Common Stock.
Termination of ADT Agreement
In September 1996, Republic announced that the ADT Agreement, 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 antidilution 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.
OPERATIONS
Currently, Republic has organized its continuing operations primarily into
four general industry segments: (1) vehicle rental, (2) vehicle retailing and
related automotive businesses, (3) solid waste services, and (4) electronic
security services.
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Vehicle Rental
Republic is engaged in the vehicle rental business through its recent
acquisition of Alamo. The vehicle rental industry is composed of two principal
markets: the general use market, which consists of the rental of vehicles to
business and leisure travelers from on-airport or near-airport locations, and
the local/replacement market, which consists of the rental of vehicles to
individuals who have lost the use of their vehicles through accident, theft or
breakdown and generally are located near downtown or suburban areas. Republic's
vehicle rental business principally targets the general use market. As of
September 30, 1996, Republic operates a vehicle rental fleet of approximately
158,000 vehicles, owns and operates 205 car rental locations in the United
States and Canada and 61 car rental locations in Europe, and licenses another
111 locations to third party operators in Europe. Of the rental locations owned
and operated by Republic and its licensees, 121 are on-airport locations, 183
are near-airport locations and 73 are downtown or suburban locations.
Republic's vehicle rental operations offer a wide variety of automobiles
and minivans, most of which consist of the current and immediately preceding
model years. Vehicle rentals are generally made on a daily or weekly basis.
Historically, rental charges have included unlimited mileage, although Republic
has tested fees in certain markets for mileage above a specific number of
allowable miles. Rates vary at different locations depending on the type of
vehicle, the local market and competitive and cost factors. Most rentals are
made under rate plans under which the customer is responsible for gasoline used
during the rental. Republic generally offers its customers the convenience of
leaving a rental vehicle at a rental location in a city other than the one in
which it was rented, although, consistent with industry practices, a drop-off
charge or special intercity rate may be imposed.
Republic's vehicle rental operations are in many cases one of five to seven
vehicle rental concessionaires at the airports at which it operates. In general,
concession fees for airport locations are based on a percentage of total
revenues (as determined by each airport), subject to a minimum guaranteed
amount. Concessions are typically awarded by airport authorities every three to
five years based upon competitive bids. As a result of airport authority
requirements of a minimum guaranteed fee, smaller vehicle rental companies
generally are not located at airports. Concession arrangements with the various
airport authorities generally include minimum requirements for vehicle age,
operating hours, employee conduct, and provide for relocation in the event of
future construction and abatement of fees in the event of extended low passenger
volume. At near-airport locations, airport authorities generally charge permit
fees for the privilege of customer pick-up and drop-off at terminals by courtesy
vans or buses. Unlike on-airport concessions, there is generally no limit to the
number of ground transportation permits available for issuance by the airport
authority and a minimum guaranteed fee is not required. Generally, on-airport
locations have greater high-yielding walk-up rentals (i.e., customers without
reservations) and fewer no-shows (i.e., customers with reservations who fail to
rent).
Given the local customs and language barriers in foreign countries,
Republic's foreign car rental operations utilize licensee operations in addition
to owned and operated facilities. License agreements are generally for a term of
one to five years and require the licensee to maintain certain quality and price
standards so that Republic can strive to ensure that customers receive
equivalent service and prices at all of its international locations. The license
agreements provide licensees with, among other benefits, the right to use
certain of Republic's vehicle rental service marks as well as access to its
computer reservation system. Certain license agreements require the licensee to
provide reciprocal services to other licensees, such as vehicle replacement.
Licensees typically pay a percentage of revenues as a licensing fee and, in
certain cases, an additional advertising or management fee. Certain license
agreements provide Republic with a right of first refusal to purchase the
licensee.
Republic uses a proprietary integrated fleet management system to
efficiently utilize its vehicle rental fleet and effectively price its rental
vehicles. This system provides for the specific identification and status of
every vehicle (and the related title or certificate of ownership) in the fleet
every day on a real-time basis, and enables Republic to evaluate fleet needs
based on market demands and reservation projections on a daily basis and to
optimize its ability to rent each available vehicle in its fleet each day at the
highest possible rate. This fleet management system performs, among other
functions, vehicle purchase ordering (including vehicle specifications),
in-fleeting, vehicle registration, invoice and dealer payment and title control,
fleet movement
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tracking, physical inventory and inactive vehicle management, fleet cost
allocation (both purchased and leased), maintenance record keeping, grounding
and car sales. This system also takes into account the present bookings, factors
in the traditional no-show percentage and compares historical data for walk-ups
and incoming reservations. These systems are upgraded from time to time.
In addition to time and mileage charges from the rental of vehicles, the
sale of rental related products generates approximately 23% of Republic's
vehicle rental revenue in North America and Europe as of September 30, 1996.
Such rental related products include collision damage waivers, additional
liability protection, personal accident and personal effects protection, other
travel related insurance coverages and travel related products, such as vehicle
upgrades, gasoline sales, intercity drop-off charges, and miscellaneous items
such as baby seats, ski racks, cellular phones and additional driver fees.
Republic earns a small percentage of its overall vehicle rental revenue from its
airport parking operations. In the United Kingdom, Republic also provides
chauffeur-drive-services.
Since the early 1980s, General Motors has been the principal supplier of
rental fleet vehicles to Republic's vehicle rental business. The number of
vehicles purchased from General Motors varies from year to year. In model years
1996, 1995 and 1994, Republic's vehicle rental operations purchased
approximately 61%, 68% and 78%, respectively, of its North American rental fleet
from General Motors. In addition, Republic's North American vehicle rental
operations purchase or lease vehicles manufactured by, among others, Chrysler
Corporation, Ford Motor Company, Mazda Motor of America, Inc., Mitsubishi Motor
Sales of America, Inc., Nissan Motor Corporation in U.S.A., Subaru of America,
Inc. and Toyota Motor Sales, U.S.A., Inc. (including its Lexus division).
During model year 1996 (a vehicle model year in the United States generally
commences September 1 and ends August 31), Republic purchased approximately 90%
of its U.S. vehicle rental fleet and a majority of its European fleet pursuant
to vehicle manufacturers' Repurchase Programs. Repurchase Programs allow
Republic's vehicle rental operations to maintain program vehicles in its fleet
for varying maximum periods. Republic may, at its option, require the
manufacturer to repurchase program vehicles at any time during the allowable
program term. At the time of repurchase by the manufacturer, Republic receives a
price based on either (i) a predetermined percentage of original vehicle cost
and the month of return or (ii) the original capitalization cost less a set
monthly depreciation amount, and is thus protected from fluctuations in the
prices of used vehicles in the wholesale market at the time of disposition. If
repurchase program vehicles are returned earlier than anticipated at the time of
purchase, it generally results in greater depreciation expense for the period
such vehicles were in service. Repurchase Programs also impose return
conditions, including mileage limitations and varying damage limitations and
provide monetary incentives for advertising. Vehicles acquired under Repurchase
Programs in the United States are purchased through dealerships.
Most manufacturers renew their Repurchase Programs annually, at which time
Republic negotiates the vehicle mix, vehicle cost and repurchase price. Under
Republic's Repurchase Program with General Motors, Republic must purchase at
least 51% of its rental vehicles from General Motors during model years 1996
through 2000 in order to receive certain discounts and incentives, and General
Motors has agreed to make available to Republic a specified minimum number of
vehicles each model year. Prior to each new model year Republic and General
Motors negotiate the amount and mix of vehicles being purchased and certain
other terms which can affect the overall vehicle cost for the model year. In
addition to the Repurchase Program with General Motors, Republic maintains a
fleet financing support agreement with General Motors for the benefit of certain
of its lenders pursuant to which General Motors provides a limited guarantee to
certain of Republic's lenders to pay up to a specified percentage of the
original purchase price of General Motors vehicles in the event that Republic is
unable to meet its obligations and such lenders must repossess such vehicles and
dispose of them at a net loss. This support agreement may be terminated by
General Motors after August 31, 2000 upon ten days' prior written notice.
However, any vehicles financed prior to termination will remain covered by such
support agreement.
Republic also purchases vehicles for its rental fleet that are not subject
to Repurchase Programs and therefore Republic is responsible for the disposition
of such vehicles. During model year 1996, Republic purchased approximately 10%
of its North American rental fleet outside Repurchase Programs. Such
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purchases are made from a number of sources, including private and public
auctions, wholesalers, dealers and manufacturers. In the future, the number of
vehicles purchased outside Repurchase Programs may increase or decrease based on
a number of factors, including a determination by Republic of the acceptable
level of residual risk related to the disposition of vehicles in the used car
market. Republic believes that acquiring vehicles outside Repurchase Programs
enables it to (i) better match fleet size to seasonal needs by giving it the
flexibility to acquire vehicles for relatively short periods of time, (ii)
better match vehicle type/model mix to customer demand, and (iii) reduce overall
fleet cost.
In addition to the acquisition of vehicles under Repurchase Programs and
outside such programs, Republic also leases vehicles pursuant to short term
leases, the term of which is generally less than one year. The number of
vehicles which Republic leases depends upon a number of factors, including
price, term and availability.
The age of vehicles in Republic's rental fleet, whether acquired through
the Repurchase Programs or outside such programs, generally has not exceeded two
model years. Republic disposes of its rental vehicles primarily pursuant to the
repurchase provisions of the Repurchase Programs. Vehicles that are not subject
to Repurchase Programs are disposed of through private and public auctions and
resales to wholesalers and dealers, among other methods. Republic anticipates
that it also will dispose of rental vehicles that are not subject to Repurchase
Programs through Republic's vehicle retailing operations.
In Europe, vehicle acquisition is negotiated on an individual country
basis. Republic purchases vehicles under various repurchase programs, mainly
with dealerships, in contrast to its North American repurchase programs which
are with automobile manufacturers. During model year 1996, Republic purchased
less than half of its European fleet outside of Repurchase Programs. Republic's
European vehicle rental operations purchase or lease vehicles manufactured by
affiliates of General Motors, Daimler-Benz A.G., Renault Osterreich
Automobilvertriebs AG, Renault Nederland NV, Renault Zurich SA and Volkswagon
AG.
Republic performs routine maintenance on its vehicle rental fleet. Republic
utilizes a computerized maintenance system which identifies and flags the
vehicles which are due for maintenance and the type of maintenance required
based on the vehicle's mileage and in-service period. The system tracks the
maintenance history of each vehicle from the date of infleet to the date of
outfleet, including any repairs or body work performed on the vehicle, where the
work was performed and the cost. Republic's vehicle rental facilities typically
include maintenance areas, and Republic has more than 2,500 employees dedicated
to fleet maintenance. Vehicles are cleaned between rental transactions and are
regularly inspected as part of Republic's routine maintenance program.
Vehicle Retailing
Republic, through recent acquisitions, is also engaged in the vehicle
retailing business. Republic owns and operates used vehicle superstores in
Dallas, Texas and Detroit, Michigan. Each superstore has a wide selection of
late model used vehicles on site which have been extensively reconditioned for
resale. In addition, Republic anticipates closing the acquisition of AutoNation,
a privately-owned company developing a chain of vehicle megastores and exploring
opportunities in other automotive businesses, in January 1997. Republic
anticipates that all of its used vehicle superstores will be permanently
converted to AutoNation's format. See "-- Acquisitions -- Pending Republic
Acquisitions -- Proposed Acquisition of AutoNation" above.
Solid Waste Services
Republic's solid waste operations primarily consist of collection,
landfill, recycling and related environmental services.
Collection. Republic's solid waste collection operations are of two types:
industrial and commercial/residential. Republic's strategy is to acquire
collection operations within the service areas of its landfills, such that the
operations can provide a steady stream of solid waste to its landfills, and in
areas with stable, attractive third party disposal fees. Republic provides
collection services to over 1,300,000 residential, commercial and industrial
customers.
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In its industrial collection operations, Republic supplies its customers
with large waste containers known as "roll-off" containers. Republic collects
the roll-off containers on a set schedule and transports the waste to a
landfill. Services are provided to individual facilities on a contractual basis
with terms ranging from a single pickup to a one-year term.
Republic's commercial and residential collection operations involve the
curbside collection of refuse from small containers into collection vehicles for
transport to transfer stations or directly to landfills. At transfer stations,
waste is compacted and transferred to larger vehicles for transport to
landfills. Commercial customers generally are serviced pursuant to individual
contracts with multi-year terms. Residences generally are serviced pursuant to
contracts with municipal governments for collection services in the
municipality. Republic's contracts generally are secured by competitive bids.
See "-- Competition." Republic currently provides commercial and residential
collection services in certain areas of California, Florida, Georgia, Indiana,
Maine, New Hampshire, North Carolina, North Dakota, South Carolina, Texas and
Virginia.
Landfills. Republic owns or operates 15 solid waste landfills with
approximately 2,107 permitted acres and total available permitted disposal
capacity of approximately 104.5 million cubic in-place yards as of September 30,
1996. The in-place capacity of Republic's landfills is subject to change based
on engineering factors and requirements of regulatory authorities. Certain of
the landfills accept nonhazardous special waste, including utility ash, asbestos
and contaminated soils. The majority of Republic's landfill revenues are derived
from long-term integrated disposal and collection contracts with industrial
customers and municipalities and disposal contracts with certain third party
collection companies. The following table provides certain information regarding
these landfills as of September 30, 1996:
<TABLE>
<CAPTION>
UNUSED
TOTAL PERMITTED PERMITTED
LANDFILL NAME MARKETS SERVED ACREAGE ACREAGE ACREAGE
- - ---------------------------- ------------------------------ ------- --------- ---------
<S> <C> <C> <C> <C>
Anderson.................... Northern California 1,200 150 100
C&T Regional................ Rio Grande Valley, Texas 194 94 55
Cleveland Container......... Southwest North Carolina 169 116 86
Republic/CSC................ North Central Texas 254 254 195
Republic/Imperial........... Southern California 160 120 89
Republic/Maloy.............. East Central Texas 389 270 204
Taymouth.................... Central Michigan 138 43 19
Wabash Valley............... Northeast Indiana 103 56 16
Nine Mile Road.............. Northeast Florida 80 25 17
San Angelo.................. West Texas 283 283 133
Presidio.................... West Texas 10 10 6
Charter Waste............... West Texas 396 396 300
Oak Grove................... North Georgia 117 61 61
Pepperhill.................. Southeast South Carolina 37 22 22
Pine Ridge.................. South Atlanta, Georgia 862 207 207
------- --------- ---------
4,392 2,107 1,510
====== ======= =======
</TABLE>
Each of Republic's existing landfill sites have the potential for expanded
disposal capacity beyond the currently permitted acreage. Republic monitors the
availability of permitted airspace at each of its landfills and evaluates
whether to pursue expansion at a given landfill based on estimated future waste
volumes, remaining capacity and likelihood of obtaining expansion. Each of
Republic's landfills currently has adequate permitted capacity; however,
Republic is currently seeking to expand permitted capacity at its Wabash Valley
and Nine Mile Road landfills in connection with favorable design modifications.
Recycling. Management believes that recycling has become an increasingly
important component of most major markets' solid waste management plans as a
result of the public's increasing environmental awareness and expanding federal
and state regulations pertaining to waste recycling. Republic currently provides
recycling services through most of its collection subsidiaries and has six
recycling facilities located in Florida, Georgia, South Carolina and North
Carolina. The services provided by Republic's collection
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subsidiaries include the curbside collection of recyclable waste and the
provision of a variety of recycling services, including the segregated
collection of cardboard boxes and construction debris for resale to paper
manufacturers and others. In Florida, Georgia, South Carolina and North
Carolina, Republic receives certain types of commercial and industrial solid
waste which is sorted at its facilities into recyclable materials and
non-recyclable waste; the recyclable materials are repackaged and sold to third
parties and the non-recyclable waste is disposed of at landfills or
incinerators. Republic also recycles yard waste and timber by-products into
landscape and gardening mulch in Dallas and Houston, Texas and Jacksonville,
Florida by composting these materials and selling the end product to nurseries,
landscape architects and homeowners.
Environmental Services. Republic provides selected environmental
remediation services relating to the cleanup and containment of actual or
threatened releases of hazardous materials into the environment on both a
planned and emergency basis. Republic's solid waste division provides these
services through three subsidiaries, Environmental Specialists, Inc. ("ESI") in
Kansas City, Missouri, Laughlin Environmental, Inc. ("Laughlin") in Houston,
Texas and Fenn-Vac, Inc. in North Charleston, South Carolina. ESI and Fenn-Vac,
Inc. are EPA-approved emergency response contractors and provide hazardous spill
cleanup and other special services on a contract basis. Laughlin provides a
broad range of environmental services including remediation and other technical
services.
Electronic Security Services
Republic is engaged in the electronic security services business, which
consists of the sale, installation and maintenance of electronic security
systems for commercial and residential use, as well as the continuous electronic
monitoring of installed security systems. Republic sells and installs modern
electronic devices in its customers' businesses and residences to provide
detection of events, such as intrusion or fire. Republic purchases from various
manufacturers the components of the systems it sells, installs and maintains.
The products and services marketed in the electronic security services industry
by Republic and others range from basic residential systems that provide entry
and fire detection to sophisticated commercial systems incorporating closed
circuit television and access control systems. Detection systems may be
continuously monitored by centralized monitoring stations which are linked to
the customer through telephone lines or via radio transceiver. Republic operates
three central monitoring stations in Florida, one in Maryland, one in Illinois
and one in Colorado, from which it monitors over 207,000 businesses and
residences, predominantly in Florida, Colorado, Illinois and Maryland. Upon
detecting an intrusion or certain other occurrences at a customer's business or
residence, the central monitoring station calls the customer and, if necessary,
the local police department, fire department, ambulance or other authorities.
SALES AND MARKETING
In its vehicle rental segment, Republic's sales and marketing strategy is
to strengthen Alamo Rent-A-Car's brand identification as a value service
provider through a variety of media, cooperative advertising relationships with
airlines, hotels and others in the travel industry and building and maintaining
close relationships with the travel agent community and tour operators. Republic
targets leisure travelers and cost-conscious business travelers. Republic's
objective is to be the low-cost provider of quality car rental service and to
increase customer satisfaction and retention by developing innovative, time
saving options for customers and other quality services based on customers'
specific needs.
In the vehicle retailing segment, Republic expects to engage in mass
marketing and advertising in various media to attract a broad retail customer
base in the markets in which it will operate, and to make AutoNation USA a
nationally-recognized brand name. Republic seeks to attract customers through
"no haggle" vehicle pricing, an extensive inventory of low mileage used vehicles
that have been reconditioned-to-perform-like-new, high quality service,
warranties, and attractive facilities.
For solid waste services, Republic's sales and marketing strategy is to
provide full service environmental management to its customers. Republic targets
potential customers of all sizes, from small quantity generators to large
"Fortune 500" companies and municipalities.
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In expanding its electronic security operations, Republic's primary goal is
to grow its customer base in the residential market. Republic uses various forms
of broadcast and print advertising to market its electronic security business.
Republic will target those markets where it will be, or will have favorable
prospects of becoming, a significant provider of electronic security services.
Republic believes in providing quality services which will enable it to
maintain high levels of recurring revenue from its customers in all business
segments. Republic derives its business from a broad customer base which
Republic believes will enable it to experience stable growth. Marketing efforts
focus on continuing and increasing business with existing customers as well as
attracting new customers.
CUSTOMERS
As of September 30, 1996, no one customer individually comprised more than
10% of the total revenue of any business segment of Republic.
REGULATIONS
Vehicle Rental Regulations
Republic's vehicle rental operations are subject to various federal, state
and local laws and regulations including those relating to taxing and licensing
of vehicles, consumer protection, insurance, advertising, currency controls,
used vehicle sales, and labor matters. Republic's vehicle rental operations, as
well as those of its competitors, could be affected by any limitation in the
fuel supply or by any imposition of mandatory fuel allocation or rationing
regulations. In the event of a severe disruption of fuel supplies, the
operations of all vehicle rental companies could be adversely affected.
Approximately 6.3%, 7.6% and 6.8% of Republic's total U.S. revenue from its
vehicle rental operations in 1995, 1994 and 1993, respectively, was generated
from the sale of collision damage waivers. The United States House of
Representatives has from time to time contemplated, but never adopted,
legislation that would regulate the conditions under which collision damage
waivers may be sold by car rental companies. In addition, approximately 40
states have considered legislation affecting the collision damage waiver
product. To date, 18 of those states have enacted legislation requiring
disclosure to each customer at the time of rental that damage to the rented
vehicle may be covered by the customer's personal automobile insurance and that
a collision damage waiver may not be necessary. In addition, in the late 1980s,
New York and Illinois enacted legislation which eliminated car rental companies'
right to offer collision damage waivers for sale and limited potential customer
liability to $100 and $200, respectively. Moreover, California, Nevada and
Indiana have capped the rates that may be charged for collision damage waivers
to $9.00, $10.00 and $5.00 per day, respectively. In addition, Texas requires
the rates charged for this protection to be reasonable in relation to costs.
Adoption of national or additional state legislation limiting the sale, or
capping the rates, of collision damage waivers could further restrict sales of
this product, and additional limitations on potential customer liability could
increase the costs of Republic's vehicle rental operation.
A number of states currently make vehicle owners, including vehicle rental
companies, vicariously liable, regardless of fault, for the actions of any
person lawfully driving such owned vehicle. Recently, limits on such liability
were enacted in Michigan and Minnesota. The State of Florida, where a
substantial portion of Republic's rental transactions occur, is a vicarious
liability state. In 1995, legislation was passed by both the United States
Senate and House of Representatives which could effectively eliminate such
vicarious liability. Subsequently, President Clinton vetoed the legislation.
Republic's vehicle rental operations are also subject to various federal,
state and local consumer protection laws and regulations including those
relating to advertising and disclosure of charges to customers. The National
Association of Attorneys General has promulgated suggested guidelines for car
rental advertisements. Republic's vehicle rental operations and two other
industry participants are subject to substantially similar consent decrees
resulting from Federal Trade Commission inquiries initiated in 1989, which
consent decrees require certain disclosures to customers at each stage of the
rental transaction,
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including in advertisements, of charges that are mandatory and not otherwise
reasonably avoidable. Republic believes that the practices mandated by the
consent decrees have been adopted uniformly by the industry.
Environmental Regulations
The operation of Republic's businesses are subject to a variety of federal,
state and local requirements which regulate health, safety, the environment,
zoning and land-use. Operating and other permits are generally required for
landfills, certain waste collection vehicles, fuel storage tanks, and other
facilities owned or operated by Republic, and these permits are subject to
revocation, modification and renewal.
Republic strives to conduct its operations in compliance with applicable
laws and regulations, but believes that in the existing climate of heightened
environmental concerns, companies in the waste management and environmental
services industry, including Republic, may be faced with fines and penalties and
the need to expend funds for remedial work and related activities at landfills
and other facilities. Republic has established a reserve, which it believes will
be adequate, to cover any potential fines, penalties and regulatory costs. While
such amounts expended in the past or anticipated to be expended in the future
have not had and are not expected to have a materially adverse effect on
Republic's financial condition or operations, the possibility remains that
technological, regulatory or enforcement developments, the results of
environmental studies or other factors could materially alter this expectation.
In order to construct, expand and operate a landfill, one or more
construction or operating permits, as well as zoning approvals, must be
obtained. These are difficult and time-consuming to obtain, are often opposed by
neighboring landowners and local and national citizens' groups, may be subject
to periodic renewal and are subject to modification and revocation by the
issuing agency. In connection with Republic's acquisition of existing landfills,
it often may be necessary to expend considerable time, effort and money to bring
the acquired facilities into compliance with applicable requirements and to
obtain the permits and approvals necessary to increase their capacity.
During the ordinary course of its operations, Republic may from time to
time receive citations or notices from governmental authorities that its
operations are not in compliance with applicable environmental or health or
safety regulations. Upon receipt of such citations or notices, Republic will
work with the authorities to attempt to resolve the issues raised. Failure to
correct the problems to the satisfaction of the authorities could lead to
monetary or criminal penalties, curtailed operations or facility closure.
Federal Regulation. The following summarizes the primary environmental and
safety-related federal statutes of the United States of America affecting the
business of Republic:
(1) SWDA as amended by RCRA. SWDA and its implementing regulations
establish a framework for regulating the handling, transportation,
treatment and disposal of hazardous and nonhazardous solid wastes, and
require states to develop programs to ensure the safe disposal of solid
wastes in sanitary landfills.
Subtitle D of RCRA establishes a framework for regulating the disposal
of municipal solid wastes. Regulations under Subtitle D now include minimum
federal comprehensive solid waste management criteria and guidelines,
including location restrictions, facility design and operating criteria,
closure and post-closure requirements, financial assurance standards,
groundwater monitoring requirements and corrective action standards, many
of which have not commonly been in effect or enforced in the past in
connection with municipal solid waste landfills.
All Subtitle D regulations are now in effect, except for the financial
assurance requirements which the EPA has deferred to April 1, 1997. All of
Republic's planned landfill expansions or new landfill development projects
have been engineered to meet or exceed Subtitle D requirements. Operating
and design criteria for existing operations have been modified to comply
with these new regulations. Compliance with the Subtitle D regulations has
resulted in increased costs and may in the future require expenditures in
addition to other costs normally associated with Republic's waste
management activities.
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(2) CERCLA. CERCLA, among other things, provides for the cleanup of
sites from which there is a release or threatened release of a hazardous
substance into the environment. CERCLA imposes liability for the costs of
cleanup and for damages to natural resources upon, among others, the
current and former owners and operators of such sites.
Liability under CERCLA is not dependent upon the intentional disposal
of hazardous wastes. It can be founded upon the release or threatened
release, even as a result of unintentional and non-negligent action, of
thousands of hazardous substances, including very small quantities of such
substances. More than 20% of the sites on the CERCLA National Priorities
List of sites requiring investigation and cleanup are solid waste landfills
which ostensibly never received any hazardous wastes. Thus, even if
Republic's landfills have never received hazardous wastes as such, it is
possible that one or more hazardous substances may have come to be located
or "released" at its landfills or at other properties which Republic may
have owned or operated. Republic could thus be liable under CERCLA for the
cost of cleaning up such hazardous substances at the sites and for damages
to natural resources, even if those substances were deposited at Republic's
facilities before Republic acquired or operated them. CERCLA liability may
also attach to Republic with regard to non-Republic owned or operated
facilities where Republic arranged for disposal or treatment of hazardous
substances at, or transportation of hazardous substances to, such a
facility, or where Republic was the waste transporter who selected such
facility for treatment or disposal of hazardous substances. The costs of a
CERCLA cleanup can be very expensive. Given the difficulty of obtaining
insurance for environmental impairment liability, such liability could have
a material impact on Republic's business and financial condition. For a
further discussion, see "-- Liability Insurance and Bonding."
(3) The Federal Water Pollution Control Act of 1972 (the "Clean Water
Act"). The Clean Water Act regulates the discharge of pollutants into
streams, rivers and other waters. Point source runoff from Republic's
landfills that is discharged into surface waters must be covered by
discharge permits, that generally require Republic to conduct sampling and
monitoring and, under certain circumstances, reduce the quantity of
pollutants in those discharges. Storm water discharge regulations under the
Clean Water Act require a permit for certain construction activities, which
may affect Republic's operations. If a landfill or transfer station
discharges wastewater through a sewage system to a publicly-owned treatment
works ("POTW"), the facility must comply with discharge limits imposed by
the POTW. In addition, states may adopt groundwater protection programs
under the Clean Water Act or Safe Drinking Water Act that could affect
solid waste landfills.
(4) The Clean Air Act. The Clean Air Act imposes limitations on
emissions from various sources, including landfills. On March 12, 1996, the
EPA enacted a final rule implementing standards of performance for new
municipal solid waste landfills and emission guidelines for existing
municipal solid waste landfills, requiring certain municipal solid waste
landfills to control emissions to the level achievable by the best
demonstrated system of continuous emission reduction. The new source
performance standards established by the final rule apply to municipal
landfills that began construction or modification, or first began to accept
waste, on or after May 30, 1991. The enactment of this new rule will affect
Republic's existing landfill operations, and may result in increased costs
at these facilities.
(5) The Occupational Safety and Health Act of 1970 (the "OSH
Act"). The OSH Act authorizes OSHA to promulgate occupational safety and
health standards. Various of these standards, including standards for
notices of hazardous chemicals and the handling of asbestos, apply to
Republic's operations.
State Regulation. Each state in which Republic operates has its own laws
and regulations governing solid waste disposal, water and air pollution and, in
most cases, releases and cleanup of hazardous substances and liability for such
matters. The states also have adopted regulations governing the design,
operation, maintenance and closure of landfills and transfer stations.
Republic's facilities and operations are likely to be subject to many, if not
all, of these types of requirements. In addition, Republic's collection and
landfill operations may be affected by the trend in many states toward requiring
the development of waste reduction and recycling programs. For example, several
states have enacted laws that will require counties to adopt comprehensive plans
to reduce, through waste planning, composting, recycling or other programs, the
volume
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of solid waste deposited in landfills. Additionally, laws and regulations
restricting the disposal of yard waste in solid waste landfills have recently
been promulgated in several states. Legislative and regulatory measures to
mandate or encourage waste reduction at the source and waste recycling also are
under consideration by Congress and the EPA.
Finally, with regard to its transportation operations, Republic is subject
to the jurisdiction of the Interstate Commerce Commission and is regulated by
the Federal Highway Administration, Office of Motor Carriers and by regulatory
agencies in each state. Various states have enacted, or are considering
enacting, laws and regulations that would restrict the interstate transportation
and processing of solid waste. In 1978, the United States Supreme Court held
similar laws and regulations unconstitutional, however, states have attempted to
distinguish proposed laws and regulations from the laws and regulations involved
in that ruling. In May 1994, the Supreme Court ruled that state and local flow
control laws and ordinances (which attempt to restrict waste from leaving its
place of generation) were an impermissible burden on interstate commerce, and
therefore, were unconstitutional. In response to these Supreme Court rulings,
Congress has considered passing legislation authorizing states and local
governments to restrict the free movement of solid waste in interstate commerce.
In 1994, the House and Senate each passed separate bills relating to interstate
transportation and processing of solid waste. In 1995, the Senate passed a joint
flow control and interstate transportation bill, and in early 1996, the House
considered, but rejected a bill authorizing flow control. To date, none of these
bills has been enacted into law. If federal legislation authorizing state and
local governments to restrict the free movement of solid waste in interstate
commerce is enacted, such legislation could adversely affect Republic's waste
collection, transportation and treatment and disposal operations.
Electronic Security Services Regulations
"False" Alarm Ordinances. Republic believes that approximately 95% of
alarm activations that result in the dispatch of police or fire department
personnel are not emergencies, and thus are "false" alarms. Significant concern
has arisen in certain municipalities about this high incidence of "false"
alarms. Recently, a trend has emerged on the part of local governmental
authorities to address such concern by adopting various measures aimed at
reducing the number of "false" alarms. Such measures include (i) subjecting
alarm monitoring companies to fines or penalties for transmitting "false"
alarms; (ii) licensing individual alarm systems and the revocation of such
licenses following a specified number of "false" alarms; (iii) imposing fines on
alarm subscribers for "false" alarms; (iv) imposing limitations on the number of
times the police will respond to alarms at a particular location after a
specified number of "false" alarms; and/or (v) requiring further verification of
an alarm signal before the police will respond. Enactment of such measures could
adversely affect the electronic security services business and operations of
Republic. In addition, as a result of high incidence of "false" alarms, the
police may, in general, become less responsive to alarm activations. The
continuation of such trend, or perception by the public of such trend, may make
home security systems less attractive to consumers, which could, in turn, have
an adverse effect on the electronic security services business and operations of
Republic.
COMPETITION
Competition in the Vehicle Rental Industry. The vehicle rental industry is
characterized by intense price and service competition. In any given location,
Republic's vehicle rental business may encounter competition, particularly in
the leisure segment, from national, regional and local car rental companies,
some of which may have access to greater financial resources than Republic and
many of which are owned by or affiliated with the major automobile
manufacturers, including General Motors. Republic's main domestic competitors
for vehicle rentals are Avis, Inc., Budget Rent A Car Corporation, The Hertz
Corporation, National Car Rental System, Inc., and, in certain locations, Dollar
Rent A Car and Enterprise Rent A Car Company. In Europe, Republic's vehicle
rental business competes with the companies listed above, as well as with Budget
International, Europcar International, EuroDollar (Holdings) plc and other
national and local car rental companies. At times, the major car rental
companies have been adversely affected by industry-wide price pressures, and
Republic's vehicle rental business has, on such occasions, priced its product in
response to such pressures. Moreover, at times when the car rental industry has
experienced vehicle oversupply, there has been
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intensified competitive pressure. This oversupply has had a negative impact on
the industry's ability to raise rental rates. Republic's vehicle rental business
has taken steps to address its fixed cost structure to improve its overall
competitive position; however, future oversupply or other factors affecting
competition could still adversely affect Republic's business, financial
condition and future prospects. In July 1995, certain participants in the car
rental industry announced a $5.00 per day increase in rates, a portion of which
increase Republic believes has remained in effect. There can be no assurance,
however, that all or any portion of these increased rates will be sustained
uniformly in the future.
Competition in the Solid Waste Industry. The waste management industry is
highly competitive and requires substantial amounts of capital. Entry into the
industry and ongoing operations within the industry require substantial
technical, managerial and financial resources. The solid waste industry in North
America is currently dominated by two solid waste companies: WMX Technologies,
Inc. and Browning-Ferris Industries, Inc. Competition in the solid waste
industry also comes from a number of large second tier national companies as
well as numerous regional solid waste companies, some of which are also engaging
in aggressive acquisition strategies. Some of Republic's competitors have
significantly larger operations and greater resources than Republic. In each of
its solid waste market areas, Republic competes for landfill business on the
basis of disposal fees (commonly known as "tipping fees"), geographical location
and quality of operations. Republic's ability to obtain landfill business may be
limited by the fact that some major collection companies also own or operate
landfills to which they send their waste.
Further, alternatives to landfill disposal (such as recycling, composting
and incinerating) are increasingly competing with landfills. There also has been
an increasing trend at the state and local levels to mandate waste reduction at
the source and to prohibit the disposal of certain types of wastes, such as yard
wastes, at landfills. This may result in the volume of waste going to landfills
being reduced in certain areas, which may affect Republic's ability to operate
its landfills at their full capacity and/or affect the prices that can be
charged for landfill disposal services. In addition, most of the states in which
Republic operates landfills have adopted plans or requirements which set goals
for specified percentages of certain solid waste items to be recycled. To the
extent these are not yet in place, it is anticipated that these recycling goals
will be phased in over the next few years.
In its waste collection business, in addition to national and regional
firms and numerous local companies, Republic may compete with those
municipalities that maintain waste collection or disposal operations. These
municipalities may have financial advantages due to the availability of tax
revenues and tax-exempt financing. Republic competes for collection accounts
primarily on the basis of price and the quality of its services. From time to
time, competitors may reduce the price of their services in an effort to expand
market share or to win a competitively bid municipal contract.
Competition in the Electronic Security Services Industry. The security
alarm industry is highly competitive and highly fragmented. Republic's
electronic security services operations compete with several large national
companies, as well as smaller regional and local companies. Certain of
Republic's competitors have greater financial and other resources than Republic.
Furthermore, new competitors are continuing to enter the industry and Republic
may encounter additional competition from such future industry entrants.
Competition in the Vehicle Retailing Business. The vehicle retailing
industry in the United States is highly fragmented and highly competitive, and
is in the early stages of consolidation. According to Automotive News and
reports of financial analysts, the market is served by over 22,000 franchised
new vehicle dealers most of which also have significant used vehicle operations
(of which not more than approximately 70 franchises are believed to be owned by
a single entity), by an additional 63,000 used vehicle dealers, and by hundreds
of thousands of individual consumers who sell used vehicles primarily through
classified ads and word of mouth transactions. Republic believes that there is
no used vehicle retailer currently operating a national chain of megastores. In
addition to AutoNation, several other companies have announced plans to roll out
national chains of used vehicle megastores over the next few years. These
include CarMax, which is a division of Circuit City Inc., and Driver's Mart,
which is owned by several large new vehicle dealers. In addition, several
franchised new vehicle dealers, with significant used vehicle operations, have
recently conducted initial public offerings of their securities, with proceeds
targeted to be used for acquisitions of other
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<PAGE> 93
dealers. Some of these competitors in the new and used vehicle retailing
industry have significantly greater financial and operational resources and more
established market positions than Republic. There can be no assurance that
Republic will be able to compete effectively in the vehicle retailing industry
or related automotive businesses.
LIABILITY INSURANCE AND BONDING
Vehicle Rental Industry. For its domestic vehicle rental operations,
Republic is a state qualified self-insurer for the financial responsibility
resulting from accidents with its vehicles in most states in which its motor
vehicles are registered. All general liability claims are retained by Republic
up to a limit of $1.0 million, plus the cost of adjustment and settlement, for
each accident. Umbrella coverage is maintained for the cost of claims in excess
of retained limits, up to such umbrella policy limits. For its foreign vehicle
rental operations, Republic does not act as a self-insurer. Instead, insurance
is purchased to comply with local legal requirements. Republic also assumes
responsibility for up to $200,000 per loss under its property insurance policy
for its vehicle rental operations. Insurance policies are purchased for
protection above these retained or self-insured amounts.
Provisions for retained or self-insured claims are made by charges to
expense based upon evaluations of the estimated ultimate liabilities on reported
and unreported claims. At September 30, 1996, this liability was estimated at
$125.8 million, against which Republic maintained $34.7 million of cash
collateralized letters of credit. Republic's letter of credit requirements are
set by insurance companies which underwrite Republic's self-insurance program.
Republic's letter of credit requirements may change from time to time based on,
among other things, Republic's claims experience. Republic believes its
insurance policies are adequate to meet its vehicle rental operation needs.
Solid Waste Services. The nature of Republic's solid waste management
business exposes it to a significant risk of liability for legal damages arising
out of its operations. Such potential liability could involve, for example,
claims for cleanup costs, personal injury, property damage or damage to the
environment in cases where Republic may be held responsible for the escape of
harmful materials; claims of employees, customers or third parties for personal
injury or property damage occurring in the course of Republic's operations; or
claims alleging negligence or professional errors or omissions in the planning
or performance of work. Republic could also be subject to fines and civil and
criminal penalties in connection with alleged violations of regulatory
requirements. Because of the nature and scope of the possible damages,
liabilities imposed in environmental litigation can be significant. Although
Republic strives to operate safely and prudently and has substantial general and
vehicle liability insurance coverage, no assurance can be given that Republic
will not be exposed to uninsured liabilities which would have a material adverse
effect on its financial condition. The majority of Republic's solid waste
operations have environmental liability insurance, subject to certain
limitations and exclusions, with limits in excess of those required by permit
regulations; however, there is no assurance that such limits would be adequate
in the event of a major loss, nor is there assurance that Republic will continue
to carry environmental liability insurance should market conditions in the
insurance industry make such coverage cost prohibitive. Republic carries
commercial general liability insurance, vehicle liability insurance, workers'
compensation and employer's liability insurance, as well as umbrella policies to
provide excess coverage over the underlying limits contained in these primary
policies. Republic also carries property insurance.
In the normal course of business, Republic may be required to post a
performance bond or a bank letter of credit in connection with municipal
residential collection contracts, the operation, closure or post-closure of
landfills, certain remediation contracts and certain environmental permits.
Bonds issued by surety companies operate as a financial guarantee of Republic's
performance. To date, Republic has satisfied financial responsibility
requirements for regulatory agencies by making cash deposits, obtaining bank
letters of credit or by obtaining surety bonds.
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<PAGE> 94
EMPLOYEES
As of November 30, 1996, Republic employed approximately 16,895 full time
employees, 174 of whom were covered by collective bargaining agreements. The
management of Republic believes that it has good relations with its employees.
SEASONALITY
The vehicle rental industry is highly seasonal, particularly the leisure
travel segment. The third quarter, which includes the peak summer travel months,
has been the strongest quarter for Republic's vehicle rental operations. During
the peak summer travel months, Republic increases its vehicle rental fleet and
workforce to accommodate increased rental activity. As a result, any occurrence
that disrupts travel in the summer months, such as protracted periods of
inclement weather, could adversely affect Republic's vehicle rental business.
Republic's solid waste operations can be adversely affected by extended
periods of inclement weather, such as rain or snow, which could delay the
collection and disposal of waste, reduce the volume of waste generated or delay
the expansion of Republic's landfill sites.
Republic's vehicle retailing operations can be adversely affected by
extended periods of inclement weather, by deterring customers from visiting
retail stores (which have large open-air lots) or test driving vehicles.
GEOGRAPHICAL CONCENTRATION
The existing subscriber base of Republic's electronic security system
business is geographically concentrated in certain metropolitan areas of
Florida, Colorado, Illinois and Maryland. Accordingly, their performance may be
adversely affected by regional or local economic conditions, regulation or other
factors.
TRADEMARKS
Republic owns a number of registered trademarks which are used in its
vehicle rental business, including the name "Alamo" and "Alamo Express," and has
applications pending for the service marks "Just Ask Alamo" and "Quicksilver."
These trademarks and service marks are important to the brand name recognition
of Republic's vehicle rental business. The current registrations of these
trademarks in the United States and foreign countries are effective for varying
periods of time, and may be renewed periodically provided that the registered
owner complies with all applicable laws. Republic is not aware of any material
challenge to the ownership of its major trademarks.
PROPERTIES
Republic's corporate headquarters are located in Fort Lauderdale, Florida
in leased premises. Certain of the property and equipment of Republic and its
subsidiaries are subject to liens securing payment of portions of Republic's and
its subsidiaries' indebtedness. Republic and its subsidiaries also lease certain
of their offices and equipment. For a description of Republic's landfill
facilities, see "-- Operations -- Solid Waste Services -- Landfills" above.
Republic owns or leases its vehicle rental facilities. The facilities
serving airport locations are located on airport property or near the airport in
locations convenient for bus transport of customers to the airport. Almost all
of the airport locations are leased from governmental authorities charged with
the operation of such airports under arrangements generally providing for either
the payment of a fixed rent or the payment of rent based on a percentage of
revenues at a location with a guaranteed annual minimum, while most of
Republic's other facility leases provide for fixed rental payments. Republic's
airport facility in each metropolitan area includes, in addition to concession
space, vehicle storage and maintenance areas, as well as rental and return
facilities. The typical airport facility leases are not necessarily coterminous
with Republic's local airport concession agreement. Most of Republic's airport
facility leases expire at varying times over the next ten years. Certain of such
leases also have purchase options at the end of their terms.
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<PAGE> 95
In August 1995, Republic's subsidiary, Alamo, entered into a ten-year lease
agreement with TBC Realty V Corporation, an unrelated party, for its Fort
Lauderdale, Florida corporate headquarters facility. This facility consists of
approximately 382,000 square feet of space, of which Alamo occupies a
substantial portion and the remainder is subleased to non-Republic tenants. The
lease agreement provides for minimum monthly lease payments of approximately
$227,000 payable from October 1995 through September 2005. The lease agreement
also contains an option to purchase the property over the term of the lease 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
(i) purchase the property for $17.4 million or (ii) 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. In addition, under specified circumstances
involving casualties, condemnations, environmental events and events of default
under the lease, including a cross-acceleration of any indebtedness of Alamo of
more than $20 million, Alamo would be required to purchase this facility.
Alamo currently owns its vehicle rental reservation and data center in Fort
Lauderdale, Florida and leases its reservation centers in Charlotte, North
Carolina and Salt Lake City, Utah. The reservation centers collectively handle
over 68,000 calls most weekdays and are linked to allow for the rerouting of
calls among the centers depending on operational needs. During the peak season,
up to 96,000 calls each weekday may be handled by the reservation centers. The
Fort Lauderdale reservation center shares a 60,000 square foot facility which
houses Alamo's fleet control and data processing departments. Republic believes
that all of its facilities are sufficient for its needs.
LEGAL AND ADMINISTRATIVE PROCEEDINGS
General Corporate Proceedings
On May 3, 1991, Republic filed an action against GI Industries, Inc.
("GI"), Manuel Asadurian, Sr. and Mike Smith in the United States District Court
for the Central District of California (the "Court"). Republic requested a
declaratory judgment that it did not anticipatorily breach a merger agreement
between Republic and GI and that such merger agreement had been properly
terminated. Republic also sought to recover $600,000 from GI, plus interest and
costs, with respect to a certain financial guaranty provided by Republic in 1990
for the benefit of GI. In response to Republic's action, GI filed a counterclaim
alleging that Republic breached such merger agreement and that it had suffered
damages in excess of $16,000,000. In August 1993, the Court rendered a ruling
favorable to Republic which GI appealed. In March 1995, the United States Court
of Appeals for the Ninth Circuit at Pasadena, California reversed in part and
vacated in part 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 Republic'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 Republic
and others on July 20, 1990 in the District Court of Harris County, Texas
alleging various causes of action, including interference with business
relations, and seeking $24,000,000 in damages. The lawsuit stemmed from
Western's attempts to acquire Best Pak Disposal, Inc. The case was scheduled for
trial in May 1996, but by stipulation of the parties the trial date had 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 has no material impact on Republic's
consolidated financial position, results of operations or cash flows.
Republic is also a party to various other general corporate legal
proceedings which have arisen in the ordinary course of its business. While the
results of these matters, as well as matters described above, cannot be
predicted with certainty, Republic believes that losses, if any, resulting from
the ultimate resolution of these matters will not have a material adverse effect
on Republic's business.
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Environmental Matters
Imperial Landfill Filter Waste Issue. In 1992, Republic received notices
from Imperial County, California (the "County") and the Department of Toxic
Substances Control ("DTSC"), a department under the California Environmental
Protection Agency, alleging that spent filter elements (the "Filters") from
geothermal power plants which had been deposited at Republic'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 because waste associated with the production of
geothermal energy is exempt from the federal classification of hazardous waste
under federal regulations.
Republic 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 that such Filters
may remain in the landfill. 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. Republic is currently
unable to determine (i) whether the waste will ultimately be classified as
hazardous, (ii) what action, if any, will be required if the waste is ultimately
classified as hazardous, or (iii) what liability, if any, Republic will have as
a result of this inquiry.
In January 1994, Republic filed suit in the United States District Court
for the Southern District of California against the known past and present
owners and operators of the geothermal power plants, the Ormesa I, IE, IH and II
plants in Holtville, California, for all losses, fines and expenses incurred by
Republic in connection with the resolution of this matter, including loss of
airspace at the landfill. The suit alleges claims for (i) CERCLA response costs
recovery, (ii) intentional misrepresentation, (iii) negligent misrepresentation,
(iv) negligence, (v) strict liability, (vi) continuing trespass, (vii) nuisance,
(viii) breach of contract and (ix) breach of implied covenant of good faith and
fair dealing. Republic seeks to recover actual expenses and punitive damages.
Discovery in this matter has been stayed pending the outcome of settlement
discussions that commenced in November 1996. Republic believes it will prevail,
however, no amounts have been accrued for any recovery of damages.
Imperial Landfill Permit. The Imperial Landfill currently exceeds its
permitted daily tonnage capacity and Republic is involved in negotiations with
the California Integrated Waste Management Board regarding expansion of its
daily tonnage capacity. Republic received a notice of violation regarding the
Imperial Landfill capacity in late 1989 and has since applied for a modification
of its permit to increase the allowed daily tonnage from 50 tons up to a maximum
of 1,000 tons. Temporary written approval has been given by Imperial County,
California and the California Integrated Waste Management Board for Republic to
operate the landfill and for the landfill to receive in excess of 50 tons per
day while the permit modification is being reviewed.
Republic is also a party to various other environmental proceedings related
to its solid waste services operations which have arisen in the ordinary course
of its business. Although it is possible that losses exceeding amounts already
recorded may be incurred upon the ultimate resolution of these matters, as well
as the matters described above, management believes that such losses, if any,
will not have a material adverse effect on Republic's business or consolidated
financial position; however, unfavorable resolution of each matter individually
or in the aggregate could affect the consolidated results of operations for the
quarterly periods in which they are resolved.
Vehicle Rental Matters
Republic's vehicle rental operations are subject to routine litigation
incidental to its business, including various claims and legal actions involving
automobile liability and personal injury, employee grievances, environmental
matters, trade practices and other matters, some of which seek punitive damages.
Republic's vehicle rental operations are not currently involved in any legal
proceeding which Republic believes would, if determined adversely, have a
material adverse effect upon Republic's business, financial condition or future
prospects.
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<PAGE> 97
EXECUTIVE COMPENSATION OF REPUBLIC
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee was established by the Board of Directors of
Republic in February 1993 and Messrs. DeGroote and Burdick were appointed to the
Compensation Committee at that time. Mr. DeGroote was the Chairman of the Board,
President and Chief Executive Officer of Republic until August 3, 1995. On
August 3, 1995, the Board of Directors of Republic appointed Mr. DeGroote as its
Vice Chairman (a non-officer position), and appointed three of its non-employee
directors, Messrs. Melk, DeGroote and Bryan to the Compensation Committee. Mr.
DeGroote resigned from, and Mr. Johnson, also a non-employee director, was
appointed to, the Compensation Committee on February 12, 1996.
Mr. Burdick is the sole shareholder of a professional corporation which is
a partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P. which
renders legal services to Republic.
COMPENSATION TABLES
The following tables set forth information with respect to those persons
who (i) served as the Chief Executive Officer of Republic during the year ended
December 31, 1995, and (ii) were the most highly compensated executive officers
of Republic at December 31, 1995 whose total annual salary and bonus exceeded
$100,000 for the year (collectively, the "Named Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
---------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION WARRANTS/OPTIONS
--------------------------------- TO PURCHASE
NAME AND PRINCIPAL OTHER ANNUAL COMMON ALL OTHER
POSITION(6) YEAR SALARY BONUS COMPENSATION STOCK(1) COMPENSATION
- - ----------------------------- ---- -------- ----- ------------ --------------- ------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga............ 1995 -- -- -- 3,000,000 --
(Chairman and Chief 1994 -- -- -- -- --
Executive Officer)(2) 1993 -- -- -- -- --
Michael G. DeGroote.......... 1995 -- -- -- 100,000 --
(Former Chairman, President 1994 -- -- -- -- --
and Chief Executive 1993 -- -- -- -- --
Officer)(3)
Harris W. Hudson............. 1995 $112,122 -- -- 802,020 --
(President)(4) 1994 -- -- -- -- --
1993 -- -- -- -- --
Donald E. Koogler............ 1995 $232,967 -- -- 357,284 --
(Executive Vice President) 1994 $235,425(5) -- -- -- --
1993 $228,752 -- -- 480,000 --
</TABLE>
- - ---------------
(1) The securities underlying warrants/options to purchase Republic Common Stock
have been adjusted to reflect the Stock Split.
(2) Mr. Huizenga's employment with Republic began August 3, 1995, and he is not
paid any cash salary or bonus.
(3) On August 3, 1995, Mr. DeGroote resigned his position of Chairman, President
and Chief Executive Officer and was appointed as Vice Chairman of Republic.
Mr. DeGroote did not receive any cash salary or bonus as an officer of
Republic.
(4) Mr. Hudson's employment with Republic began August 3, 1995.
(5) Mr. Koogler elected to defer the receipt of 1994 compensation totaling
$235,425 until January 1, 1997.
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<PAGE> 98
(6) Due to mid-year hirings and resignations, no other executive officer
received more than $100,000 in compensation in 1995.
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF% OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS/WARRANTS APPRECIATION
UNDERLYING GRANTED TO FOR OPTION TERM
OPTIONS/WARRANTS EMPLOYEES IN EXERCISE EXPIRATION -------------------------
NAME GRANTED(1) FISCAL YEAR PRICE(2) DATE 5% 10%
- - ------------------------ ---------------- ---------------- -------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga....... 2,000,000 18.2% $ 12.375 August 2004 $13,640,000 $33,650,000
(Chairman and Chief 1,000,000 9.1 10.125 October 2005 6,365,000 16,150,000
Executive Officer
Michael G. DeGroote..... 100,000 0.9 12.375 August 2005 742,000 1,974,500
(Former Chairman,
President and Chief
Executive Officer)
Harris W. Hudson........ 300,000 2.3 1.9375 May 2002 236,627 551,442
(President) 502,020 4.6 12.375 August 2004 3,423,776 8,446,487
Donald E. Koogler....... 200,000 1.8 1.9375 May 2002 516,000 370,000
(Executive Vice 157,284 1.4 12.375 August 2004 1,072,677 2,646,303
President)
</TABLE>
- - ---------------
(1) The securities underlying warrants/options granted have been adjusted to
reflect the Stock Split.
(2) The exercise prices of warrants/options granted have been adjusted to
reflect the Stock Split.
AGGREGATED OPTION/WARRANT EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END
OPTION/WARRANT VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/WARRANTS AT OPTIONS/WARRANTS AT
SHARES DECEMBER 31, 1995(1) DECEMBER 31, 1995
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- - ----------------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
H. Wayne Huizenga............ -- -- 3,000,000 -- $19,312,500 $ --
(Chairman and Chief
Executive Officer)
Michael G. DeGroote.......... -- -- 1,700,000 400,000 22,268,750 5,425,000
(Former Chairman, President
and Chief Executive
Officer)
Harris W. Hudson............. -- -- -- 802,020 -- 7,692,739
(President)
Donald E. Koogler............ -- -- 240,000 477,284 3,855,000 6,047,053
(Executive Vice President)
</TABLE>
- - ---------------
(1) The securities underlying warrants/options granted have been adjusted to
reflect the Stock Split.
EXECUTIVE WARRANTS
In 1991, the Board of Directors of Republic approved the issuance of
warrants to Mr. Koogler for the purchase of shares of Republic Common Stock at
an exercise price based on the market price of Republic Common Stock on the date
of issuance (the "Executive Warrants") as compensation for his continued service
as an officer of Republic. Mr. Koogler was required to execute a non-competition
agreement in connection with the Executive Warrants. The Executive Warrants
issued to Mr. Koogler granted him the right to purchase 600,000 shares of
Republic Common Stock at an exercise price of $4.50 per share. Mr. Koogler's
warrants vested in increments of 20% per year over a five year period with the
first 20% (or 120,000 shares) having vested May 31, 1992. In May 1993, Republic
canceled the unvested portion of Mr. Koogler's Executive Warrants (or 480,000
warrants) and re-issued to Mr. Koogler Executive Warrants to purchase 480,000
shares
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<PAGE> 99
of Republic Common Stock at an exercise price of $2.00 per share. The Executive
Warrants granted in 1993 to Mr. Koogler vest in increments of 25% per year over
a four year period commencing in May 1993. The Executive Warrants are
exercisable, with respect to each portion vested, for a period of four years
following such vesting.
1994 NON-EMPLOYEE DIRECTOR WARRANTS
In May 1994, the Board of Directors of Republic approved the issuance of
warrants to purchase 100,000 shares of Republic Common Stock at an exercise
price of $1.345 per share to each of Messrs. Bryan and Burdick, each
non-employee directors of Republic, as compensation for continuing service on
the Board of Directors of Republic (the "Non-Employee Director Warrants"). The
Non-Employee Director Warrants vest over a five year period in increments of
20%, commencing in May 1995, are exercisable for a period of four years after
vesting and terminate on or about the termination of the non-employee director's
service as a director of Republic. In August 1995, the Board of Directors of
Republic approved an amendment to the Non-Employee Director Warrants to
accelerate the vesting of all of the Non-Employee Director Warrants and make
them immediately exercisable in full. Such amendment to the Non-Employee
Director Warrants became effective upon approval of Republic's stockholders,
which was obtained in November 1995.
CONSULTING AGREEMENT
In May 1995, Republic entered into a Consulting Agreement with Mr. Hudson
pursuant to which he provided consulting services to Republic. In connection
therewith, Republic granted Mr. Hudson options to purchase 300,000 shares of
Republic Common Stock at an exercise price of $1.9375 per share, under
Republic's 1991 Stock Option Plan. These options vest at a rate of one-third per
year over a three-year period from the date of grant. In August 1995, upon being
appointed as an officer of Republic, the Board of Directors of Republic
terminated the Consulting Agreement and amended the stock option grant to allow
Mr. Hudson's options to continue to vest through his tenure of service as an
employee of Republic.
CHIEF EXECUTIVE OFFICER OPTIONS
In August 1995, the Compensation Committee of the Board of Directors of
Republic approved a grant of options under Republic's 1991 Stock Option Plan to
purchase 2,000,000 shares of Republic Common Stock exercisable at a price of
$12.375 per share, in October 1995, the Compensation Committee approved an
additional grant of options under Republic's 1995 Stock Option Plan to purchase
1,000,000 shares of Republic Common Stock exercisable at $10.125 per share, and
in April 1996, the Compensation Committee approved an additional grant of
options under Republic's 1995 Stock Option Plan to purchase 467,117 shares of
Republic Common Stock exercisable at $16.125 per share, to Mr. Huizenga for his
services as Chairman and Chief Executive Officer of Republic (the "CEO
Options"). The CEO Options vested immediately and are presently exercisable in
full. Mr. Huizenga will not be paid any cash salary or bonuses for his services
to Republic, given his substantial ownership position in Republic. Accordingly,
any benefit realized by Mr. Huizenga from his compensation arrangement will be
derived solely from increases in the value of Republic Common Stock, giving him
an additional incentive in the success of Republic.
NON-EMPLOYEE DIRECTOR STOCK OPTIONS
In August 1995, the Board of Directors of Republic approved amendments to
the 1995 Non-Employee Director Stock Option Plan of Republic (the "Director
Plan") principally to provide for an automatic grant of an option to purchase
100,000 shares of Republic Common Stock to each member of the Board of Directors
of Republic who becomes or joins the Board of Directors of Republic as a
non-employee director, and to further provide an additional automatic grant of
an option to purchase 20,000 shares of Republic Common Stock on the first day of
each fiscal year thereafter to each non-employee director continuing to serve on
the Board of Directors of Republic at such dates. All options granted under the
Director Plan, as amended, will be fully vested and immediately exercisable in
full. Under the Director Plan, as amended, each automatic grant of options to a
non-employee director remains exercisable so long as such Director remains a
member of the Board of Directors of Republic, and are exercisable at a price per
share equal to the market value of a share of
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<PAGE> 100
Republic Common Stock on Nasdaq as of the date it was automatically granted. In
accordance with the Director Plan, as amended, in August 1995, Messrs. DeGroote
and Melk each received an automatic grant of options to purchase 100,000 shares
of Republic Common Stock at an exercise price of $12.375 per share, in November
1995, Mr. Johnson received an automatic grant of an option to purchase 100,000
shares of Republic Common Stock at an exercise price of $12.25 per share, and in
January 1996, Messrs. Bryan, Burdick, DeGroote, Johnson and Melk each received
an automatic grant of options to purchase 20,000 shares of Republic Common Stock
at an exercise price of $18.0625 per share. The amendment to the Director Plan,
and the automatic grants made thereunder to Messrs. DeGroote, Melk and Johnson
became effective upon approval of Republic's stockholders, which was obtained in
November 1995.
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<PAGE> 101
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT OF REPUBLIC
The following table sets forth certain information regarding beneficial
ownership of Republic Common Stock as of October 31, 1996, by (i) each person
who is known by Republic to own beneficially 5% or more of Republic Common
Stock, (ii) each director of Republic, (iii) each executive officer of Republic
named in the Summary Compensation Table and (iv) all directors and executive
officers of Republic as a group. Share amounts and percentages shown for each
entity, individual or group in the table are adjusted to give effect to shares
of Republic Common Stock that are not outstanding but may be acquired by a
person upon exercise of all options and warrants exercisable by such entity,
individual or group within 60 days of October 31, 1996. However, such shares of
Republic Common Stock are not deemed to be outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by any other
person.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENT
- - ------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
H. Wayne Huizenga(2)..................................................... 29,462,557 13.9%
200 South Andrews Avenue
Fort Lauderdale, Florida 33301
MGD Holdings Ltd.(3)..................................................... 21,800,000 11.6
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Westbury (Bermuda) Ltd.(4)............................................... 8,100,000 4.1
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Michael G. DeGroote(5)................................................... 30,020,000 15.1
Victoria Hall
11 Victoria Street
P.O. Box HM 1065
Hamilton, HMEX Bermuda
Harris W. Hudson(6)...................................................... 19,825,505 10.1
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
Steven R. Berrard(7)..................................................... 400,000 *
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
Donald E. Koogler(8)..................................................... 267,321 *
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
J.P. Bryan(9)............................................................ 150,000 *
401 9th Avenue, S.W.
Calgary, Alberta, Canada T2P2H7
Rick L. Burdick(10)...................................................... 120,000 *
1900 Pennzoil Place
711 Louisiana Street
Houston, Texas 77002
</TABLE>
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<PAGE> 102
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY OWNED
---------------------
NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER(1) PERCENT
- - ------------------------------------------------------------------------- ----------- -------
<S> <C> <C>
John J. Melk(11)......................................................... 3,940,000 2.0
676 North Michigan Ave., Suite 4000
Chicago, Illinois 60611
George D. Johnson, Jr.(12)............................................... 848,361 *
500 East Broward Boulevard, Suite 950
Fort Lauderdale, Florida 33394
All directors and executive officers as a group (16 persons)............. 86,452,630 38.6
</TABLE>
- - ---------------
* Less than 1 percent
(1) The number of shares of Republic Common Stock beneficially owned and the
exercise prices of options/warrants to purchase Republic Common Stock have
been adjusted to reflect the Stock Split.
(2) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Huizenga consists of (a) 8,997,440 shares owned directly by him, (b)
1,000,000 shares held by his wife, (c) presently exercisable warrants to
purchase 8,000,000, 4,000,000 and 4,000,000 shares of Republic Common Stock
at exercise prices of $2.25, $2.75 and $3.50 per share, respectively, and
(d) vested options to purchase 2,000,000, 1,000,000 and 465,117 shares of
Republic Common Stock at exercise prices of $12.375, $10.125 and $16.125
per share, respectively. Mr. Huizenga disclaims beneficial ownership of the
shares held by his wife.
(3) The aggregate amount of Republic Common Stock beneficially owned by MGD
Holdings, a Bermuda corporation controlled by Mr. DeGroote, consists of
20,200,000 shares directly owned by MGD Holdings. MGD Holdings also owns
presently exercisable Management Warrants (as defined below) to purchase up
to 1,600,000 shares of Republic Common Stock at an exercise price of $4.50
per share.
(4) The aggregate amount of Republic Common Stock beneficially owned by
Westbury (Bermuda) Ltd., a Bermuda corporation controlled by Mr. DeGroote
("Westbury"), consists of 2,700,000 shares owned directly by it and
presently exercisable warrants to purchase 2,700,000, 1,350,000 and
1,350,000 shares of Republic Common Stock at exercise prices of $2.25,
$2.75 and $3.50 per share, respectively.
(5) The aggregate amount of Republic Common Stock beneficially owned by Mr.
DeGroote consists of the shares beneficially owned by MGD Holdings and
Westbury, and vested options to purchase 100,000 and 20,000 shares of
Republic Common Stock at exercise prices of $12.375 and $18.0625 per share,
respectively. Mr. DeGroote is the sole stockholder, the President and a
director of MGD Holdings and Westbury.
(6) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Hudson consists of 17,200,000 shares owned directly by him, presently
exercisable warrants to purchase 1,200,000, 600,000 and 600,000 shares of
Republic Common Stock at exercise prices of $2.25, $2.75 and $3.50 per
share, respectively, and options exercisable within 60 days of October 31,
1996 to purchase 100,000 and 125,505 shares of Republic Common Stock at
exercise prices of $1.9375 and $12.375 per share, respectively.
(7) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Berrard consists of presently exercisable warrants to purchase 200,000,
100,000 and 100,000 shares of Republic Common Stock at exercise prices of
$2.25, $2.75 and $3.50 per share, respectively.
(8) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Koogler consists of 267,321 shares owned by his wife. Mr. Koogler disclaims
beneficial ownership of the shares owned by his wife.
(9) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Bryan consists of presently exercisable warrants to purchase 80,000 shares
of Republic Common Stock at an exercise price of $1.345 per share and
vested options to purchase 20,000 and 50,000 shares of Republic Common
Stock at exercise prices of $18.0625 and $5.125 per share, respectively.
(10) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Burdick consists of presently exercisable warrants to purchase 100,000
shares of Republic Common Stock at an exercise
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<PAGE> 103
price of $1.345 per share, and vested options to purchase 20,000 shares of
Republic Common Stock at an exercise price of $18.0625 per share.
(11) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Melk consists of (a) 1,600,002 shares owned by JJM Republic Limited
Partnership, of which Mr. Melk is the general partner and his three adult
children are limited partners, (b) 1,599,998 shares owned by JLM Republic
Limited Partnership, of which Mr. Melk's wife is the general partner and
his three adult children are limited partners, (c) vested warrants to
purchase 200,000, 100,000 and 100,000 shares of Republic Common Stock at
exercise prices of $2.25, $2.75 and $3.50 per share, respectively, (d)
vested options to purchase 100,000 and 20,000 shares of Republic Common
Stock at exercise prices of $12.375 and $18.0625 per share, respectively,
and (e) 220,000 shares owned by his wife. Mr. Melk disclaims beneficial
ownership of the 1,599,998 owned by JLM Republic Limited Partnership and of
the 220,000 shares owned by his wife.
(12) The aggregate amount of Republic Common Stock beneficially owned by Mr.
Johnson consists of (a) 328,361 shares of Republic Common Stock owned
directly by him, (b) presently exercisable warrants to purchase 200,000,
100,000 and 100,000 shares of Republic Common Stock at exercise prices of
$2.25, $2.75 and $3.50 per share, respectively, and (c) vested options to
purchase 100,000 and 20,000 shares of Republic Common Stock at exercise
prices of $12.25 and $18.0625 per share, respectively.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS OF REPUBLIC
The following is a summary of certain agreements and transactions between
or among Republic and certain related parties. It is Republic's policy to enter
into transactions with related parties on terms that, on the whole, are no less
favorable than those that would be available from unaffiliated parties. Based
on, among other factors, Republic's experience in the waste industry and the
terms of its transactions with unaffiliated parties, it is Republic's belief
that all of the transactions described below involving Republic met that
standard at the time such transactions were effected.
MANAGEMENT AGREEMENT AND MANAGEMENT WARRANTS
In June 1991, Republic entered into a management agreement (the "Management
Agreement") with MGD Holdings under which MGD Holdings provided executive,
operational and management services to Republic. Warrants dated as of June 7,
1991, to purchase 2,300,000 shares of Republic Common Stock were issued by
Republic to MGD Holdings at an exercise price of $4.50 per share (the
"Management Warrants") for services to be rendered pursuant to the Management
Agreement. In 1992, Management Warrants to purchase 300,000 shares of Republic
Common Stock were assigned by MGD Holdings to a former employee of MGD Holdings
who is currently an unrelated third party. The Management Warrants vested at the
rate of 20% per year over the five year period ended June 1996. The Management
Warrants are exercisable, with respect to each portion vested, for a period of
four years following such vesting. In March 1996, MGD Holdings exercised certain
of such vested Management Warrants to purchase 400,000 shares of Republic Common
Stock. The Management Agreement was terminated by mutual agreement of the
parties in July 1996.
TRANSACTIONS AND OTHER EVENTS
Until November 1995, Mr. Hudson indirectly owned five parcels of real
property in various locations in Florida which were leased to various
subsidiaries of HMC, a subsidiary of Republic. Such leases were entered into
several years prior to the August 1995 acquisition of HMC by Republic. Total
lease payments aggregated approximately $27,000 per month. In October 1995,
Republic commissioned independent appraisals of each parcel, and Republic's
Board of Directors, absent Mr. Hudson, reviewed the resulting appraisal reports
and considered the alternatives available to Republic, including purchasing one
or more of the appraised parcels indirectly from Mr. Hudson at their appraised
value, continuing to lease one or more of such parcels indirectly from Mr.
Hudson or obtaining alternative parcels. Following such review, the Board of
Directors of Republic, absent Mr. Hudson, and with Mr. Huizenga abstaining,
approved the purchase of all five parcels for an
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<PAGE> 104
aggregate purchase price of $3,295,000, less debt assumed, which was the
aggregate appraised value of such parcels.
In August 1995, Republic began making payments to Huizenga Holdings, Inc.
("Holdings"), a corporation owned by Mr. Huizenga, for the business use of
certain aircraft owned by Holdings. In 1995, Republic made payments to Holdings
totaling $417,447 for the business use of such aircraft. Also in 1995, Holdings
made payments to Republic totaling $72,270 for the business use of certain
aircraft owned by Republic. Republic believes that the terms of its use of the
aircraft were more favorable to Republic than it could have obtained from an
unaffiliated party.
The AutoNation Agreement provides for the acquisition of AutoNation by
Republic in the AutoNation Merger. Upon consummation of the AutoNation Merger,
Republic will issue 17,467,248 shares of Republic Common Stock in exchange for
all of the outstanding shares of common stock of AutoNation. Mr. Huizenga is
Chairman of the Board of AutoNation, Mr. Berrard is Chief Executive Officer of
AutoNation, and Messrs. Huizenga, Berrard, Hudson, Melk, Johnson, Castell,
Guerin, Hawkins and Henninger each have an ownership interest in AutoNation.
102
<PAGE> 105
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF ADDINGTON
The following discussion reviews Addington's operations for the three years
ended December 31, 1995 and for the nine months ended September 30, 1996 and
1995 and should be read in conjunction with Addington's Consolidated Financial
Statements and related notes thereto and "Addington's Selected Consolidated
Financial Data" which are included elsewhere herein. Note references herein are
to the notes to Addington's Consolidated Financial Statements included elsewhere
herein. Addington has restated its previously issued financial statements in
connection with Addington's discontinued operations relating primarily to coal
mining, mining equipment manufacturing and licensing, citrus properties in
Belize, precious and industrial metals mining and incidental limestone
properties. Addington's continuing operations are comprised of integrated solid
waste management including landfill operations and waste collection and
recycling services.
As part of Addington's disposal of all of its non-environmental operations,
it has taken the following actions:
(1) On September 22, 1995, Addington entered into a stock purchase
agreement with Addington Acquisition Company, Inc., Larry Addington, Robert
Addington and Bruce Addington (collectively, the "Addington Brothers")
whereby Addington agreed to sell, for $30,000,000, subject to certain
working capital adjustments, 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.
In addition, Addington retained the right to receive certain payments
(anticipated to aggregate $3,000,000 after September 30, 1996) due under
Addington's technology sale to BHP Australia Coal Pty. Ltd. (see Note 4).
The sale was consummated on November 2, 1995.
(2) Included in the above transaction and pursuant to an option
agreement dated August 4, 1995, Addington sold to the Addington Brothers
all of the issued and outstanding shares of common stock of its subsidiary,
Tennessee Mining, Inc. Addington is entitled to receive a royalty based on
tons of coal delivered under a certain coal sales contract, up to a maximum
aggregate royalty of $12,500,000.
(3) On September 22, 1995, Addington 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
1,000,000 shares of common stock of Addington owned by Larry and Bruce
Addington. The transaction was consummated on November 2, 1995.
(4) On November 17, 1995, Addington sold all of the real property, as
well as all buildings, structures and improvements of its wholly owned
subsidiary, New River Lime, Inc., to an unrelated party for $2,500,000 in
cash.
(5) On November 1, 1995, Addington entered into a letter agreement
that provided for the sale to an unrelated party of all the capital stock
of Addwest Minerals, Inc. ("Addwest"). On December 29, 1995, Addington
consummated the sale of the capital stock of Addwest. The total amount of
proceeds received by Addington with the sale of Addwest was $3,525,000.
RESULTS OF OPERATIONS
Nine Months Ended September 30, 1996 and 1995
Net income during the nine months ended September 30, 1996 was $5,419,000
or $.35 per share, compared to net income from continuing operations of
$4,901,000 or $.31 per share for the nine months ended September 30, 1995.
Total revenues increased from $41,579,000 generated during the nine months
ended September 30, 1995 to $46,012,000 generated during the nine months ended
September 30, 1996. This 11% increase in total revenues primarily reflects the
7% increase in tons of waste received at Addington's landfills. During the nine
months ended September 30, 1996, tonnage received at Addington's landfills
increased, to 1,424,000 tons from 1,331,000 tons received during the nine months
ended September 30, 1995. This increase in tons is primarily attributable to
internal growth, including additional tonnage received at Addington's East
Carolina and
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<PAGE> 106
Epperson sites under new contracts entered into in May and June 1995,
respectively. In September 1996, Addington opened a new landfill in Bibb County,
Georgia, outside Macon, Georgia. Addington has another landfill under
development located in Person County, North Carolina, which is currently
expected to be completed in early 1997.
As a percentage of total revenues, cost of operations increased slightly to
58% for the nine months ended September 30, 1996, as compared to 56% for the
nine months ended September 30, 1995. As a percentage of total revenues, cost of
operations increased from 54% for the year ended December 31, 1995 as compared
to 58% for the nine months ended September 30, 1996. This increase in caused by
a combination of factors, including: seasonality, higher personnel related costs
and higher estimated landfill closure and post-closure costs.
Depreciation and amortization increased $480,000 (or 9%) during the nine
months ended September 30, 1996 as compared to the nine months ended September
30, 1995. This increase is primarily attributable to an increase in tonnage
received as well as the purchase and development of additional capital assets
within the environmental operations. Capitalized landfill development costs are
amortized as permitted airspace of the landfill or the related cell, as
applicable, is consumed.
Selling, general and administrative expenses decreased $822,000 (or 17%)
during the nine months ended September 30, 1996 as compared to the nine months
ended September 30, 1995. As a percentage of revenues, selling, general and
administrative expenses declined from 12% during the nine months ended September
30, 1995 to 9% during the nine months ended September 30, 1996. This decline is
primarily due to lower administrative expenses incurred during 1996 due to lower
corporate overhead incurred, primarily payroll related expenses, resulting from
overall improved operating efficiencies at Addington's environmental operations
partially offset by a new 1996 incentive bonus plan for salaried personnel.
Income from operations increased $1,465,000 (or 18%) during the nine months
ended September 30, 1996 as compared to the nine months ended September 30,
1995. Income from operations increased as a percentage of revenues from 19%
during the nine months ended September 30, 1995 to 21% during the nine months
ended September 30, 1996. The increase in income from operations in dollars and
as a percentage of revenues is attributable to the higher revenues generated by
Addington's landfill operations allowing Addington to spread its fixed costs
over a larger revenue base and also as a result of lower selling, general and
administrative expenses incurred during the nine months ended September 30,
1996, compared to the nine months ended September 30, 1995.
Interest income decreased to $38,000 during the nine months ended September
30, 1996 as compared to $366,000 during the nine months ended September 30,
1995. Addington has from time to time paid amounts into escrow under state
regulations related to closure and post-closure cost of its landfills. The
decrease in interest income reflects the decrease in escrow cash balances
outstanding during the nine months ended September 30, 1996 as compared to 1995.
During the fourth quarter of 1995, Addington issued letters of credit in
exchange for reducing or eliminating virtually all of its escrow accounts.
Interest expense increased 64% to $629,000 during the nine months ended
September 30, 1996, as compared to $384,000 during the nine months ended
September 30, 1995. The increase in interest expense was primarily attributable
to Addington ceasing the capitalization of interest expense on the Mid-state
landfill for periods following its opening in early September 1996 and
additional interest expense in 1996 as a result of accelerated amortization of
capitalized financing cost related to Addington's line of credit. The line of
credit will be repaid when Addington is merged with Republic. The amount of
interest capitalized during the first nine months of 1996 was $1,133,000
compared to $1,739,000 capitalized during the first nine months of 1995.
Other expense was $777,000 during the nine months ended September 30, 1996
compared to other income of $171,000 during the nine months ended September 30,
1995. Included in other expense during the nine months ended September 30, 1996
are approximately $1,500,000 of professional fees related to the Merger net of
$613,000 of royalty income related to the sale of Tennessee Mining, Inc.
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<PAGE> 107
Addington's effective tax rate for continuing operations decreased from 40%
during the nine months ended September 30, 1995 to 33% during the nine months
ended September 30, 1996 primarily due to the reduction of deferred tax
valuation reserves.
As of December 31, 1995, Addington had sold all of its subsidiaries
included in discontinued operations, fully disposing of all non-environmental
operations. The recorded transactions reflect the disposal of all of Addington'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 (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1995
------------------
<S> <C>
Operating revenue.................................................. $ 92,486
----------
Income before income taxes......................................... 7,606
Income tax provision............................................... 1,899
----------
Net income from discontinued operations............................ $ 5,707
===============
</TABLE>
During the quarter ended September 30, 1995 Addington recorded a loss on
the disposal of the discontinued operations of approximately $30,500,000 (net of
income tax benefits of approximately $10,000,000) which represents the estimated
loss on the disposal of the non-environmental operations and a provision of
approximately $2,000,000 for expected operating losses through the final
disposition of such operations.
Upon ultimate disposal of its discontinued operations, Addington determined
its initial estimates did not require adjustment.
Included in income from discontinued operations for the nine months ended
September 30, 1995 is approximately $14,000,000 of revenue and $13,000,000 of
pre-tax income from the sale of Addington's mining technology patent rights in
Australia, offset by a $5,300,000 disposal loss accrual recorded for Addington's
precious and industrial metals mining subsidiary. The effect of hedging
transactions during the period was insignificant.
Results of Operations 1995 Compared with 1994
Net income from continuing operations during the year ended December 31,
1995 was $7,074,000 or $.45 per share, compared to net loss of $1,686,000 or
$.11 per share for the year ended December 31, 1994.
Addington's revenues and income from continuing operations for the years
ended December 31, 1995 and 1994, respectively, are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------------------------------------------
LANDFILL/TRANSFER HAULING/TRANSFER OTHER ELIM(1) TOTAL
----------------- ---------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................... $48,788 $ 17,338 $ 294 $(9,681) $56,739
Income from Operations........ 14,514 (1,423) (1,063) -- 12,028
Tons Received by
Landfills(2)................ 1,781
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
LANDFILL/TRANSFER HAULING/TRANSFER OTHER ELIM(1) TOTAL
----------------- ---------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................... $30,978 $ 10,604 $ -- $(5,525) $36,057
Income from Operations........ 8,503 (3,059) (974) -- 4,470
Tons Received by
Landfills(2)................ 1,143
</TABLE>
- - ---------------
(1) These amounts eliminate intercompany revenues.
(2) Excludes tons at one landfill managed by Addington for Pinellas County
Florida.
Total revenues increased from $36,057,000 generated during the year ended
December 31, 1994 to $56,739,000 generated during the year ended December 31,
1995. This 57% increase in total revenues reflects
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<PAGE> 108
the 56% increase in tons of waste received at Addington's landfills as well as
substantially improved operating results from Addington's waste collection
services. This increase in tons is primarily attributable to internal growth,
including additional tonnage received at Addington's East Carolina and Epperson
sites under new contracts entered into in May and June 1994, respectively, and
the operation of ten landfills during the entire year of 1995. During 1994,
Addington operated six landfills during the entire year and three landfills
during a portion of the year. The six landfills that operated during the entire
year of 1994 generated $26,533,000 revenues and received 1,077,000 tons. During
1995, these same six landfills generated $34,701,000 revenues and received
1,522,000 tons. Improved revenues arising from Addington's waste collection
services are primarily the result of additional customers and additional
revenues generated by a contract signed in June 1995 to operate a transfer
station in central Kentucky. Addington does not allow a discount on its waste
collection services for waste delivered to Addington landfills.
As a percentage of total revenues, cost of operations decreased to 54% for
the year ended December 31, 1995 as compared to 55% for the year ended December
31, 1994. This decrease reflects improved operating efficiencies at the waste
collection operations as well as economies of scale realized by Addington as
certain of its fixed costs are spread over a broader revenue base.
During the year ended December 31, 1994, Addington provided for asset
write-downs of $670,000 associated with certain environmental projects which
Addington decided should no longer be pursued. No provisions occurred through
the year ended December 31, 1995 in the environmental business.
Depreciation and amortization increased $3,373,000 (or 82%) during the year
ended December 31, 1995 as compared to the year ended December 31, 1994. This
increase is primarily attributable to an increase in tonnage received as well as
the purchase and development of additional capital assets within the
environmental operations. Capitalized landfill development costs are amortized
as permitted airspace of the landfill or the related cell, as applicable, is
consumed.
Selling, general and administrative expenses decreased $488,000 (or 7%)
during the year ended December 31, 1995 as compared to the year ended December
31, 1994. As a percentage of revenues, selling, general and administrative
expenses decreased from 20% to 12%. This decline is primarily due to additional
administrative expenses incurred during 1994 related to the severance package
given to the former environmental president and lower general and administrative
expenses incurred during 1995 due to lower corporate overhead incurred,
primarily executive salaries, resulting from the sale of the non-environmental
operations and overall improved operating efficiencies at Addington's
environmental operations.
Income from operations increased $7,558,000 (or 169%) during the year ended
December 31, 1995. Income from operations increased as a percentage of revenues
from 12% to 21%. The increase in income from operations in dollars and as a
percentage of revenues is attributable to: (1) the higher revenues generated by
Addington's landfills and hauling operations allowing Addington to spread its
fixed costs over a larger revenue base, (2) improved operational efficiencies at
Addington's hauling operations, and (3) the absence of any provision for asset
write-downs in 1995 in contrast to the $670,000 recorded in 1994.
Interest income decreased to $444,000 during the year ended December 31,
1995 as compared to $772,000 during the year ended December 31, 1994. Addington
has from time to time paid amounts into escrow under state regulation related to
closure and post-closure cost of its landfills. This decrease is due to a
decrease in escrow cash balances outstanding during 1995 as compared to 1994.
During 1995, Addington issued letters of credit in exchange for reducing or
eliminating virtually all of its escrow accounts (see Note 1d).
Interest expense increased to $955,000 during the year ended December 31,
1995 as compared to $277,000 during the year ended December 31, 1994. This
increase is principally due to higher debt levels during 1995 compared to 1994.
Average debt levels were higher in 1995 due to additional borrowing on
Addington's line of credit to fund certain landfill acquisition, construction
and development costs. The amount of interest capitalized during 1995 was
$2,012,000 compared to $1,464,000 capitalized during 1994.
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<PAGE> 109
Other expense was $17,000 during the year ended December 31, 1995 compared
to $7,775,000 during the year ended December 31, 1994. During 1994, Addington
recorded a loss of $6,800,000 and $1,200,000, respectively on its disposal of
Southern Illinois Mining Company and its investment in a recycling technologies
company (see Note 15).
Addington's effective tax rate during 1995 was 38.5% compared to 40% during
1994. The decline in Addington's effective tax rate was primarily due to
utilization of minimum tax credit carryforwards in 1995.
During the third quarter of 1995, Addington implemented a formal plan to
dispose of all of its non-environmental operations. Addington initially recorded
an estimate of the loss on the disposal of the discontinued operations of
approximately $30,500,000 (net of income tax benefits of approximately
$10,000,000) which represents the estimated loss on the disposal of the
non-environmental operations and a provision of approximately $2,000,000 for
expected operating losses through the final disposition of such operations.
Upon ultimate disposal of its discontinued operations, Addington determined
its initial estimates did not require adjustment.
As of December 31, 1995, Addington has sold all of its subsidiaries
included in discontinued operations, hence fully disposing of all
non-environmental operations (see Note 3). The recorded transactions reflect the
disposal of all of Addington'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 for the years
ended December 31, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Operating revenues............................................... $105,056 $115,099
Income (loss) before income taxes................................ 7,606 (8,108)
Income tax provision (benefit)................................... 1,899 (2,660)
-------- --------
Income (loss) from discontinued operations....................... $ 5,707 $ (5,448)
-------- --------
</TABLE>
Included in income from discontinued operations for 1995 is approximately
$14,000,000 of revenue and $13,000,000 of pre-tax income from the sale of
Addington's mining technology patent rights in Australia, offset by a $5,300,000
disposal loss accrual recorded for Addington's precious and industrial metals
mining subsidiary.
Included in the loss from discontinued operations in 1994 are the following
pretax items: $6,157,000 loss on disposal in connection with Pittston Minerals
Group, Inc. (see Note 3e) and $3,400,000 loss on limestone project.
The significant improvements in income (loss) before income taxes from
discontinued operations from 1994 to 1995 is principally caused by the sale of
Australian patent rights and other item discussed above. The effect of hedging
transactions during the period was insignificant.
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.
Results of Operations 1994 Compared with 1993
Net loss from continuing operations during 1994 was $1,686,000 or $.11 per
share, compared to net loss of $5,276,000 or $.34 per share for 1993.
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<PAGE> 110
Addington's revenues and income from continuing operations for the years
ended December 31, 1994 and 1993, respectively, are comprised of the following
(in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
------------------------------------------------------------------
LANDFILL/TRANSFER HAULING/TRANSFER OTHER ELIM(1) TOTAL
----------------- ---------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................... $30,978 $ 10,604 $ -- $(5,525) $36,057
Income (loss) from
Operations.................. 8,503 (3,059) (974) -- 4,470
Tons Received by
Landfills(2)................ 1,143
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
------------------------------------------------------------------
LANDFILL/TRANSFER HAULING/TRANSFER OTHER ELIM(1) TOTAL
----------------- ---------------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues...................... $17,264 $ 7,665 $ -- $(2,329) $22,600
Income (loss) from
Operations.................. 5,817 (2,268) (6,268) -- (2,719)
Tons Received by
Landfills(2)................ 753
</TABLE>
- - ---------------
(1) These amounts eliminate intercompany revenues.
(2) Excludes tons at one landfill managed by Addington for Pinellas County
Florida.
Total revenues increased from $22,600,000 generated during the year ended
December 31, 1993 to $36,057,000 generated during the year ended December 31,
1994. This 60% increase in total revenues reflects the 52% increase in tons of
waste received at Addington's landfills. This increase in tons is primarily
attributable to internal growth and the operation of six landfills during the
entire year of 1994, and three landfills during a portion of the year. During
1993, Addington operated five landfills during the entire year and one landfill
during a portion of the year. The five landfills that operated during the entire
year of 1993 generated $15,696,000 in revenues and received 715,000 tons. During
1994 these same five landfills generated $18,431,000 in revenues and received
833,000 tons. Addington does not allow a discount on its waste collection
services for waste delivered to Addington landfills.
As a percentage of total revenues, cost of operations increased from 49%
for 1993 to 55% for 1994. This increase is primarily attributable to the three
additional landfills coming on-line in 1994 having higher cost of operations
compared to the six landfills already operating. These higher losses are
principally due to these new landfills having relatively higher fixed costs
during their start-up phase due to lower tonnage volumes compared to the
existing six landfills. Additionally, Addington's losses from hauling operations
increased in 1994. The increase in these losses from hauling operations was
primarily due to Addington investing in a total of three start-up hauling
operations in late 1993 and 1994. During the start-up phase, Addington incurred
losses while building the revenue base of these start-up hauling operations.
During the year ended December 31, 1994, Addington provided for asset
write-downs of $670,000 associated with certain environmental projects which
Addington decided should no longer be pursued. During the year ended December
31, 1993, Addington wrote-off $5,122,000 (included in the column "other" in the
1993 table above) related to certain experimental recycling and composting
technology assets (see Note 15).
Depreciation and amortization increased $1,405,000 (or 52%) during the year
ended December 31, 1994 as compared to the year ended December 31, 1993. This
increase is primarily attributable to an increase in tonnage received as well as
the purchase and development of additional capital assets within the
environmental operations. Capitalized landfill development cost are amortized as
permitted airspace of the landfill or the related cell, as applicable, is
consumed.
Selling, general and administrative expenses increased $616,000 (or 9%)
during the year ended December 31, 1994 as compared to the year ended December
31, 1993. As a percentage of revenues, selling, general and administrative
expenses decreased from 29% to 20%, reflecting additional overhead needed to
support the growth of the environmental operations and additional administrative
expenses incurred during 1994 related to the severance package given to the
former environmental president.
Income from operations increased $7,189,000 during the year ended December
31, 1994. The increase in income from operations is attributable to: (1) the
higher revenues generated by Addington's landfill operations
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allowing Addington to spread its fixed costs over a larger revenue base, and (2)
the provision for asset write-downs in 1994 amounting to $670,000 compared to
$5,122,000 in 1993.
Interest income increased from $0 during the year ended December 31, 1993
to $772,000 during the year ended December 31, 1994. This increase is due to an
increase in the average amount of short-term investments and restricted cash
outstanding during 1994.
Interest expense increased from $0 during the year ended December 31, 1993
to $277,000 during the year ended December 31, 1994. This increase is primarily
due to Addington's ability to capitalize additional interest expense in 1993
compared to 1994. The amount of interest capitalized during 1994 was $1,464,000
compared to $2,111,000 capitalized during 1993.
Other expense was $5,790,000 during the year ended December 31, 1993
compared to $7,280,000 during the year ended December 31, 1994. During 1994,
Addington wrote-off its $1,200,000 investment in a recycling technologies
company (see Note 15). During 1994 and 1993, Addington recorded a loss of
$6,800,000 and $5,800,000, respectively, on its disposal of Southern Illinois
Mining Company (see Note 15).
Addington's effective tax rate during 1993 was 38% and remained relatively
unchanged compared to 40% during 1994.
During the third quarter of 1995, Addington implemented a formal plan to
dispose of all of its non-environmental operations. As of December 31, 1995,
Addington has sold all of its subsidiaries included in discontinued operations,
hence fully disposing of all non-environmental operations (see Note 3). The
recorded transactions reflect the disposal of all of Addington'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 for the years ended December 31, were
as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Operating revenues.............................................. $115,099 $359,218
Income (loss) before income taxes............................... (8,108) (14,097)
Income tax provision (benefit).................................. (2,660) (3,184)
-------- --------
Income (loss) from discontinued operations...................... $ (5,448) $(10,913)
-------- --------
</TABLE>
Included in the loss from discontinued operations in 1994 are the following
pretax items: $6,157,000 loss on disposal in connection with Pittston Minerals
Group, Inc. (see Note 3e) and $3,400,000 loss on limestone project.
Included in the loss from discontinued operations in 1993 are the following
pretax items: $9,384,000 loss on sulfur project and $4,050,000 loss on
litigation settlements.
During 1993 and 1994, discontinued operations was significantly impacted by
the items discussed above. On January 14, 1994, Addington sold the majority
(approximately 70%) of its coal mining operations to Pittston Mineral Group (see
Note 3a), thus causing a substantial decrease in revenues.
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.
FINANCIAL CONDITION
Cash and Cash Equivalents and Short-Term Investments
Addington's cash and cash equivalents and short-term investments totaled
$1,165,000 at September 30, 1996 as compared to $3,387,000 at December 31, 1995
and $4,193,000 at December 31, 1994. The 66% decrease at September 30, 1996 is
primarily due to the timing of accounts receivable collections, accounts
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payable payments and capital expenditures. The 19% decrease at December 31, 1995
is primarily due to Addington using its cash and investments to pay down debt
during 1995.
Accounts Receivable
Accounts receivable at September 30, 1996 totaled $8,567,000, compared to
the balance of $9,090,000 at December 31, 1995 and $7,011,000 at December 31,
1994. The 6% decrease at September 30, 1996 is primarily due to the timing of
accounts receivable collections. The 30% increase at December 31, 1995 is
primarily due to additional tonnage being received by Addington's landfill
operations as well as expansion of Addington's waste collection services.
Prepaid Expenses and Other
Prepaid expenses and other at September 30, 1996 totaled $2,882,000
compared to the balance of $3,246,000 at December 31, 1995 and $193,000 at
December 31, 1994. These changes are primarily due to the timing of payments on
prepaid insurance and other prepaid expenses.
Property, Plant and Equipment, Net
Property, plant and equipment, net, increased to $122,048,000 at September
30, 1996, compared to $105,747,000 at December 31, 1995 and $81,517,000 at
December 31, 1994. This increase of $16,301,000 (15%) and $24,230,000 (30%),
respectively, is primarily due to an increase in landfill equipment, cell
construction at existing landfills and other capitalized environmental-related
development costs, net of depreciation charges.
Property, Plant and Equipment and Other Long-Term Assets of Discontinued
Operations
Property, plant and equipment and other long-term assets of discontinued
operations totaled $91,490,000 at December 31, 1994. These assets were
subsequently sold in 1995.
Restricted Cash
Restricted cash decreased to $40,000 at December 31, 1995 as compared to
$4,348,000 at December 31, 1994. This decrease is primarily due to a change in
Addington's strategy to satisfy individual state requirements for securing
landfill closure liabilities. In the past, Addington deposited cash in trust
funds to meet individual state regulations for closure and post-closure
liabilities. Currently, Addington meets these regulations by posting letters of
credit.
Other Assets
Other assets decreased to $1,850,000 at December 31, 1995 as compared to
$5,569,000 at December 31, 1994. This decrease at December 31, 1995 is primarily
attributable to the sale of an aircraft by Addington during the first quarter of
1995. This aircraft was classified as an asset held for sale in other assets
during 1994.
Accounts Payable
Accounts payable at September 30, 1996 decreased to $3,788,000 as compared
to $4,743,000 at December 31, 1995 and increased as compared to $3,183,000 at
December 31, 1994. The 20% decrease at September 30, 1996 is primarily due to
the timing of payments on accounts payable. The 49% increase at December 31,
1995 is primarily due to the growth of Addington's environmental operations and
the timing of payments on accounts payable.
Current Portion of Long-Term Debt Outstanding
Addington's current portion of long-term debt outstanding increased to
$2,710,000 at September 30, 1996 as compared to $1,823,000 at December 31, 1995
and $880,000 at December 31, 1994. The increase at September 30, 1996, is
primarily due to timing of certain debt payments. The increase at December 31,
1995,
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is primarily due to additional landfill equipment being acquired in 1995 and a
change in the method used by Addington to finance equipment during 1995.
Previously, this equipment was financed under operating leases and during 1995
these leases were converted to capital leases.
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities increased to $5,920,000 at September
30, 1996 as compared to $3,504,000 at December 31, 1995 and $5,386,000 at
December 31, 1994. The 69% increase at September 30, 1996, is primarily due to
the timing of payments relating to income taxes and other expenses. The 35%
decrease at December 31, 1995 is primarily due to the timing of payments
relating to payroll, property taxes, workers compensation and other expenses.
Net Current Liabilities of Discontinued Operations
Addington's net current liabilities of discontinued operations were
$689,000 at December 31, 1994. These assets were subsequently sold in 1995.
Long-Term Debt Outstanding
Addington's long-term debt outstanding increased to $17,073,000 at
September 30, 1996 as compared to $14,407,000 at December 31, 1995 and decreased
as compared to $32,767,000 at December 31, 1994. During the first nine months of
1996 Addington borrowed $3,000,000 on its line of credit to fund certain
landfill construction and development costs. The decrease at December 31, 1995
is primarily due to Addington paying down the environmental line of credit with
proceeds from the sale of its non-environmental operations, offset by the
additional debt incurred in connection with converting operating leases of
equipment to capital leases.
Accrued Closure and Post-Closure Costs
Accrued closure and post-closure costs at September 30, 1996 increased to
$6,738,000 as compared to $5,168,000 at December 31, 1995 and $2,784,000 at
December 31, 1994. The increase at December 31, 1995, is primarily due to the
operation of ten landfills during the entire year of 1995 and first nine months
of 1996. During 1994, Addington operated six landfills during the entire year
and three landfills during a portion of the year. The accrual for closure and
post-closure cost is based upon the estimated aggregate closure and post-closure
costs to be incurred at the time that the landfills cease to accept waste and
are closed. The amount of the accrual is calculated using the number of tons
received by the landfills each year. Therefore, the increase in this accrual is
due to the landfills receiving additional tons during the first nine months of
1996 and during 1995.
Other Long-Term Liabilities
Addington's other long-term liabilities remained relatively unchanged at
$7,544,000 at September 30, 1996 as compared to $7,451,000 at December 31, 1995
and increased as compared to $2,981,000 at December 31, 1994. This accrual
primarily relates to income taxes and the remaining reserve recorded to cover
costs associated with the disposal of the discontinued operations.
Long-Term Liabilities of Discontinued Operations
Addington's long-term liabilities of discontinued operations were
$24,864,000 at December 31, 1994. These assets were subsequently sold in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The working capital needs of Addington have been met primarily though a
combination of funds provided by banks, proceeds from the sale of
non-environmental operations and cash generated through operations.
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Cash and Cash Equivalents
The overall net decrease in cash and cash equivalents from continuing
operations was $2,222,000 and $1,803,000 for the nine months ended September 30,
1996 and 1995, respectively. The overall net increase in cash and cash
equivalents was $668,000 and $1,920,000 for the years ended December 31, 1995
and 1994, respectively. Such net increases (decreases) reflect net cash provided
by (used in) operating, investing and financing activities.
Cash Flows from Operating Activities
Net cash provided by (used in) operating activities was $14,916,000 and
$22,627,000 for the nine months ended September 30, 1996 and 1995, respectively,
and was $31,470,000 and $(1,634,000) for the years ended December 31, 1995 and
1994, respectively. The fluctuation between years is primarily a result of the
disposal of discontinued operations in the fourth quarter of 1995 as such
discontinued operations provided (used) approximately $15,562,000 and
($13,534,000) in cash flows from operating activities for the years ended
December 31, 1995 and 1994, respectively.
Cash Flows from Investing Activities
Net cash used in investing activities was $21,197,000 and $32,268,000 for
the nine months ended September 30, 1996 and 1995, respectively. Both amounts
represent acquisitions of environmental related assets as well as capitalized
landfill construction and development costs. Net cash provided by (used in)
investing activities was $(9,500,000) and $105,266,000 for the years ended
December 31, 1995 and 1994, respectively. The amount for the nine months ended
September 30, 1996 primarily represents acquisitions of environmental companies
and continued landfill development costs. The amount for the year ended December
31, 1995 primarily represents the proceeds from the fourth quarter sale of the
discontinued operations offset by continued landfill development costs and
property, plant and equipment additions of discontinued operations. The 1994
amount principally consists of net cash used in continuing operations
(principally, property additions) of approximately $30,000,000 and property,
plant and equipment additions of discontinued operations of approximately
$35,000,000, offset by net proceeds received of approximately $182,000,000 in
connection with the sale of certain mining subsidiaries.
Cash Flows from Financing Activities
Net cash provided by financing activities was $4,059,000 and $8,530,000 for
the nine months ended September 30, 1996 and 1995, respectively. The 1996 amount
primarily represents borrowings on Addington's line of credit. The 1995 amount
primarily represents the issuance of long-term debt. Net cash used in financing
activities was $(22,052,000) and $(113,907,000) for the years ended December 31,
1995 and 1994, respectively. The 1995 amount primarily represents Addington's
repayment of the outstanding balance on the environmental subsidiaries line of
credit. The 1994 amount primarily represents the repayment of approximately
$129,000,000 of Addington's senior secured notes.
Working Capital
Net working capital as of September 30, 1996 was approximately $196,000,
compared to approximately $5,653,000 as of December 31, 1995 and approximately
$1,259,000 as of December 31, 1994. The increase at December 31, 1995 is
primarily attributable to the remaining proceeds from the sale of the
discontinued operations, offset by the use of short-term investments to fund
landfill development costs.
As of September 30, 1996, Addington had approximately $15,694,000 available
under its line of credit. The line of credit is secured by substantially all of
Addington's assets and bears interest at rates ranging from the Eurodollar rate
plus 1.75% to 2.75% to the bank's base rate plus 0% to .75%. The maximum amount
available under the line of credit which expires October 31, 1997, is
$50,000,000, reduced by issued letters of credit of approximately $31,306,000
and borrowings of $3,000,000.
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Addington has various operating and capital leases for transportation and
other equipment. Total noncancelable minimum lease payments for the remainder of
1996 will be approximately $1,200,000.
During 1994, Addington acquired a landfill near Macon, Georgia. At the time
of acquisition, the existing landfill operation was permitted solely to accept
construction and demolition waste and certain industrial wastes. A new permit
allowing the landfill to accept municipal solid waste was issued in June 1994.
After legal challenges, the permit finally became non appealable in October,
1995 and an additional payment of approximately $3,600,000 was made to the
seller in 1995.
There are certain environmental contingencies, primarily consisting of
landfill closure obligations, related to Addington's integrated solid waste
disposal system operations. Addington estimates and records its costs associated
with closure and post-closure monitoring and maintenance for operating landfills
based upon relevant government regulation. Accruals for these closure and
post-closure costs are provided as permitted airspace of the landfill is
consumed. Addington revises its estimates on a periodic basis. As of September
30, 1996, Addington had accrued expenses for closure costs of approximately
$6,738,000. Because of the long-term nature of these obligations, there is a
possibility that such obligations, when ultimately paid, may differ
substantially from the recorded accrued expense, thus affecting Addington's
liquidity.
Considering the existing accruals with respect to Addington's landfills at
September 30, 1996, and assuming significant additional future capital costs are
made to complete expansion efforts over the expected lives of the landfills,
approximately $98,800,000 of additional expense accruals are to be provided over
the remaining lives as permitted airspace of these facilities is consumed. 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 the amount of additional accruals to be provided, the actual amount
to be expended may differ substantially.
Addington is required to provide financial assurance to various regulatory
bodies for certain of its estimated closure and post-closure monitoring and
maintenance costs. Addington has provided letters of credit and established
trust funds in response to such requirements.
Addington projects capital expenditures for existing landfill facilities
for the remainder of 1996 to be $6,800,000, although the amounts expended may
differ substantially from this amount. In addition to planned expenditures for
existing facilities, Addington anticipates that the Person County landfill will
be completed in early 1997 at a cost of approximately an additional $4,800,000,
but there can be no assurance that this landfill will become operational in the
first quarter of 1997 nor that the amounts actually expended will not differ
substantially from this current estimate.
Addington believes that its present financial condition, considering the
funds available under the existing financing agreements and internal financial
resources, provides adequate capital reserves and liquidity.
Inflation has not had a significant effect on Addington's business,
primarily because the United States economy has been experiencing a period of
relatively low inflation.
Addington's capital needs, earnings and cash flow are somewhat dependent on
events beyond Addington's control, such as the state of the economy, changes in
existing governmental and environmental regulations and the availability of
expansion opportunities.
Environmental Matters
Addington, during its normal course of business, is faced with the need to
expend funds for environmental protection and remediation, however, 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. Though it is possible that such costs might increase in the
future, Addington believes that in general it benefits from increased government
regulation based on an increased demand for its services and adequate resources
and experience to manage environmental risk.
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As part of its ongoing operations, Addington provides for its estimated
closure and post-closure monitoring and maintenance costs as remaining permitted
airspace at its landfill facilities are consumed. Closure and post-closure
monitoring and maintenance costs include final capping of the site, site
inspections, groundwater monitoring, leachate management, methane gas control
and recovery, and operation and maintenance costs as the remaining permitted
airspace of such facilities is consumed.
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BUSINESS OF ADDINGTON
Incorporated on September 29, 1986, under the laws of Delaware, Addington
and its subsidiaries are primarily engaged in the development and management of
integrated solid waste disposal systems for cities and counties in the
southeastern United States. As of September 30, 1996, Addington was operating
ten landfills in Kentucky, North Carolina, Georgia and Florida. Addington's
integrated solid waste disposal operations (collectively, the "Environmental
Subsidiaries") are conducted through Addington Environmental, Inc. and its
affiliates described below.
Addington's executive offices are located at 2343 Alexandria Drive, Suite
400, Lexington, Kentucky 40504.
LANDFILL OPERATIONS
As of September 30, 1996, Addington was operating ten landfills in
Kentucky, North Carolina, Georgia, and Florida through the Environmental
Subsidiaries described below. In developing its landfills, Addington has
attempted to develop a cooperative relationship with the counties in which
Addington operates. Addington has entered into contractual agreements with each
county in which a landfill is located, limiting the amount and source of all
accepted waste. Except as set forth below with respect to Addington's landfill
in Bibb County, Georgia, Addington is currently permitted at each of its
landfills to accept all non-hazardous solid waste which may be disposed of in
sanitary landfills under Subtitle D of the RCRA. Addington does not accept
hazardous waste at its landfills.
Ohio County Landfill. Ohio County Balefill, Inc. operates a lined landfill
in Ohio County, Kentucky, approximately 35 miles south of Owensboro. The
landfill is owned by Ohio County and is operated by Addington pursuant to a
40-year agreement. The landfill was permitted and constructed by Addington
adjacent to the county landfill, which Addington closed in 1992.
Epperson Landfill. Epperson Waste Disposal, Inc. owns and operates a lined
landfill in Grant County, Kentucky, located midway between Lexington, Kentucky
and Cincinnati, Ohio. The landfill was permitted and constructed by Addington
adjacent to a facility which was acquired in February 1991 and which Addington
closed in 1992. The lined facility commenced operations in July 1992.
Green Valley Landfill. Green Valley Environmental Corp. owns and operates
a lined landfill located in Greenup County, near Ashland, Kentucky. The
landfill, which commenced operations in November 1992, was developed by
Addington on a virgin parcel of property which it owns.
Tri-K Landfill. Tri-K Landfill, Inc. owns and operates a lined landfill in
Lincoln County, Kentucky, which it acquired in June 1992. The landfill is
located approximately 50 miles south of Lexington. In March 1995, Addington
received a permit to construct a lined facility adjacent to its initial unlined
landfill. The first phase of the new landfill opened on July 1, 1995.
Dozit Landfill. Dozit Co., Inc. owns and operates a lined landfill in
Union County, Kentucky, approximately 60 miles south of Evansville, Indiana.
Addington commenced operations at the site in October 1994. The facility was
permitted and constructed adjacent to an existing unlined landfill which
Addington purchased in November 1993, and which was closed by the previous
owner.
East Carolina Landfill. East Carolina Environmental, Inc. owns and
operates a lined landfill in Bertie County, North Carolina, approximately 60
miles north of Greenville, North Carolina. The landfill was developed by
Addington on a virgin parcel of property which it owns. The landfill commenced
operation in October 1993.
Uwharrie Landfill. In July 1992, Uwharrie Environmental, Inc. commenced
operating a landfill in Montgomery County, North Carolina approximately 60 miles
east of Charlotte. The facility is owned by Montgomery County and operated by
Addington pursuant to a 20-year agreement. In August 1994, Addington received a
permit to construct a new lined facility adjacent to the initial unlined
landfill. Following construction of the facility in 1995, the new landfill began
accepting waste in January 1996.
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Broadhurst Landfill. Broadhurst Environmental, Inc. operates a lined
landfill in Wayne County, Georgia approximately 40 miles west of Brunswick,
Georgia. The landfill is owned by the Wayne County Solid Waste Management
Authority and was developed by Addington on a virgin parcel of property owned by
the Authority. Addington leases the property from the Authority on a long-term
basis and ownership of the property will revert to Addington at the termination
of the lease. The facility commenced operations in December 1994.
Mid-State Landfill. Mid-State Environmental, Inc. owns and operates a
construction and demolition landfill in Bibb County, Georgia, just outside
Macon. Addington acquired the landfill in May 1994. The existing unlined
landfill operation near Macon is permitted to accept construction and demolition
wastes and certain industrial wastes. Addington has obtained a new permit to
allow the landfill to accept municipal solid waste and constructed a new lined
facility for disposal of municipal solid waste. Addington began accepting waste,
including municipal solid waste, in the new landfill in September 1996.
Bridgeway Acres Sanitary Landfill. In January 1995, Pinellas
Environmental, Inc. commenced operation of a landfill owned by Pinellas County,
Florida, The landfill is located both in the City limits of St. Petersburg and
in Pinellas Park, Pinellas County. The landfill is operated by Addington
pursuant to a 5-year agreement with two 2-year extensions at the option of the
county and contractor.
Person County Landfill. In August 1994, Upper Piedmont Environmental, Inc.
entered into a 20-year contract with Person County, North Carolina to permit,
construct, own and operate a new lined landfill. The landfill is currently being
developed on a virgin parcel of property owned by Addington. Addington expects
to begin accepting waste during the first quarter of 1997.
Anticipated capital expenditures for Addington's existing landfill
facilities for the remainder of 1996 are projected to be $6,800,000. In
determining whether to construct additional cells at an existing landfill,
Addington considers a number of factors including the current and projected
volume of waste disposed of at the landfill, the costs of developing the cell,
and the market conditions for the landfill.
In addition to planned expenditures for existing facilities, Addington
anticipates that the Person County landfill will be constructed during the
remainder of 1996 and early 1997 at a cost of approximately an additional
$4,800,000, but there can be no assurance that this landfill will become
operational in the first quarter of 1997 nor that the amounts actually expended
will not differ substantially from this current estimate.
WASTE COLLECTION SERVICES
Established to complement Addington's regional landfills in the
southeastern United States, Addington also owns and operates a collection
company. The collection company operates in Kentucky with approximately 76,000
residential, commercial, and industrial customers, supported by 68 service and
support vehicles. The collection company also operates in Florida and Georgia
with approximately 3,200 residential, commercial and industrial customers,
supported by 13 service and support vehicles.
Addington also owns or operates nine transfer stations. Waste is collected
and deposited at these stations by Addington and other private haulers for
compaction and transfer to larger trailers for shipment by Addington to its
landfills.
Commercial and industrial collection services are generally performed under
one to three-year service agreements, and fees are determined by such
considerations as market factors, collection frequency, type of equipment
furnished, the type and volume or weight of the waste collected, the distance to
the disposal facility and cost of disposal.
Addington's residential solid waste collection services are performed under
contracts with municipalities giving Addington exclusive rights to service all
or a portion of the homes in their respective jurisdictions. Such contracts or
franchises usually range in duration from one to five years. Residential
services involve the curbside collection of waste by Addington's vehicles and
the transportation of the collected waste to transfer station and landfills. The
fees received by Addington are based primarily on market factors, frequency and
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type of service, the distance to the disposal facility and cost of disposal.
Residential collection fees are paid by the residential customers receiving the
service.
RECYCLING SERVICES
Addington currently operates a materials recycling facility near its
landfill in Montgomery County, North Carolina. The facility accepts mixed solid
waste and mechanically separates the recyclables from the waste stream.
Addington is also engaged in curbside recycling programs in certain Kentucky
communities.
EMPLOYEES
At September 30, 1996, Addington employed approximately 390 people. None of
Addington's employees are represented by a labor union, and management believes
that its relations with its employees are good. Addington has been subject to
limited union organizing efforts in the past, but such efforts were not
successful. Addington cannot predict whether there will be such activities in
the future. Unionization could adversely affect Addington's costs. Addington
maintains administrative offices in Lexington, Kentucky. In the opinion of
management, Addington's offices are adequate and suitable for its current
operations.
COMPETITION
Solid waste management is a very competitive business which requires
substantial investment in labor and capital resources. Addington believes that
the increasing consolidation of the solid waste industry will heighten
Addington's competition. The sources of competition vary by locality and by the
type of services provided, and originate from national, regional and local
companies. Several national waste management companies are much larger and have
far greater capital resources than Addington. Addington also competes with
counties, municipalities and industrial facilities which provide their own waste
collection and disposal operations. Counties and municipalities may have
financial advantages from tax exempt financing available to them, which
advantage may be offset to some extent by budgetary pressures faced by many of
them. Disposal operations compete primarily on the basis of proximity to
collection and hauling operations and on the basis of price. Addington
anticipates that competition in the disposal business will increasingly include
an emphasis on safeguards with respect to the environment, and intends to
continue its policy of constructing and operating landfills with high levels of
environmental protection and monitoring. Incineration and other waste reduction
processes are also sources of competition. However, Addington believes that its
contained landfill operations can complement certain of these processes, in that
landfills serve as receptacles for incinerating trash and nonprocessable
material.
ENVIRONMENTAL LIABILITY INSURANCE AND BONDING
Addington has obtained and currently maintains environmental impairment
liability insurance coverage in the amount of $5,000,000 each occurrence,
$10,000,000 aggregate, for certain environmental risks arising from the
operation of landfill facilities. The environmental impairment liability
insurance coverage is specific in qualification and premium cost to each
landfill facility through pre-issuance inspections. If an environmental
impairment exceeds the loss coverage, Addington's financial condition could be
adversely affected. Management believes that the premium charge for its coverage
from commercial insurance underwriters is reasonable.
Addington is also required from time to time to post performance bonds or
bank letters of credit in connection with its hauling and collection contracts
and the operation or closure of its landfills. The ability to obtain these bonds
and letters of credit is contingent upon Addington's performance record and
creditworthiness. If Addington were unable to obtain surety bonds or letters of
credit in sufficient amounts or at reasonable rates, Addington's ability to
operate and expand its waste hauling operations and landfills would be adversely
affected.
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GOVERNMENT REGULATION OF ENVIRONMENTAL OPERATIONS
General Regulatory Process. Addington and the waste services industry in
general are subject to extensive, expansive and evolving regulation by federal,
state and local authorities. In particular, the regulatory process requires
firms in the industry to retain and obtain numerous governmental permits to
conduct various aspects of their operations, any of which may be subject to
revocation, modification or denial. The continually shifting policies and
attitudes of the regulatory agencies relating to the industry may impact
Addington's ability to obtain applicable permits from governmental authorities
on a timely basis and to retain such permits. Addington is not in a position to
assess the extent of any such impact, but it could be significant.
State and local governments have also from time to time proposed or adopted
other types of laws, regulations or initiatives with respect to the
environmental services industry. Included among these are laws, regulations and
initiatives to ban or restrict the interstate or inter-county shipment of
wastes, impose higher taxes on out-of-state waste shipments than in-state
shipments, require solid waste to be delivered to a particular facility, and
regulate disposal facilities as public utilities.
Addington makes a continuing effort to anticipate regulatory, political and
legal developments that might affect operations, but cannot predict the extent
to which any legislation or regulation that may be enacted or enforced in the
future may affect its operations.
Permits issued by state regulatory agencies are required before a landfill
may be constructed and operated. Permits need to be renewed periodically and may
be subject to revocation, modification, denial or non-renewal for various
reasons, including failure of Addington to satisfy regulatory concerns. In the
solid waste collection phase, regulation takes such forms as licensing of
collection vehicles, truck safety requirements, vehicular weight limitations
and, in certain localities, limitations on rates, area and time and frequency of
collection. In the solid waste disposal phase, regulation covers various
matters, including gas emission, liquid runoff and rodent, pest, litter and
traffic control. Zoning and land use requirements and limitations are
encountered in the solid waste collection and disposal phases of Addington's
business. In addition, Addington's operations may be subject to water pollution
laws and regulations; air and noise pollution laws and regulations; and safety
standards under OSHA. Governmental authorities have the power to enforce
compliance with these various laws and regulations and violators are subject to
injunctions, fines and revocation of permits. Private individuals may also have
the right to sue to enforce compliance.
Regulatory or technological developments relating to the environment may
require Addington (as well as others in the solid waste management business) to
modify, supplement or replace equipment and facilities at costs which may be
substantial.
Although Addington intends to conduct its operations in compliance with
applicable laws and regulations, Addington believes that heightened political
and citizen sensitivity causes companies in the solid waste management industry
to be faced, in the normal course of operating their businesses, with the
possibility of expending funds for fines, penalties and environmental
compliance. While Addington believes that it is in material compliance with
federal, state and local regulations and permits, there can be no assurance that
violations will not occur in the future or that claims of deficient performance
in the past, present or future will not be asserted. Any such violations or
claims could have a material adverse effect on Addington's operations or
financial condition or reputation.
Permitting and Construction Process. Addington is required to obtain
construction and operating permits when it designs and constructs new landfills.
When appropriate, Addington pursues permits for expansion and/or modification of
its landfills, including landfill sites that it acquired. Permit expansions and
modifications generally take the form of vertical expansions of existing
disposal capacity, lateral expansions of permitted disposal acreage, or
modifications of operating restrictions to allow increased disposal volume or
additional waste streams.
Although the permitting process varies from state to state, the following
summary sets forth the typical steps in the permitting process.
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<PAGE> 121
In most instances, some form of local zoning or planning approval, commonly
referred to as siting approval, is required to permit a site and may be required
to expand or modify a landfill. Particularly in urban areas, this process often
requires complying with city or county zoning regulations through a separate
application process to a zoning or planning board. An applicant generally files
various reports and drawings which describe the project and public hearings are
held. Frequently, community opposition will be present and many local zoning or
planning authorities may consider community opposition in deciding whether to
grant siting approval. Following hearings, a decision is made. Generally, both
the applicant and any opposition have the right to appeal such decision.
Although not always required, the local approval process is usually completed
before applying for a state permit.
Upon receipt of local approval, an applicant must then submit detailed
construction and operating plans for state approval. Most states require an
applicant to provide evidence that a new, modified or expanded facility will
meet or exceed state regulations regarding disposal facility siting and design
specifications. States generally consider the technical merits of an
application, particularly such matters as geology, hydrogeology, ecology,
archaeology, soil characteristics, surface drainage, the presence of, or
location relative to, airports, wetlands and local water supply systems and the
adequacy of local road systems.
Engineering consultants design the project to meet state regulations and
standards. This design is reviewed by state officials, comments are issued and,
possibly after negotiations between the applicant and the state officials,
revisions are made by the applicant. Once the design is approved, public notice
is given and frequently a hearing held. Both the applicant and any opposition
generally have the right to appeal the decision.
Regulations. Addington is generally subject to the same environmental
regulations as is Republic. See "BUSINESS OF REPUBLIC -- Regulations -- Federal
Regulation; State Regulation."
DISCONTINUED OPERATIONS
Discontinued operations during 1995 consisted of the following: coal
mining, mining equipment manufacturing and licensing, citrus properties in
Belize, precious and industrial metals mining and incidental limestone
properties.
On August 4, 1995, Addington appointed four new members to its Board,
Howard P. Berkowitz (Chairman), Richard Ravitch, James Grosfeld and Harold
Blumenstein, and accepted the resignation of Robert Addington from the Board.
These changes in the Board followed the execution of a definitive agreement on
August 4, 1995, between Addington and the Addington Brothers for their sale of
an aggregate of 2,000,000 shares of Addington Common Stock to HPB Associates,
L.P., of which Mr. Berkowitz is the senior managing member of the general
partner and Messrs. Ravitch and Blumenstein are limited partners.
Following the reconstitution of the Board, Addington determined to dispose
of its remaining non-environmental operations, with the net proceeds from such
sale being deployed to expand Addington's environmental operations.
After soliciting indications of interest in its non-environmental
operations and responding to inquiries received after its August 4, 1995
announcement, on September 22, 1995, Addington entered into a stock purchase
agreement with Addington Acquisition Company, Inc. and the Addington Brothers
whereby Addington agreed to sell, for $30,000,000 subject to certain working
capital adjustments, all the issued and outstanding shares of common stock of
Addington Mining, Inc., Mining Technologies, Inc., Addwest Mining, Inc. and
Addington Coal Holding, Inc. In addition, Addington retained the right to
receive certain payments (anticipated to aggregate $3,000,000 after September
30, 1996) due under Addington's technology sale to BHP Australia Coal Pty. Ltd.
The sale of these coal mining and mining equipment manufacturing and licensing
subsidiaries was consummated on November 2, 1995.
Included in this transaction and pursuant to an option agreement dated
August 4, 1995, Addington sold to the Addington Brothers all of the issued and
outstanding shares of common stock of Addington's subsidiary, Tennessee Mining,
Inc. Addington is entitled to receive a royalty based on tons of coal delivered
under a certain coal sales contract, up to a maximum aggregate royalty of
$12,500,000.
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<PAGE> 122
On September 22, 1995, Addington entered into an agreement to dispose of
its citrus operations through the sale of its subsidiary, Belize River Fruit
Co., to Larry and Bruce Addington in exchange for 1,000,000 shares of Addington
Common Stock owned by Larry and Bruce Addington. This transaction was
consummated on November 2, 1995.
Addington had previously explored opportunities to expand into the mining
of limestone in western Kentucky. On November 17, 1995, Addington sold its
limestone operations to an unrelated party for $2,500,000.
Through its subsidiary Addwest Minerals, Inc., Addington engaged in the
development of gold and precious metals mining operations. On December 29, 1995,
Addington sold the subsidiary to a private Canadian business group for
approximately $3,525,000 in cash and assumption of indebtedness.
PROPERTIES
Addington leases its executive offices consisting of approximately 13,000
square feet located at 2343 Alexandria Drive, Lexington, Kentucky.
Addington owns in fee the property at the following landfills: Epperson,
Green Valley, Tri-K, Dozit, East Carolina and Mid-State. Addington operates
landfills under contracts with the local governments at Ohio County, Uwharrie
and Broadhurst. For additional information concerning Addington's landfills, see
"BUSINESS OF ADDINGTON -- Landfill Operations."
The table below sets forth certain information (based on current permit
status) as of December 31, 1995 with respect to nine of Addington's operating
landfills. Addington constructs its landfills in a series of landfill cells as
additional airspace is needed to accommodate customer demand.
<TABLE>
<CAPTION>
REMAINING WASTE
CAPACITY(1) REMAINING FOOTPRINT(2)
LANDFILL (CUBIC YARDS) LIFE TOTAL ACRES (ACRES)
- - -------------------------------------------------- ------------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Ohio County Landfill.............................. 19,395,756 47 years 908 178
Epperson Landfill................................. 11,223,301 29 years 600 100
Green Valley Landfill............................. 2,704,748 9 years 266 37
Tri-K Landfill.................................... 6,575,341 42 years 318 64
Dozit Landfill.................................... 6,124,268 49 years 224 47
East Carolina Landfill............................ 9,059,552 17 years 504 103
Uwharrie Landfill................................. 5,023,140 19 years 300 58
Broadhurst Landfill............................... 9,405,565 48 years 901 80
Mid-State Landfill................................ 6,388,613 23 years 400 78
</TABLE>
- - ---------------
(1) Total yards of airspace does not represent total yards of actual waste space
because daily soil cover reduces the airspace available for waste. However,
available airspace may be maximized through compacting the waste and using
alternative cover systems.
(2) Maximum acreage permitted for accrual waste disposal area.
In January 1995, Addington commenced operation of a landfill owned by
Pinellas County, Florida. The landfill is operated by Addington pursuant to a
5-year agreement with two 2-year extensions at the option of the county and
contractor. Addington believes that the landfill has remaining capacity in
excess of the amount needed during the term of the 5-year agreement.
Addington is currently in the process of obtaining a permit to construct a
landfill in Person County, North Carolina, which is expected to have a capacity
of 8,500,000 cubic yards, total acreage of 583 acres, and a waste footprint of
70 acres. Addington currently has the right to purchase the land under the
landfill.
LEGAL PROCEEDINGS
There are no material pending legal proceedings against Addington.
Addington's business is regulated by federal, state and local statutes and
regulations regulating the discharge of materials into the environment or
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<PAGE> 123
primarily for the purpose of protecting the environment. In the ordinary course
of its operations, Addington is frequently a party to judicial or administrative
proceedings involving all levels of governmental authorities and other
interested parties. These proceedings relate to original or renewal permit
applications in connection with the establishment, operation, expansion, closure
and post-closure activities relating to its landfills. In these proceedings,
legal challenges are routinely made by various parties.
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<PAGE> 124
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT OF ADDINGTON
Except as otherwise noted in the footnote following the table, the
following table sets forth certain information concerning ownership of Addington
Common Stock as of October 31, 1996, by each director, each executive officer
serving Addington as of the end of 1995, each person or entity who is known to
Addington to be the beneficial owner of more than 5% of Addington Common Stock
and all current directors and executive officers of Addington as a group. Except
as otherwise noted in the footnote following the table, each beneficial owner
listed below has sole voting and dispositive power with respect to the shares
listed next to his name.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OF CLASS
- - --------------------------------------------------------------- ------------------- ----------
<S> <C> <C>
Republic Industries, Inc....................................... 6,867,615(1) 45.2%
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, FL 33301
Morgan Stanley Asset Management Limited........................ 1,061,750(2) 7.0
25 Cabot Square
Canary Wharf
London, E14 4QA England
Howard P. Berkowitz............................................ 2,455,285(3) 16.1
HPB Associates, L.P.
888 Seventh Avenue
New York, New York 10106
Larry Addington................................................ 2,263,324(4) 14.9
1500 North Big Run Road
Ashland, KY 41102
Robert Addington............................................... 980,000(4) 6.4
1500 North Big Run Road
Ashland, KY 41102
Bruce Addington................................................ 914,006(4) 6.0
1500 North Big Run Road
Ashland, KY 41102
Stephen Addington.............................................. 10,000 *
Harold Blumenstein............................................. 100,000(3) *
Jack C. Fisher................................................. 2,500 *
James Grosfeld................................................. 155,000(3)(5) 1.0
Richard Ravitch................................................ 10,000(3) *
R. Douglas Striebel............................................ 66,667(6) *
All directors and executive officers as a group (9 persons).... 5,129,443(7) 33.4
</TABLE>
- - ---------------
* Represents less than 1% of outstanding shares.
(1) Republic shares voting power with respect to 6,867,615 shares beneficially
owned by the Principal Stockholders pursuant to the Voting Agreement. See
"SOLICITATION OF WRITTEN CONSENTS -- Terms of the Voting Agreement."
(2) Morgan Stanley Asset Management Limited is an investment advisory subsidiary
of Morgan Stanley Group, Inc., 1585 Broadway, New York, New York 10036.
Each of these entities shares voting and dispositive power with respect to
the 1,061,750 shares with holders of accounts managed on a discretionary
basis by Morgan Stanley Asset Management Limited. In addition to these
shares, Morgan
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<PAGE> 125
Stanley Group Inc. shares voting and dispositive powers with respect to
4,500 shares. Information concerning these entities is according to a
Schedule 13G, as amended February 13, 1996.
(3) A group consisting of HPB Associates, L.P., Messrs. Berkowitz, Blumenstein,
Grosfeld and Ravitch, and certain other limited partners and members of the
general partner of HPB Associates, L.P., beneficially owns 3,008,785
shares, including the shares set forth above. Each member of the group has
the power to vote and dispose of the shares held by him, and no member has
the power to vote and dispose of the shares held by another member of the
group, other than with respect to shares beneficially owned by HPB
Associates L.P., which power to vote and dispose of such shares may be
exercised by the managing member of its general partner, Mr. Berkowitz.
(4) As a group, Larry Addington, Robert Addington, and Bruce Addington
beneficially own 4,157,330 shares, including the shares set forth above.
(5) Includes 100,000 shares for which Mr. Grosfeld shares voting and dispositive
powers with his wife.
(6) Includes currently exercisable options for 66,667 shares.
(7) Includes currently exercisable options for 133,334 shares. The percentage of
Common Stock beneficially owned by the group is calculated on the basis of
the amount of outstanding securities plus the currently exercisable
options.
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon for Republic
by Akerman, Senterfitt & Eidson, P.A., Miami, Florida. Certain attorneys
employed by Akerman, Senterfitt & Eidson, P.A. beneficially owned an aggregate
of approximately 539,725 shares of Republic Common Stock as of the date of this
Solicitation Statement/Prospectus. The federal income tax consequences of the
Merger will be passed upon for Addington by Schulte Roth & Zabel LLP and for
Republic by Akerman, Senterfitt & Eidson, P.A.
EXPERTS
The consolidated financial statements and schedule of Republic as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, the consolidated financial statements of AutoNation as of
December 31, 1995 and for the period from inception (September 12, 1995) to
December 31, 1995, the consolidated financial statements of Continental as of
December 31, 1995 and 1994 and for each of the three years in the period ended
December 31, 1995, the combined financial statements of HMC as of September 30,
1994 and 1993 and for each of the three years in the period ended September 30,
1994 and the consolidated financial statements of Addington as of December 31,
1995 and 1994 and for each of the three years in the period ended December 31,
1995 included in this Solicitation Statement/Prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
The combined financial statements of Alamo Rent-A-Car, Inc. and Affiliates
("Alamo") as of December 31, 1995 and 1994, and for each of the three years in
the period ended December 31, 1995, the consolidated financial statements of Guy
Salmon USA, Ltd. and Subsidiaries as of December 31, 1995 and 1994, and for each
of the three years in the period ended December 31, 1995, and the financial
statements of DKBERT Assoc. as of December 31, 1995 and 1994, and for each of
the three years in the period ended December 31, 1995, have been included
(incorporated by reference) herein, in reliance upon the reports of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein (incorporated by reference), and upon the authority of said firm as
experts in accounting and auditing.
The combined financial statements as of and for the year ended December 31,
1995 of Acquired Solid Waste Companies included in this Solicitation
Statement/Prospectus have been audited by Munson, Cronick & Associates,
independent certified public accountants, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
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<PAGE> 126
OTHER MATTERS
FEDERAL SECURITIES LAWS CONSEQUENCES
Shares of Republic Common Stock issuable in connection with the Merger will
be registered under the Securities Act. Accordingly, there will be no
restrictions upon the resale or transfer of such shares by Addington's
stockholders, except for those persons who are deemed to be "affiliates" of
Addington under the Securities Act.
With respect to those persons who may be deemed to be affiliates of
Addington, Rule 144 and Rule 145 under the Securities Act place certain
restrictions on the transfer of the shares of Republic Common Stock which may be
received by them pursuant to the Merger. Persons who may be deemed to be
affiliates of Addington generally include individuals who, or entities which,
directly or indirectly, control, are controlled by or are under common control
with Addington and may include certain officers and directors of Addington as
well as principal stockholders of Addington. This Solicitation
Statement/Prospectus does not cover resales of shares of Republic Common Stock
received by any person pursuant to the Merger who may be deemed to be an
affiliate of Addington.
REGULATORY APPROVAL
Certain acquisition transactions such as the Merger are reviewed by the DOJ
or the FTC to determine whether such transactions comply with applicable
antitrust laws. Under the provisions of the HSR Act, the Merger could not be
consummated until certain information was furnished to the DOJ and the FTC and
certain waiting period requirements of the HSR Act were satisfied. Information
was filed with the DOJ and the FTC under the HSR Act by Republic and Addington
on July 19, 1996. Early termination of the required waiting period under the HSR
Act was granted on July 31, 1996. At any time before or after consummation of
the Merger, the DOJ or the FTC could take such action under the antitrust laws
as it deems necessary or desirable in the public interest, including seeking to
enjoin the consummation of the Merger or seeking the divestiture of substantial
assets of Republic or Addington. There can be no assurance that additional
information or documentary material will not be requested. At any time before or
after the Effective Time, and notwithstanding that the HSR Act waiting period
has expired, any state could take such action under the antitrust laws as it
deems necessary or desirable. Such action could include seeking to enjoin the
consummation of the Merger or seeking divestiture of businesses of Republic or
Addington by Republic. Private parties may also seek to take legal action under
the antitrust laws under certain circumstances.
STOCKHOLDER PROPOSALS
Only in the event that the Merger is not consummated, any proposals of
Addington's stockholders intended to be presented at Addington's 1997 Annual
Meeting must be received for inclusion in the proxy statement and form of proxy
relating to the meeting not later than February 10, 1997. Detailed information
about submitting resolutions will be provided upon written request to the
Secretary of Addington (Addington Resources, Inc., 2343 Alexandria Drive, Suite
400, Lexington, Kentucky 40504). If the Merger is consummated, Addington will
not hold a 1997 Annual Meeting, and, in that case, stockholder proposals
directed to Addington would not be considered.
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<PAGE> 127
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
FINANCIAL STATEMENTS OF REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES AND BUSINESSES ACQUIRED OR
TO BE ACQUIRED BY REPUBLIC
REPUBLIC INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Certified Public Accountants............................. F-4
Consolidated Balance Sheets as of December 31, 1995 and 1994 (Restated)........ F-5
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993 (Restated)...................................................... F-6
Consolidated Statements of Shareholders' Equity for the Years Ended December
31, 1995, 1994 and 1993 (Restated)............................................ F-7
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993 (Restated)...................................................... F-8
Notes to Consolidated Financial Statements (Restated).......................... F-9
Supplemental Consolidated Balance Sheets as of September 30, 1996 (unaudited)
and December 31, 1995 and 1994................................................ F-24
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........................................................... F-25
Supplemental Consolidated Statements of Shareholders' Equity for the Years
Ended December 31, 1995, 1994 and 1993........................................ F-26
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........................................................... F-27
Notes to Supplemental Consolidated Financial Statements........................ F-28
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995............................................................. F-50
Unaudited Condensed Consolidated Statements of Operations for the Three and
Nine Months Ended September 30, 1996 and 1995................................. F-51
Unaudited Condensed Consolidated Statement of Shareholders' Equity for the Nine
Months Ended September 30, 1996............................................... F-52
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995............................................. F-53
Notes to Unaudited Condensed Consolidated Financial Statements................. F-54
AUTONATION INCORPORATED AND SUBSIDIARIES
Report of Independent Certified Public Accountants............................. F-61
Consolidated Balance Sheets as of December 31, 1995 (audited) and September 29,
1996 (unaudited).............................................................. F-62
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).......................................... F-63
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).......................................... F-64
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)................................................ F-65
Notes to Consolidated Financial Statements..................................... F-66
</TABLE>
F-1
<PAGE> 128
<TABLE>
<S> <C>
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants....................................... F-73
Consolidated Balance Sheets as of December 31, 1995 (Restated) and 1994
(Restated).................................................................... F-74
Consolidated Statements of Income for the Years Ended December 31, 1995
(Restated), 1994 (Restated) and 1993.......................................... F-75
Consolidated Statements of Stockholders' Equity for the Years Ended December
31, 1995 (Restated), 1994 (Restated) and 1993................................. F-76
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995
(Restated), 1994 (Restated) and 1993.......................................... F-77
Notes to Consolidated Financial Statements..................................... F-78
Unaudited Condensed Consolidated Balance Sheets as of September 30, 1996 and
December 31, 1995 (Restated).................................................. F-94
Unaudited Condensed Consolidated Statements of Income for the Three and Nine
Months Ended September 30, 1996 and 1995 (Restated)........................... F-95
Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1996 and 1995 (Restated).................................. F-97
Notes to Unaudited Condensed Consolidated Financial Statements................. F-98
ALAMO RENT-A-CAR, INC. AND AFFILIATES
Independent Auditors' Report................................................... F-103
Combined Balance Sheets as of December 31, 1995 and 1994....................... F-104
Combined Statements of Operations for the Years Ended December 31, 1995, 1994
and 1993...................................................................... F-105
Combined Statements of Equity for the Years Ended December 31, 1995, 1994 and
1993.......................................................................... F-106
Combined Statements of Cash Flows for the Years Ended December 31, 1995, 1994
and
1993......................................................................... F-107
Notes to Combined Financial Statements......................................... F-108
Unaudited Combined Condensed Balance Sheets as of September 30, 1996 and
December 31, 1995............................................................. F-126
Unaudited Combined Condensed Statements of Operations for the Three and Nine
Months Ended September 30, 1996 and 1995...................................... F-127
Unaudited Combined Condensed Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995................................................... F-128
Notes to Unaudited Combined Condensed Financial Statements..................... F-129
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES AND ENVIROCYCLE, INC.
Report of Independent Certified Public Accountants............................. F-135
Combined Balance Sheets as of June 30, 1995 (unaudited) and September 30, 1994
and
1993......................................................................... F-136
Combined Statements of Income for the Nine Months Ended June 30, 1995 and 1994
(unaudited) and the Years Ended September 30, 1994, 1993 and 1992............. F-137
Combined Statements of Stockholders' Equity for the Years Ended September 30,
1994, 1993 and 1992........................................................... F-138
Combined Statements of Cash Flows for the Nine Months Ended June 30, 1995 and
1994 (unaudited) and the Years Ended September 30, 1994, 1993 and 1992........ F-139
Notes to Combined Financial Statements......................................... F-140
</TABLE>
F-2
<PAGE> 129
<TABLE>
<S> <C>
ACQUIRED SOLID WASTE COMPANIES
Independent Auditor's Report................................................... F-148
Combined Balance Sheets as of December 31, 1995 (audited) and March 31, 1996
(unaudited)................................................................... F-149
Combined Statements of Operations for the Year Ended December 31, 1995
(audited) and for the Three Months Ended March 31, 1996 and 1995
(unaudited)................................................................... F-150
Combined Statements of Changes In Equity for the Year Ended December 31, 1995
(audited) and for the Three Months Ended March 31, 1996 (unaudited)........... F-151
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)................................................................... F-152
Notes to Combined Financial Statements......................................... F-153
FINANCIAL STATEMENTS OF ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
Report of Independent Public Accountants....................................... F-157
Consolidated Balance Sheets as of December 31, 1995 and 1994................... F-158
Consolidated Statements of Operations for the Years Ended December 31, 1995,
1994 and 1993................................................................. F-159
Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1995, 1994 and 1993.............................................. F-160
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995,
1994 and 1993................................................................. F-161
Notes to Consolidated Financial Statements..................................... F-162
Unaudited Consolidated Balance Sheets as of September 30, 1996 and December 31,
1995.......................................................................... F-179
Unaudited Consolidated Statements of Operations for the Three and Nine Months
Ended September 30, 1996 and 1995............................................. F-180
Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
September 30, 1996 and 1995................................................... F-181
Notes to Unaudited Consolidated Financial Statements........................... F-182
</TABLE>
F-3
<PAGE> 130
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.
F-4
<PAGE> 131
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.
F-5
<PAGE> 132
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.
F-6
<PAGE> 133
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.
F-7
<PAGE> 134
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.
F-8
<PAGE> 135
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.
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
F-9
<PAGE> 136
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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>
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
F-10
<PAGE> 137
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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
F-11
<PAGE> 138
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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, 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
F-12
<PAGE> 139
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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
F-13
<PAGE> 140
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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 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
F-14
<PAGE> 141
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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>
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
F-15
<PAGE> 142
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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.
F-16
<PAGE> 143
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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>
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
$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.
F-17
<PAGE> 144
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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>
F-18
<PAGE> 145
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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 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 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
F-19
<PAGE> 146
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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 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.
F-20
<PAGE> 147
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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 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
F-21
<PAGE> 148
REPUBLIC INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (RESTATED) -- (CONTINUED)
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.
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>
F-22
<PAGE> 149
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>
F-23
<PAGE> 150
REPUBLIC INDUSTRIES, INC.
SUPPLEMENTAL CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------------
1996 1995 1994
------------- ---------- ----------
(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.
F-24
<PAGE> 151
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.
F-25
<PAGE> 152
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.
F-26
<PAGE> 153
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 (used in) 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.
F-27
<PAGE> 154
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
F-28
<PAGE> 155
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>
SEPTEMBER DECEMBER 31,
30, -------------------------
1996 1995 1994
------------ ---------- ----------
(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>
F-29
<PAGE> 156
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>
F-30
<PAGE> 157
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (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
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
F-31
<PAGE> 158
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-32
<PAGE> 159
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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. 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 158,000 vehicles. Alamo operates in 42 states in the
United States and has operations in 10 European countries and Canada.
F-33
<PAGE> 160
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-34
<PAGE> 161
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-35
<PAGE> 162
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,
SEPTEMBER 30, -------------------------
1996 1995 1994
------------- ---------- ----------
(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>
F-36
<PAGE> 163
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>
F-37
<PAGE> 164
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,
SEPTEMBER 30, ---------------------
1996 1995 1994
------------- -------- --------
(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
F-38
<PAGE> 165
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.
F-39
<PAGE> 166
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>
F-40
<PAGE> 167
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
F-41
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REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-42
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REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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.
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REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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:
<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.
F-44
<PAGE> 171
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-45
<PAGE> 172
REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-46
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REPUBLIC INDUSTRIES, INC.
NOTES TO SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-47
<PAGE> 174
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>
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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>
F-49
<PAGE> 176
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(RESTATED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 154,826 $164,572
Accounts receivable, less allowance for doubtful accounts.......... 62,424 38,092
Inventory.......................................................... 27,954 14,924
Prepaid expenses................................................... 9,399 3,757
Other current assets............................................... 126,296 7,323
-------- --------
Total current assets....................................... 380,899 228,668
Property and equipment, net.......................................... 331,591 204,949
Investment in subscriber accounts, net............................... 78,940 42,240
Intangible assets, net............................................... 182,986 101,363
Other assets......................................................... 12,449 5,246
-------- --------
Total assets.................................................... $ 986,865 $582,466
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 24,000 $ 18,732
Accrued liabilities................................................ 62,767 24,431
Current portion of deferred revenue................................ 25,947 25,555
Current maturities of long-term debt............................... 18,805 11,996
Income taxes payable............................................... 3,251 3,625
-------- --------
Total current liabilities.................................. 134,770 84,339
Long-term debt, net of current maturities............................ -- 3,791
Deferred income taxes................................................ 37,626 14,414
Deferred revenue, net of current portion............................. 9,794 18,012
Other liabilities.................................................... 12,771 11,362
-------- --------
Total liabilities.......................................... 194,961 131,918
-------- --------
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 and 350,000,000
shares authorized, respectively; 191,028,437 and 161,820,630
shares issued and outstanding, respectively..................... 1,910 1,618
Additional paid-in capital......................................... 728,475 420,557
Retained earnings.................................................. 61,519 28,373
-------- --------
Total shareholders' equity................................. 791,904 450,548
-------- --------
Total liabilities and shareholders' equity................. $ 986,865 $582,466
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-50
<PAGE> 177
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1996 1995 1996 1995
-------- ------- -------- --------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C>
Revenue................................................ $155,746 $78,054 $423,371 $210,679
Expenses:
Cost of operations................................... 113,566 53,921 297,616 140,152
Selling, general and administrative.................. 24,139 17,645 76,744 49,294
-------- ------- -------- --------
Operating income....................................... 18,041 6,488 49,011 21,233
Interest and other income.............................. 7,102 1,717 13,083 2,770
Interest expense....................................... (513) (1,264) (2,324) (4,263)
-------- ------- -------- --------
Income from continuing operations before income
taxes................................................ 24,630 6,941 59,770 19,740
Provision for income taxes............................. 8,638 3,055 21,816 8,774
-------- ------- -------- --------
Income from continuing operations...................... 15,992 3,886 37,954 10,966
Income from discontinued operations, net............... -- -- -- 508
-------- ------- -------- --------
Net income............................................. $ 15,992 $ 3,886 $ 37,954 $ 11,474
======== ======= ======== ========
Fully diluted earnings per common and common equivalent
share:
Continuing operations............................. $ .07 $ .03 $ .17 $ .09
Discontinued operations........................... -- -- -- .01
-------- ------- -------- --------
Net income........................................ $ .07 $ .03 $ .17 $ .10
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-51
<PAGE> 178
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
Balance at December 31, 1995 (Restated)........................... $1,618 $ 420,557 $ 28,373
Sale of common stock............................................ 99 197,484 --
Exercise of stock options and warrants.......................... 25 9,330 --
Capital contributions from former owners of pooled companies.... -- 20,669 --
Distributions to former owners of pooled companies.............. -- -- (4,917)
Stock issued in acquisitions.................................... 168 80,965 --
Other........................................................... -- (530) 109
Net income...................................................... -- -- 37,954
------ -------- -------
Balance at September 30, 1996..................................... $1,910 $ 728,475 $ 61,519
====== ======== =======
</TABLE>
The accompanying notes are an integral part of this statement.
F-52
<PAGE> 179
REPUBLIC INDUSTRIES, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------
1996 1995
--------- ----------
(RESTATED)
<S> <C> <C>
Cash flows from operating activities:
Income from continuing operations.................................. $ 37,954 $ 10,966
Adjustments to reconcile income from continuing operations to net
cash provided by operations:
Depreciation, depletion and amortization........................ 27,878 18,090
Gain on the sale of property and equipment...................... (984) (383)
Changes in assets and liabilities, net of effects from business
combinations:
Accounts receivable........................................... (12,054) (4,736)
Prepaid expenses and other assets............................. (24,551) (2,777)
Accounts payable and accrued liabilities...................... (4,197) 5,586
Deferred and current income taxes payable..................... 19,719 1,110
Deferred revenue and other liabilities........................ (14,399) (10,461)
--------- ---------
Net cash provided by continuing operations................. 29,366 17,395
--------- ---------
Cash used in discontinued operations................................. -- (263)
--------- ---------
Cash flows from investing activities:
Advances and loans................................................. (112,900) --
Net cash used in business combinations............................. (17,046) (5,497)
Purchases of property and equipment................................ (77,538) (31,019)
Investment in subscriber accounts.................................. (24,943) (10,775)
Proceeds from the sale of property and equipment................... 2,440 1,068
Other.............................................................. 1,464 (1,013)
--------- ---------
Net cash used in investing activities...................... (228,523) (47,236)
--------- ---------
Cash flows from financing activities:
Sale of common stock............................................... 197,583 232,031
Proceeds from long-term debt....................................... 17,104 23,432
Payments of long-term debt......................................... (47,064) (40,338)
Exercise of stock options and warrants............................. 9,355 6,333
Capital contributions from former owners of pooled companies....... 17,876 11,828
Distributions to former owners of pooled companies................. (4,917) (5,473)
Other.............................................................. (526) 16,053
--------- ---------
Net cash provided by financing activities.................. 189,411 243,866
--------- ---------
(Decrease) increase in cash and cash equivalents........... (9,746) 213,762
Cash and cash equivalents:
Beginning of period................................................ 164,572 11,485
--------- ---------
End of period...................................................... $ 154,826 $ 225,247
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-53
<PAGE> 180
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(000'S OMITTED IN ALL TABLES EXCEPT PER SHARE AMOUNTS)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements
include the accounts of Republic Industries, Inc. and its subsidiaries (the
"Company") and have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. All significant
intercompany accounts and transactions have been eliminated. Certain information
related to the Company's organization, significant accounting policies and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. These unaudited condensed consolidated financial statements reflect, in
the opinion of management, all material adjustments (which include only normal
recurring adjustments) necessary to fairly state the financial position and the
results of operations for the periods presented and the disclosures herein are
adequate to make the information presented not misleading. Operating results for
interim periods are not necessarily indicative of the results that can be
expected for a full year. These interim financial statements should be read in
conjunction with the Company's audited consolidated financial statements and
notes thereto.
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 accompanying financial statements also include the financial position
and results of operations of CarChoice, Inc. ("CarChoice") which the Company
acquired in August 1996, and Incendere, Inc. and certain waste companies
(collectively, "Schaubach") controlled by Dwight C. Schaubach and Denver Burglar
Alarm and affiliate ("Denver Alarm"), which the Company acquired in February
1996. These business combinations have been accounted for under the pooling of
interests method of accounting and, accordingly, these financial statements and
notes thereto have been restated as if CarChoice, Schaubach and Denver Alarm
(the "Pooled Entities") and the Company had operated as one entity since
inception. See Note 2 for a further discussion of business combinations.
In April 1995, the Company spun-off its hazardous waste services segment,
Republic Environmental Systems, Inc. ("RESI"), now known as International
Alliance Services, Inc., to the Company's shareholders. Accordingly, this
segment has been accounted for as a discontinued operation in the accompanying
unaudited condensed consolidated statements of operations.
All per share data and numbers of shares of common stock for all periods
included in the financial statements and notes 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 11.
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
F-54
<PAGE> 181
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
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 of Addington's shareholders 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.
Both of the above pending acquisitions are expected to close during the
fourth quarter of 1996.
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 Incorporated ("AutoNation"). AutoNation is a
privately-owned company developing a chain of megastores for the sale of new and
used vehicles and is partially owned by the Company's Co-Chief Executive
Officers, 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 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 Common Stock in
connection with the transaction which is expected to close in the first quarter
of 1997.
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 August 1996, the Company acquired all of the net assets of 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, 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, all of which have been accounted
for under the pooling of interests method of accounting.
F-55
<PAGE> 182
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (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>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------
1996 1995
-------- --------
<S> <C> <C>
Revenue:
The Company................................................ $376,548 $185,207
Pooled Entities............................................ 46,823 25,472
------- -------
$423,371 $210,679
======= =======
Net income (loss):
The Company................................................ $ 44,057 $ 13,136
Pooled Entities............................................ (6,103) (1,662)
------- -------
$ 37,954 $ 11,474
======= =======
</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.
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 nine
months ended September 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Property and equipment......................................... $ 65,869 $ 23,822
Investment in subscriber accounts.............................. 17,914 --
Intangible assets.............................................. 87,385 76,887
Working capital deficiency, net of cash acquired............... (33,695) (7,559)
Long-term debt assumed......................................... (29,563) (14,594)
Other liabilities, net......................................... (9,731) --
Common stock issued............................................ (81,133) (73,059)
------- -------
Cash used in acquisitions............................ $ 17,046 $ 5,497
======= =======
</TABLE>
In August 1995, the Company acquired all of the outstanding shares of
common 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 has been accounted for under the purchase method of
accounting and, accordingly, is included in the Company's financial statements
from the date of acquisition.
The Company's consolidated results of operations on an unaudited pro forma
basis assuming the acquisition of HMC had occurred at the beginning of the
period presented is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1995
-----------------
<S> <C>
Revenue............................................................. $ 243,880
========
Income from continuing operations................................... $ 11,818
========
Fully diluted earnings per common and common equivalent share from
continuing operations............................................. $ .09
========
</TABLE>
F-56
<PAGE> 183
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
In September 1996, the Company 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. Included in selling, general and administrative expenses for the three
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 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. 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 three 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 totaling
$2,670,000 has been included as a component of other income for the three months
ended September 30, 1996.
In November 1996, the Company acquired Alamo Rent-A-Car, Inc. and
affiliated entities ("Alamo"), which are privately-owned, 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
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 September 30, 1996 are
as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------
1996 1995
---------- ----------
<S> <C> <C>
Revenue..................................................... $1,597,568 $1,278,048
========= =========
Net income (loss)........................................... $ 39,423 $ (1,697)
========= =========
Fully diluted earnings (loss) per common and common
equivalent share.......................................... $ .16 $ (.01)
========= =========
</TABLE>
3. OTHER CURRENT ASSETS
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 $1,117,000 and
$1,296,000 for the three and nine months ended September 30, 1996, respectively.
Also included in other current assets at September 30, 1996 is the value
assigned to the ADT Warrant totaling $5,670,000 as discussed in Note 2.
F-57
<PAGE> 184
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY AND EQUIPMENT
A summary of property and equipment is shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Land, landfills and improvements............................. $ 133,199 $ 97,610
Trucks and equipment......................................... 277,412 157,677
Buildings and improvements................................... 34,124 29,386
Furniture and fixtures....................................... 13,241 9,061
--------- --------
457,976 293,734
Less: accumulated depreciation and depletion................. (126,385) (88,785)
--------- --------
$ 331,591 $204,949
========= ========
</TABLE>
5. INVESTMENT IN SUBSCRIBER ACCOUNTS
Investment in subscriber accounts consists of capitalized costs associated
with new monitoring systems installed by the Company's electronic security
services business and the cost of acquired subscriber accounts. These costs are
amortized over periods ranging from eight to twelve years (based on estimated
and historical customer attrition rates) on a straight-line basis.
Accumulated amortization of investment in subscriber accounts at September
30, 1996 and December 31, 1995 was $17,602,000 and $11,446,000, respectively.
6. 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.
Accumulated amortization of intangible assets at September 30, 1996 and
December 31, 1995 was $17,580,000 and $9,026,000, respectively.
7. LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
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
equipment and other assets............................. -- 4,590
Other notes, secured by equipment and other assets....... -- 1,288
-------- --------
18,805 15,787
Less: current maturities................................. (18,805) (11,996)
-------- --------
$ -- $ 3,791
======== ========
</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
F-58
<PAGE> 185
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
of $250,000,000 for a term of thirty-six months. Outstanding advances, if any,
are payable at the expiration of the thirty-six month term. 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 September 30, 1996, no amounts were outstanding and the Company was
in compliance with all material 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.
8. INCOME TAXES
Income taxes have been provided for based upon the Company's anticipated
annual effective income tax rate.
9. 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 nine months ended September 30,
1996 is as follows:
<TABLE>
<S> <C>
Options and warrants outstanding at January 1, 1996.................. 48,534
Granted.............................................................. 4,007
Exercised............................................................ (2,522)
Canceled............................................................. (44)
------
Options and warrants outstanding at September 30, 1996............... 49,975
======
Average price of options and warrants exercised...................... $3.81
Prices of options and warrants outstanding at September 30, 1996..... $1.05 to $30.75
Average price of options and warrants outstanding at September 30,
1996............................................................... $5.71
Vested options and warrants at September 30, 1996.................... 39,436
Options available for future grants at September 30, 1996............ 12,380
</TABLE>
10. 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.
F-59
<PAGE> 186
REPUBLIC INDUSTRIES, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of fully diluted earnings per share, which is
substantially the same as the computation used to calculate primary earnings per
share, is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
<S> <C> <C> <C> <C>
Common shares outstanding..................... 191,028 159,827 191,028 159,827
Common equivalent shares...................... 50,662 41,958 52,540 42,016
Weighted average treasury shares purchased.... (13,451) (8,434) (12,682) (5,302)
Effect of using weighted average common and
common equivalent shares outstanding........ (925) (38,938) (12,218) (77,014)
-------- -------- -------- --------
227,314 154,413 218,668 119,527
======== ======== ======== ========
</TABLE>
11. 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
$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 $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.
12. LEGAL MATTERS
The Company is subject to various lawsuits, claims and other legal matters
arising in the ordinary course of conducting its business. The Company believes
that such lawsuits, claims and other legal matters should not have a material
adverse effect on the Company's consolidated results of operations, financial
condition or cash flows.
F-60
<PAGE> 187
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).
F-61
<PAGE> 188
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.
F-62
<PAGE> 189
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION PERIOD FROM
(SEPTEMBER 12, INCEPTION
1995) TO (SEPTEMBER 12,
NINE MONTHS ENDED THREE MONTHS 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.
F-63
<PAGE> 190
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.
F-64
<PAGE> 191
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD PERIOD
NINE FROM INCEPTION FROM INCEPTION
MONTHS ENDED (SEPTEMBER 12, (SEPTEMBER 12,
SEPTEMBER 29, 1995) TO 1995) TO
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.
F-65
<PAGE> 192
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.
F-66
<PAGE> 193
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
F-67
<PAGE> 194
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.
F-68
<PAGE> 195
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 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
F-69
<PAGE> 196
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-70
<PAGE> 197
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 has 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 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.
F-71
<PAGE> 198
AUTONATION INCORPORATED AND SUBSIDIARIES
(A DEVELOPMENT STAGE CORPORATION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 sheets primarily represents amounts due from CarChoice.
Such amounts result from the procurement of vehicles on behalf of CarChoice,
vehicle sales in the ordinary course of business.
F-72
<PAGE> 199
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)
F-73
<PAGE> 200
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.
F-74
<PAGE> 201
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.
F-75
<PAGE> 202
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.
F-76
<PAGE> 203
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.
F-77
<PAGE> 204
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.
F-78
<PAGE> 205
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.
F-79
<PAGE> 206
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.
F-80
<PAGE> 207
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
F-81
<PAGE> 208
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
F-82
<PAGE> 209
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
F-83
<PAGE> 210
CONTINENTAL WASTE INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of 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>
F-84
<PAGE> 211
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
F-85
<PAGE> 212
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.
F-86
<PAGE> 213
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
F-87
<PAGE> 214
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.
F-88
<PAGE> 215
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.
F-89
<PAGE> 216
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>
F-90
<PAGE> 217
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.
F-91
<PAGE> 218
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>
F-92
<PAGE> 219
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.
F-93
<PAGE> 220
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.
F-94
<PAGE> 221
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.
F-95
<PAGE> 222
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.
F-96
<PAGE> 223
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.
F-97
<PAGE> 224
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
F-98
<PAGE> 225
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.
F-99
<PAGE> 226
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>
F-100
<PAGE> 227
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>
F-101
<PAGE> 228
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.
F-102
<PAGE> 229
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.
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
F-103
<PAGE> 230
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
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.
F-104
<PAGE> 231
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.
F-105
<PAGE> 232
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> <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.
F-106
<PAGE> 233
ALAMO RENT-A-CAR, INC. AND AFFILIATES
COMBINED 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............................................ $ 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
----------- ----------- -----------
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.
F-107
<PAGE> 234
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.
(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.
F-108
<PAGE> 235
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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.
F-109
<PAGE> 236
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
(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.
(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
F-110
<PAGE> 237
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-111
<PAGE> 238
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 indebtedness. 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.
F-112
<PAGE> 239
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, ESTIMATED
--------------------- USEFUL
1995 1994 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.
F-113
<PAGE> 240
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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).
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.
F-114
<PAGE> 241
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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,
-------------------------
1995 1994
---------- ----------
<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 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
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
</TABLE>
F-115
<PAGE> 242
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
---------- ----------
<S> <C> <C>
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
---------- ----------
Alamo Affiliated Companies
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>
F-116
<PAGE> 243
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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,
---------------------
1995 1994
-------- --------
<S> <C> <C>
Alamo
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
-------- --------
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
</TABLE>
F-117
<PAGE> 244
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
-------- --------
<S> <C> <C>
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.
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>
YEAR ENDING DECEMBER 31: COMBINED
-------------------------------------------------------------------------- --------
<S> <C>
1996............................................................... $ 20,384
1997............................................................... 5,099
1998............................................................... 5,312
1999............................................................... 4,467
2000............................................................... 4,411
Thereafter......................................................... 97,593
--------
$137,266
========
</TABLE>
F-118
<PAGE> 245
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
=== ======== ========= ======== ====== ========
DECEMBER 31, 1994
- - -----------------------------------
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.
F-119
<PAGE> 246
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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>
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.
F-120
<PAGE> 247
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
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) $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
F-121
<PAGE> 248
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
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 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.
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.
F-122
<PAGE> 249
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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
========== ======== ======== ==========
</TABLE>
F-123
<PAGE> 250
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<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
========== ======== ======== ==========
</TABLE>
<TABLE>
<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
========== ======== ======== ==========
</TABLE>
INCOME STATEMENT AND CASH FLOW:
<TABLE>
<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>
<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
========== ======== ======== ==========
</TABLE>
<TABLE>
<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.
F-124
<PAGE> 251
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-125
<PAGE> 252
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.
F-126
<PAGE> 253
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.
F-127
<PAGE> 254
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.
F-128
<PAGE> 255
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.
F-129
<PAGE> 256
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>
F-130
<PAGE> 257
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
------------- ------------
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
</TABLE>
F-131
<PAGE> 258
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 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>
F-132
<PAGE> 259
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.
(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.
F-133
<PAGE> 260
ALAMO RENT-A-CAR, INC. AND AFFILIATES
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS -- (CONTINUED)
UNAUDITED
(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 outstanding $100 million Senior Notes due
January 31, 2006.
F-134
<PAGE> 261
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Boards of Directors of
Hudson Management Corporation and Envirocycle, Inc.:
We have audited the accompanying combined balance sheets of Hudson
Management Corporation and subsidiaries and Envirocycle, Inc. (a Florida
corporation and a Florida S-corporation, respectively, affiliated through common
ownership) as of September 30, 1994 and 1993, and the related combined
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended September 30, 1994. These combined financial
statements are the responsibility of the Companies' 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 financial statements referred to above present fairly,
in all material respects, the financial position of Hudson Management
Corporation and subsidiaries and Envirocycle, Inc. as of September 30, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended September 30, 1994 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
June 1, 1995 (except with respect to the
matter discussed in Note 10,
as to which the date is August 3, 1995)
F-135
<PAGE> 262
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
JUNE 30, -------------------
1995 1994 1993
----------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash...................................................... $ 630 $ 538 $ 2,007
Accounts receivable, less allowance for doubtful accounts
of $510 (unaudited), $330 and $220, respectively....... 5,765 5,371 4,400
Prepaid expenses and other................................ 1,353 1,179 634
Deferred income taxes..................................... 864 845 911
------- ------- -------
Total current assets.............................. 8,612 7,933 7,952
PROPERTY AND EQUIPMENT, net................................. 18,589 14,088 11,405
INTANGIBLE ASSETS, net...................................... 2,679 2,557 2,669
OTHER ASSETS................................................ 51 58 50
------- ------- -------
Total assets...................................... $29,931 $24,636 $22,076
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 2,725 $ 2,556 $ 2,170
Current portion of long-term debt......................... 3,596 2,736 3,263
Deferred revenue and other credits........................ 2,316 1,930 1,702
Accrued liabilities....................................... 4,294 3,243 3,291
Customer deposits......................................... 135 145 135
------- ------- -------
Total current liabilities......................... 13,066 10,610 10,561
DEFERRED INCOME TAXES....................................... 1,320 1,471 1,369
LONG-TERM DEBT, less current portion........................ 8,937 7,022 4,570
------- ------- -------
Total liabilities................................. 23,323 19,103 16,500
------- ------- -------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7 and 10)
STOCKHOLDERS' EQUITY:
Capital stock............................................. -- -- --
Additional paid-in capital................................ 73 73 73
Retained earnings......................................... 6,535 5,460 5,503
------- ------- -------
Total stockholders' equity........................ 6,608 5,533 5,576
------- ------- -------
Total liabilities and stockholders' equity........ $29,931 $24,636 $22,076
======= ======= =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-136
<PAGE> 263
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS ENDED JUNE FOR THE YEAR ENDED
30, SEPTEMBER 30,
----------------- ---------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE.......................................... $41,439 $34,055 $48,003 $45,582 $38,788
OPERATING EXPENSES:
Cost of operations............................. 29,957 24,154 35,048 32,025 27,738
Selling, general and administrative............ 7,328 7,377 9,444 8,573 8,305
INTEREST EXPENSE................................. 474 329 505 552 737
------- ------- ------- ------- -------
37,759 31,860 44,997 41,150 36,780
------- ------- ------- ------- -------
Income before income taxes..................... 3,680 2,195 3,006 4,432 2,008
INCOME TAX PROVISION............................. 455 254 377 901 874
------- ------- ------- ------- -------
Net income............................. 3,225 1,941 2,629 3,531 1,134
UNAUDITED PRO FORMA ADJUSTMENT TO REFLECT INCOME
TAXES FOR ENVIROCYCLE, INC. (Note 1)........... 1,014 608 892 952 54
------- ------- ------- ------- -------
Unaudited pro forma net income (Note 1)........ $ 2,211 $ 1,333 $ 1,737 $ 2,579 $ 1,080
======= ======= ======= ======= =======
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-137
<PAGE> 264
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
CAPITAL PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------- ---------- --------
<S> <C> <C> <C>
BALANCE, September 30, 1991........................................ $-- $ 73 $ 1,893
Net income....................................................... -- -- 1,134
Stockholder distributions........................................ -- -- (220)
--- ---- --------
BALANCE, September 30, 1992........................................ -- 73 2,807
Net income....................................................... -- -- 3,531
Stockholder distributions........................................ -- -- (835)
--- ---- --------
BALANCE, September 30, 1993........................................ -- 73 5,503
Net income....................................................... -- -- 2,629
Stockholder distributions........................................ -- -- (2,672)
--- ---- --------
BALANCE, September 30, 1994........................................ $-- $ 73 $ 5,460
=== ==== ========
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-138
<PAGE> 265
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE NINE
MONTHS FOR THE YEARS
ENDED JUNE 30, ENDED SEPTEMBER 30,
------------------ -----------------------------
1995 1994 1994 1993 1992
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................. $ 3,225 $ 1,941 $ 2,629 $ 3,531 $ 1,134
Adjustments to reconcile net income to net
cash provided by operating
activities -- Depreciation and
amortization............................ 2,013 1,950 2,614 2,495 2,642
Deferred income tax provision
(benefit)............................. (170) 134 168 (156) 115
Gain on disposition of property and
equipment............................. (8) -- (82) (2) --
Changes in assets and
liabilities -- (increase) decrease
in:
Accounts receivable................... (686) (583) (971) (488) (563)
Prepaid expenses and other............ (180) (1,282) (545) (15) (11)
Other assets.......................... 7 (3) (8) 42 58
Increase (decrease) in:
Accounts payable...................... 542 (250) 386 (447) 930
Deferred revenue and other credits.... 446 185 228 59 529
Accrued liabilities................... 1,025 960 (48) 44 867
Customer deposits..................... (7) 4 10 2 2
------- ------- ------- ------- -------
Total adjustments.................. 2,982 1,115 1,752 1,534 4,569
------- ------- ------- ------- -------
Net cash provided by operating
activities....................... 6,207 3,056 4,381 5,065 5,703
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the disposition of property
and equipment........................... 6 294 327 35 --
Purchases of property and equipment........ (6,502) (4,625) (5,380) (2,759) (4,303)
Purchases of intangible assets............. (201) (50) (50) -- (11)
------- ------- ------- ------- -------
Net cash used in investing
activities....................... (6,697) (4,381) (5,103) (2,724) (4,314)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from debt......................... 5,386 5,917 6,441 2,396 3,261
Principal repayments on debt............... (2,626) (4,353) (4,516) (4,262) (3,216)
Stockholder distributions.................. (2,922) (1,230) (2,672) (835) (220)
------- ------- ------- ------- -------
Net cash used in financing
activities....................... (162) 334 (747) (2,701) (175)
------- ------- ------- ------- -------
EFFECT OF ENVIROCYCLE, INC. CHANGE IN CASH
FOR THE PERIOD OCTOBER 1-DECEMBER 31 (Note
1)......................................... 744 (109) -- -- --
------- ------- ------- ------- -------
Net increase (decrease) in cash.... 92 (1,100) (1,469) (360) 1,214
CASH, beginning of period.................... 538 2,007 2,007 2,367 1,153
------- ------- ------- ------- -------
CASH, end of period.......................... $ 630 $ 907 $ 538 $ 2,007 $ 2,367
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH PAID FOR:
Interest................................... $ 575 $ 420 $ 591 $ 658 $ 804
Income taxes............................... $ 58 $ 404 $ 730 $ 948 $ 824
</TABLE>
The accompanying notes to combined financial statements
are an integral part of these statements.
F-139
<PAGE> 266
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE JUNE 30, 1995 AND 1994 PERIODS IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF COMBINATION
The combined financial statements include the accounts of Hudson Management
Corporation and its wholly-owned subsidiaries and Envirocycle, Inc. (together,
the "Companies"), which are affiliated through common ownership. All material
intercompany transactions between Hudson Management Corporation, its
subsidiaries and Envirocycle, Inc. have been eliminated.
The accounts of Envirocycle, Inc. have been combined on the basis of a
calendar year and include the years ended December 31, 1994 and 1993 and the
period from commencement of operations (March 23, 1992) through December 31,
1992. For comparative purposes, the unaudited combined statements of income and
cash flows for the nine month periods ended June 30, 1995 and 1994 include the
accounts of Envirocycle, Inc. for the periods from October 1 through June 30.
In the opinion of management, the unaudited combined financial statements
contain all adjustments, consisting of only normal recurring adjustments,
necessary to present fairly the combined financial position of the Companies at
June 30, 1995, and the combined results of their operations and cash flows for
the nine months ended June 30, 1995 and 1994.
REVENUE RECOGNITION
Collection services may be billed up to four months in advance. Revenue on
such advance billings is deferred until services are performed. Such amounts are
included in deferred revenue and other credits in the accompanying combined
balance sheets.
PROPERTY AND EQUIPMENT
The Companies provide for depreciation using the straight-line method over
the following estimated useful lives:
<TABLE>
<S> <C>
Vehicles...................................................... 5-7 years
Containers and compactors..................................... 10 years
Equipment..................................................... 5-7 years
Leasehold improvements........................................ 5-7 years
Buildings..................................................... 31.5-40 years
</TABLE>
Maintenance and repairs are charged to expense when incurred. Additions and
major renewals are capitalized.
Depreciation and amortization expense for property and equipment for the
years ended September 30, 1994, 1993 and 1992 was $2,452,000, $2,216,000 and
$2,039,000, respectively.
INTANGIBLE ASSETS
Intangible assets consist of the cost of purchased businesses in excess of
the market value of net assets acquired (goodwill), the costs of certain
franchise service areas obtained as part of businesses acquired, and noncompete
agreements obtained from former owners and management of businesses acquired.
F-140
<PAGE> 267
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible assets are amortized using the straight-line method over their
estimated useful lives and are comprised of the following as of September 30,
1994 and 1993 (in thousands):
<TABLE>
<CAPTION>
USEFUL LIVES 1994 1993
------------ ------ ------
<S> <C> <C> <C>
Goodwill.................................................. 40 years $2,585 $2,585
Franchise agreements...................................... 4-16 years 666 674
Customer lists............................................ 5 years 10 10
Noncompete agreements..................................... 5-15 years 51 311
------ ------
3,312 3,580
Less accumulated amortization............................. (755) (911)
------ ------
$2,557 $2,669
====== ======
</TABLE>
The Companies continually evaluate 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 Companies use an estimate of the related
undiscounted net income over the remaining life of intangible assets in
measuring whether the intangible assets are recoverable.
Amortization expense for intangible assets was $162,000, $279,000 and
$603,000 in 1994, 1993 and 1992, respectively.
ACCRUED LIABILITIES
The Companies accrue estimated insurance claims for the self-funded portion
of their workers' compensation and health insurance plans. At September 30, 1994
and 1993, insurance claim reserves of $2,101,000 and $2,199,000, respectively,
were included in accrued liabilities.
INCOME TAXES
Hudson Management Corporation accounts for income taxes in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for
Income Taxes". Accordingly, deferred income taxes have been provided for the
effect of temporary differences between the income tax bases of assets and
liabilities and their reported amounts in the combined financial statements.
For the nine months ended June 30, 1995 and 1994, income taxes have been
provided based upon Hudson Management Corporation's anticipated effective annual
income tax rate.
Envirocycle, Inc. has elected S-corporation status for income tax reporting
purposes since its inception in 1992. Therefore, since that date, net income and
the related differences that arise in the recording of income and expense items
for financial reporting and income tax reporting purposes are included in the
individual tax returns of the stockholders of Envirocycle, Inc.
Upon closing of the merger transactions described in Note 10, Envirocycle,
Inc. will no longer be eligible for S-corporation status. At that time, deferred
income taxes will be recorded in accordance with SFAS No. 109 and an adjustment
to record Envirocycle, Inc. retained earnings as a capital contribution will be
recorded. Although the ultimate amount is not presently determinable, if
deferred taxes were recorded at June 30, 1995, retained earnings would be
decreased by approximately $46,000 (unaudited). In addition, $1,453,000
(unaudited) of retained earnings at June 30, 1995 would have been reclassified
to additional paid-in capital.
F-141
<PAGE> 268
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma effect of converting Envirocycle, Inc. from
S-corporation status is as follows (in thousands):
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS
------ ---------- --------
<S> <C> <C> <C>
BALANCE, June 30, 1995 (unaudited)........................ $ -- $ 73 $ 6,535
Recording of deferred tax liability....................... -- -- (46)
Reclassification of retained earnings to additional
paid-in capital......................................... -- 1,453 (1,453)
------ ------ -------
$ -- $1,526 $ 5,036
====== ====== =======
</TABLE>
The unaudited pro forma adjustment to reflect income taxes for Envirocycle,
Inc. included in the accompanying combined statements of income is for
informational purposes only. Income taxes have been provided at an estimated
effective tax rate of 40%.
ENVIRONMENTAL COSTS
The Companies are subject to environmental laws and regulations that have
been enacted in response to technological advances and increased concern over
environmental issues. These regulations are administered by the Environmental
Protection Agency and various other federal, state and local environmental,
transportation, health and safety agencies. The Companies have not incurred any
material environmental costs nor experienced any significant regulatory problems
in the past and believe that they are in substantial compliance with all
applicable rules and regulations. Future environmental liabilities, if any,
would be recorded in the period in which they become probable and can be
reasonably estimated.
CONCENTRATIONS OF CREDIT RISK
The Companies provide solid waste collection and recycling services to
commercial, industrial and residential customers located in the State of Florida
primarily through franchise agreements with municipalities. Depending on the
terms of the franchise agreements, the Companies either bill services to the
municipality or directly to the customer. Deposits are generally received from
residential customers billed directly by the Companies. As of September 30, 1994
and 1993, approximately 33% and 44% of outstanding accounts receivable,
respectively, were due directly from municipalities while the remainder was due
directly from individual customers. The Companies continually evaluate the
collectibility of accounts receivable and maintain allowances for potential
credit losses. Overall, the Companies believe their credit exposure is minimal
given the creditworthiness of municipal customers and the wide dispersion of
non-municipal bill customers.
Additionally, the Companies provide services to a major municipality
customer which comprised 25%, 23% and 26% of combined revenues in 1994, 1993 and
1992, respectively.
F-142
<PAGE> 269
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(2) PROPERTY AND EQUIPMENT
A summary of property and equipment is shown below (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
-------- --------
<S> <C> <C>
Land............................................................. $ 505 $ 510
Vehicles......................................................... 13,328 12,337
Containers and compactors........................................ 8,495 7,006
Equipment........................................................ 1,546 1,189
Leasehold improvements........................................... 1,109 938
Buildings........................................................ 1,268 1,183
-------- --------
26,251 23,163
Less accumulated depreciation and amortization................... (12,163) (11,758)
-------- --------
$ 14,088 $ 11,405
======== ========
</TABLE>
(3) LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------
1994 1993
------- --------
(IN THOUSANDS)
<S> <C> <C>
Notes payable to banks, interest adjusts based on fluctuations in
the banks' prime lending rate (7.75% at September 30, 1994), due
1994-2000, collateralized by substantially all property and
equipment and other assets, publicly traded common stock owned
by the Companies' stockholders and the personal guarantee of a
stockholder..................................................... $ 7,642 $ 6,813
Mortgage note payable monthly at $3,350 principal plus interest at
10% through January 1999, at which time the remaining principal
balance is due. This note is collateralized by the Company's
real property with a net book value of approximately $1,161,000
and $1,091,000 as of September 30, 1994 and 1993,
respectively.................................................... 566 606
Note payable to stockholder, unsecured, interest only at 9%
payable semi-annually, principal balance due December 1997...... 1,154 --
Note payable to stockholder, unsecured, payable at $1,478 per
month principal plus interest at the prime lending rate (7.75%
at September 30, 1994) through February 1997, at which time the
remaining principal balance is due.............................. 216 234
Other notes payable............................................... 180 180
------- --------
9,758 7,833
Less current portion of long-term debt............................ (2,736) (3,263)
------- --------
$ 7,022 $ 4,570
======= ========
</TABLE>
The Companies had a $2.0 million working capital line of credit with a bank
which expired February 28, 1995. Borrowings under the line of credit were
immediately converted to term notes payable. At September 30, 1994, the
Companies had approximately $380,000 available under the line of credit. Upon
expiration of the line of credit on February 28, 1995, the Companies obtained a
$1.5 million line of credit expiring February 28, 1996.
F-143
<PAGE> 270
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following are estimated aggregate future debt principal payments as of
September 30, 1994 (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-----------------------------------------------------------------
<S> <C>
1995............................................................. $2,736
1996............................................................. 1,936
1997............................................................. 2,102
1998............................................................. 2,197
1999............................................................. 787
------
$9,758
======
</TABLE>
(4) RELATED PARTY TRANSACTIONS
The Companies lease various office and garage space and land from a
stockholder. The operating leases expire at various dates through September 1998
and provide for monthly rentals of approximately $30,000 with a provision for a
rental increase each year based on the consumer price index.
During the years presented, there were funds advanced to and received from
a stockholder. At September 30, 1994 and 1993, there were notes payable to such
stockholder totaling $1,370,000 and $234,000, respectively (see Note 3).
Hudson Management Corporation has utilized the personal guarantee and
certain assets of a stockholder as well as certain assets of a person related to
the Companies' stockholders as additional collateral on a significant portion of
their debt (see Notes 3 and 10).
(5) LEASES
In addition to the related party leases discussed above, the Companies
lease corporate office space at a base rental amount of $4,300 per month through
September 1995. Also, the Companies must pay their share of the operating
expenses for the building which were estimated to be $1,300 per month through
September 1995. Subsequent to September 30, 1994, this lease was renewed (and
additional space was obtained) for a base rental amount of $4,700 per month
through January 2000, plus a share of building operating expenses estimated to
be $2,900 per month. Total rent expense for the years ended September 30, 1994,
1993 and 1992 was approximately $482,000, $384,000 and $372,000, respectively
(including related party leases of approximately $350,000, $317,000 and
$304,000, respectively).
The approximate future minimum lease payments (including related party
leases and the lease renewal described above) are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDING
SEPTEMBER 30,
-----------------------------------------------------------------
<S> <C>
1995............................................................. $ 436
1996............................................................. 304
1997............................................................. 304
1998............................................................. 304
1999............................................................. 91
Thereafter....................................................... 30
------
$1,469
======
</TABLE>
F-144
<PAGE> 271
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(6) INCOME TAXES
The components of the income tax provision are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------------
1994 1993 1992
---- ------ ----
<S> <C> <C> <C>
Current:
Federal................................................... $182 $ 945 $677
State..................................................... 27 112 82
---- ------ ----
209 1,057 759
---- ------ ----
Deferred:
Federal................................................... 143 (139) 14
State..................................................... 25 (17) 101
---- ------ ----
168 (156) 115
---- ------ ----
$377 $ 901 $874
==== ====== ====
</TABLE>
A reconciliation of the statutory federal income tax rate to the Companies'
actual and pro forma effective tax rates as reported in the accompanying
combined statements of income is shown below:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------
PRO FORMA
ACTUAL (UNAUDITED)
------------------------ ----------------------
1994 1993 1992 1994 1993 1992
----- ----- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statutory federal income tax rate...... 34.0% 34.0% 34.0% 34.0% 34.0% 34.0%
Amortization of goodwill............... 0.8 0.6 1.0 0.8 0.6 1.0
State income taxes, net of federal
benefit.............................. 1.1 1.4 6.0 4.1 3.5 6.1
Nondeductible expenses................. 2.0 1.4 3.0 2.0 1.4 3.0
Envirocycle, Inc. earnings
(S-corporation)...................... (25.2) (18.3) (2.3) -- -- --
Other, net............................. (0.2) 1.2 1.8 1.3 2.3 2.1
----- ----- ---- ---- ---- ----
Effective tax rate................... 12.5% 20.3% 43.5% 42.2% 41.8% 46.2%
===== ===== ==== ==== ==== ====
</TABLE>
In 1993, Hudson Management Corporation adopted SFAS No. 109 with no
material impact. Under SFAS No. 109, deferred tax assets or liabilities at the
end of each period are determined by applying the current tax rate to the
difference between the financial reporting and income tax bases of assets and
liabilities.
Components of the net deferred income tax liability are shown below (in
thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1993
------- -------
<S> <C> <C>
Deferred income tax liability:
Book basis in property over tax basis.......................... $(1,471) $(1,369)
------- -------
Deferred income tax assets:
Non-deductible self insurance reserves......................... 779 816
Non-deductible allowance for doubtful accounts................. 57 83
Other, net..................................................... 9 12
------- -------
845 911
------- -------
Net deferred income tax liability...................... $ (626) $ (458)
======= =======
</TABLE>
F-145
<PAGE> 272
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Prepaid expenses and other as of September 30, 1994 include current income
taxes receivable totaling approximately $464,000.
The Companies' federal income tax returns for 1993 are currently under
examination by the Internal Revenue Service. In the opinion of the Companies'
management, the outcome of such examination will not have a material impact on
the combined financial position and results of operations of the Companies.
(7) COMMITMENTS AND CONTINGENCIES
The Companies provide commercial, industrial and residential waste
collection and recycling services under terms of contracts or franchise
agreements with several governmental agencies (municipalities and counties).
Among other things, these contracts and agreements specify the terms and
conditions of performance, rates, geographical boundaries and types of services
to be provided. The contracts and agreements expire at various times through
September 2002 and, in most cases, must be competitively bid for renewal.
The Companies have adopted a maximum premium group health insurance plan.
The plan calls for the Companies to pay approximately $65 per employee each
month to a third party administrator. This payment is used to purchase stop loss
insurance, group life insurance, and pay the fees of the third party
administrator, who processes all claims. The Companies are then responsible for
paying all claims up to the stop loss limits which are $30,000 per year per
individual or an aggregate amount equal to a maximum premium amount per
employee, per year. The Companies have accrued their estimate of the claims
liability under the plan which management believes is adequate to cover claims
incurred as of September 30, 1994 and 1993.
The Companies participate in a workers' compensation employers' self
insurance plan. The Companies' maximum liability under the self insurance plan
is limited to a percentage of the standard premium, as defined. Reserves are
estimated for both reported and unreported claims using industry loss
development factors. Revisions to estimated reserves are recorded in the period
in which they become known. The estimated workers' compensation reserves as of
September 30, 1994 and 1993 totaling $2,071,000 and $2,169,000, respectively,
represent management's best estimate, and in the opinion of the Companies'
management, any future adjustments to estimated reserves will not have a
material impact on the combined financial statements.
At September 30, 1994, the Companies had a $2.0 million letter of credit
line with a bank of which $1.0 million has been used to guarantee the payment of
claims under the Companies' workers' compensation self insurance plan.
In the normal course of business, the Companies have performance and surety
bonds which are not reflected in the accompanying combined balance sheets. The
aggregate value of these off balance sheet financial instruments totaled
approximately $5.3 million at September 30, 1994. The Companies' 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.
The Companies are involved in certain legal actions and claims arising in
the ordinary course of business. Based on advice of legal counsel, it is the
opinion of management that such litigation and claims will be resolved without
material effect on the Companies' combined financial position.
(8) 401(K) SAVINGS PLAN
Employees of the Companies may participate in a Section 401(k) savings
plan, whereby the employees may elect to make contributions pursuant to a salary
reduction agreement upon meeting certain age and length-of-service requirements.
Effective January 1, 1995, the Companies elected to provide an employer
F-146
<PAGE> 273
HUDSON MANAGEMENT CORPORATION AND SUBSIDIARIES
AND ENVIROCYCLE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
matching contribution of 10% of each employee's contribution for fiscal 1995.
The Companies made no matching contribution to the plan in 1994, 1993 or 1992.
(9) STOCKHOLDERS' EQUITY
Capital stock consists of the following authorized, issued and outstanding
shares as of September 30, 1994 and 1993:
<TABLE>
<CAPTION>
SHARES SHARES ISSUED PAR
AUTHORIZED AND OUTSTANDING VALUE AMOUNT
---------- --------------- ----- ------
<S> <C> <C> <C> <C>
Hudson Management Corporation.................. 500 200 $ 1 $200
Envirocycle, Inc............................... 1,000 100 1 100
----
$300
====
</TABLE>
(10) SUBSEQUENT EVENT
On May 21, 1995, the Companies entered into merger agreements with Republic
Industries, Inc. ("Republic") whereby Republic would acquire all of the
outstanding capital stock of the Companies for sixteen million shares of
Republic common stock. The merger agreements were consummated on August 3, 1995
upon approval by Republic's stockholders and regulatory agencies and completion
of other customary closing conditions.
F-147
<PAGE> 274
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.
F-148
<PAGE> 275
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.
F-149
<PAGE> 276
ACQUIRED SOLID WASTE COMPANIES
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEAR ENDED
------------------------- DECEMBER 31,
1996 1995 1995
----------- ----------- ------------
(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.
F-150
<PAGE> 277
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.
F-151
<PAGE> 278
ACQUIRED SOLID WASTE COMPANIES
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31, YEAR ENDED
------------------------- 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.
F-152
<PAGE> 279
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.
F-153
<PAGE> 280
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.
F-154
<PAGE> 281
ACQUIRED SOLID WASTE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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
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.
F-155
<PAGE> 282
ACQUIRED SOLID WASTE COMPANIES
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
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>
F-156
<PAGE> 283
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.
F-157
<PAGE> 284
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.
F-158
<PAGE> 285
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.
F-159
<PAGE> 286
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.
F-160
<PAGE> 287
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
(Gain) loss 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 & 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.
F-161
<PAGE> 288
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
F-162
<PAGE> 289
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
are based on estimates made by Company and independent engineers, considering
the information provided by aerial surveys which are generally performed
annually.
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.
F-163
<PAGE> 290
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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
F-164
<PAGE> 291
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
F-165
<PAGE> 292
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).
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
F-166
<PAGE> 293
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$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.
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.
F-167
<PAGE> 294
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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>
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.
F-168
<PAGE> 295
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
agreement (see Note 10a). The fee charged for the letter of credit as of
December 31, 1995 is 1.75% per annum.
F-169
<PAGE> 296
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
C. LONG-TERM DEBT
As of December 31, 1995 and 1994, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
1995 1994
------- -------
(IN THOUSANDS)
<S> <C> <C>
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.
F-170
<PAGE> 297
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.
F-171
<PAGE> 298
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
F-172
<PAGE> 299
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
than 10% of the Company's common stock are not eligible to receive stock grants.
All stock grants issued to 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.
F-173
<PAGE> 300
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 .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.
F-174
<PAGE> 301
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In connection with the disposal transactions described in 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.
F-175
<PAGE> 302
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-176
<PAGE> 303
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-177
<PAGE> 304
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.
F-178
<PAGE> 305
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>
F-179
<PAGE> 306
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>
F-180
<PAGE> 307
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>
F-181
<PAGE> 308
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
F-182
<PAGE> 309
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.
F-183
<PAGE> 310
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.
F-184
<PAGE> 311
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.
F-185
<PAGE> 312
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.
F-186
<PAGE> 313
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.
F-187
<PAGE> 314
ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 25, 1996
BY AND AMONG
REPUBLIC INDUSTRIES, INC., RI/AR MERGER CORP.,
AND ADDINGTON RESOURCES, INC.
INDEX
<TABLE>
<CAPTION>
PROVISION PAGE
- - ------------------------------------------------------------------------------------- ----
<S> <C>
ARTICLE I -- THE MERGER.............................................................. A-1
SECTION 1.1 The Merger........................................................ A-1
SECTION 1.2 Closing........................................................... A-1
SECTION 1.3 Effective Time.................................................... A-1
SECTION 1.4 Effect of the Merger.............................................. A-2
SECTION 1.5 Certificate of Incorporation; By-Laws............................. A-2
SECTION 1.6 Directors and Officers............................................ A-2
ARTICLE II -- CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES..................... A-2
SECTION 2.1 Conversion of Securities.......................................... A-2
SECTION 2.2 Exchange of Certificates.......................................... A-3
SECTION 2.3 Stock Transfer Books.............................................. A-4
SECTION 2.4 Stock Options..................................................... A-4
SECTION 2.5 Stock Grants...................................................... A-5
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................... A-5
SECTION 3.1 Organization and Good Standing.................................... A-5
SECTION 3.2 Subsidiaries...................................................... A-5
SECTION 3.3 Capital Structure................................................. A-6
SECTION 3.4 Authority; Noncontravention....................................... A-6
SECTION 3.5 SEC Documents and Financial Statements............................ A-7
SECTION 3.6 Information Supplied.............................................. A-8
SECTION 3.7 Absence of Certain Changes or Events.............................. A-8
SECTION 3.8 Litigation........................................................ A-8
SECTION 3.9 Compliance With Laws; Permits..................................... A-9
SECTION 3.10 Environmental Matters............................................. A-9
SECTION 3.11 Benefit Plan Compliance........................................... A-11
SECTION 3.12 Taxes............................................................. A-12
SECTION 3.13 No Excess Parachute Payments...................................... A-13
SECTION 3.14 Contracts......................................................... A-13
SECTION 3.15 Voting Requirements............................................... A-14
SECTION 3.16 Real Estate....................................................... A-14
SECTION 3.17 Good Title To, Condition and Adequacy of Assets................... A-15
SECTION 3.18 Labor and Employment Matters...................................... A-15
SECTION 3.19 Insurance......................................................... A-16
SECTION 3.20 Related Party Transactions........................................ A-16
SECTION 3.21 Names; Prior Acquisitions......................................... A-16
</TABLE>
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SECTION 3.22 State Takeover Statutes........................................... A-16
SECTION 3.23 Brokers........................................................... A-16
SECTION 3.24 Accounting Matters................................................ A-16
SECTION 3.25 Tax Matters....................................................... A-16
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF REPUBLIC............................. A-16
SECTION 4.1 Organization and Good Standing.................................... A-16
SECTION 4.2 Capital Structure................................................. A-17
SECTION 4.3 Authority; Noncontravention....................................... A-17
SECTION 4.4 SEC Documents and Financial Statements............................ A-18
SECTION 4.5 Information Supplied.............................................. A-18
SECTION 4.6 Absence of Certain Changes or Events.............................. A-19
SECTION 4.7 Litigation........................................................ A-19
SECTION 4.8 Compliance With Laws.............................................. A-19
SECTION 4.9 Contracts......................................................... A-19
SECTION 4.10 Brokers........................................................... A-19
SECTION 4.11 Accounting Matters................................................ A-20
SECTION 4.12 Tax Matters....................................................... A-20
SECTION 4.13 Ownership of Company Common Stock................................. A-20
SECTION 4.14 Interim Operations of Mergersub................................... A-20
ARTICLE V -- COVENANTS OF THE COMPANY................................................ A-20
SECTION 5.1 Conduct of Business of the Company................................ A-20
SECTION 5.2 No Solicitation; Competing Transactions........................... A-21
SECTION 5.3 Approval by the Company's Stockholders............................ A-22
SECTION 5.4 Access to Information............................................. A-23
SECTION 5.5 Affiliate Letters................................................. A-23
SECTION 5.6 Letter of the Company's Accountants............................... A-24
SECTION 5.7 Covenant Not to Compete........................................... A-24
SECTION 5.8 Voting Agreement.................................................. A-24
ARTICLE VI -- COVENANTS OF REPUBLIC AND MERGERSUB.................................... A-24
SECTION 6.1 Certain Actions................................................... A-24
SECTION 6.2 Access to Information............................................. A-24
SECTION 6.3 Letter of Republic's Accountants.................................. A-24
SECTION 6.4 Compliance with NASDAQ and SEC Requirements....................... A-25
SECTION 6.5 Benefit Plans..................................................... A-25
ARTICLE VII -- COVENANTS OF THE COMPANY, REPUBLIC AND MERGERSUB...................... A-25
SECTION 7.1 Legal Conditions to Merger........................................ A-25
SECTION 7.2 Preparation of Proxy Statement and Registration Statement......... A-25
SECTION 7.3 Best Efforts...................................................... A-26
SECTION 7.4 Notification of Certain Matters................................... A-26
SECTION 7.5 Brokers or Finders................................................ A-26
SECTION 7.6 Public Announcements.............................................. A-26
SECTION 7.7 Tax Treatment..................................................... A-27
SECTION 7.8 Indemnification and Insurance of Company Officers and Directors... A-27
SECTION 7.9 Further Assurances................................................ A-27
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<PAGE> 316
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ARTICLE VIII -- CONDITIONS TO CLOSING................................................ A-27
SECTION 8.1 Conditions to Obligations of the Company, Republic and
Mergersub...................................................................... A-27
SECTION 8.2 Conditions to Obligations of the Company........................ A-28
SECTION 8.3 Conditions to Obligations of Republic and Mergersub............. A-29
ARTICLE IX -- TERMINATION............................................................ A-30
SECTION 9.1 Termination..................................................... A-30
SECTION 9.2 Effect of Termination........................................... A-31
ARTICLE X -- MISCELLANEOUS PROVISIONS................................................ A-31
SECTION 10.1 Amendment and Modification....................................... A-31
SECTION 10.2 Waiver of Compliance; Consents................................... A-32
SECTION 10.3 Fees and Expenses................................................ A-32
SECTION 10.4 No Third-Party Beneficiaries..................................... A-32
SECTION 10.5 Reliance on and Survival of Representations and Warranties....... A-32
SECTION 10.6 Notices.......................................................... A-33
SECTION 10.7 Assignment....................................................... A-33
SECTION 10.8 Governing Law.................................................... A-33
SECTION 10.9 Headings......................................................... A-33
SECTION 10.10 Entire Agreement................................................. A-33
SECTION 10.11 Severability..................................................... A-33
SECTION 10.12 Counterparts..................................................... A-34
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<PAGE> 317
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 25, 1996 (this "Agreement"),
by and among REPUBLIC INDUSTRIES, INC., a Delaware corporation ("Republic"),
RI/AR MERGER CORP., a Delaware corporation and wholly-owned subsidiary of
Republic ("Mergersub"), and ADDINGTON RESOURCES, INC., a Delaware corporation
(the "Company").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this Agreement and
in accordance with the General Corporation Law of the State of Delaware
("Delaware Law"), the parties desire to enter into a business combination
transaction pursuant to which Mergersub will be merged with and into the Company
(the "Merger");
WHEREAS, the Board of Directors of the Company has determined that the
Merger is fair to, and in the best interests of, the Company and its
stockholders, has approved and adopted this Agreement and the Merger, and has
recommended approval and adoption of this Agreement and the Merger by the
stockholders of the Company;
WHEREAS, the Board of Directors of Republic has determined that the Merger
is fair to, and in the best interests of, Republic and its stockholders, and has
approved and adopted this Agreement and the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for accounting purposes, it is intended that the Merger shall be
accounted for as a pooling-of-interests business combination.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, the parties hereto agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as defined in Section 1.3), Mergersub shall be merged with and into the
Company, with the Company being the surviving corporation in the Merger (the
"Surviving Corporation") and thereby becoming a wholly-owned subsidiary of
Republic, and the separate corporate existence of Mergersub shall cease.
SECTION 1.2. Closing. Unless this Agreement shall have been terminated
and the transactions herein contemplated shall have been abandoned pursuant to
Section 9.1 and subject to the satisfaction or waiver of the conditions set
forth in Article VIII, the closing of the Merger (the "Closing") will take place
at a date and time determined by the parties as promptly as practicable (and in
any event within two business days) after satisfaction or waiver of the
conditions precedent set forth in Article VIII at the offices of Akerman,
Senterfitt & Eidson, P.A., One S.E. Third Avenue, Miami, Florida, unless another
date, time or place is agreed to in writing by the parties hereto.
SECTION 1.3. Effective Time. As promptly as practicable after the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VIII, the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger (the "Certificate of Merger") with the Secretary of State
of the State of Delaware in such form as required by, and executed in accordance
with the relevant provisions of, Delaware Law (the date and time of such filing,
or such later date or time as set forth therein, being the "Effective Time").
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SECTION 1.4. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in Section 259 of the Delaware Law. Without
limiting the generality of the foregoing, and subject thereto, at the Effective
Time, except as otherwise provided herein, all property, rights, privileges,
powers and franchises of the Company and Mergersub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and Mergersub
shall become the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.5. Certificate of Incorporation: By-Laws. At the Effective
Time, the Certificate of Incorporation and the By-Laws of the Company, as in
effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation thereafter, unless
and until amended in accordance with their terms and as provided by law.
SECTION 1.6. Directors and Officers. At the Effective Time, the directors
of Mergersub at such time shall be the directors of the Surviving Corporation,
and the officers of the Company at such time shall be the officers of the
Surviving Corporation, each to hold a directorship or office in accordance with
the Certificate of Incorporation and By-Laws of the Surviving Corporation, until
their respective successors are duly elected and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.1. Conversion of Securities. At the Effective Time, by virtue
of the Merger and without any action on the part of the Company, Mergersub or
the stockholders of the Company or Mergersub:
(a) Each share of common stock, par value $1.00 per share, of the
Company ("Company Common Stock") issued and outstanding immediately prior
to the Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 2.1(b)) shall be converted, subject to Section
2.2(d), into the right to receive 9/10 of one share (the "Exchange Ratio")
of common stock, par value $0.01 per share, of Republic ("Republic Common
Stock"); provided, however, that if between the date of this Agreement and
the Effective Time the outstanding shares of Company Common Stock or
Republic Common Stock shall have been changed into a different number of
shares or a different class, by reason of any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of
shares, the Exchange Ratio shall be correspondingly adjusted to reflect
such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares. Nothing stated in the immediately
preceding sentence shall be construed as providing the holders of Company
Common Stock any preemptive or antidilutive rights other than in the case
of a stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, and there shall be no adjustment
to the Exchange Ratio in the event that Republic issues or agrees to issue
any shares of Republic Common Stock between the date hereof and the
Effective Time, whether for cash, through option grants, option or warrant
exercises, in acquisitions, or in other transactions. At the Effective
Time, all shares of Company Common Stock issued and outstanding immediately
prior thereto shall no longer be outstanding and shall automatically be
canceled and retired and shall cease to exist, and each certificate
previously evidencing any such shares shall thereafter represent the right
to receive, upon the surrender of such certificate in accordance with the
provisions of Section 2.2, certificates evidencing such number of whole
shares of Republic Common Stock into which such Company Common Stock was
converted in accordance with the Exchange Ratio and any cash in lieu of
fractional shares of Republic Common Stock paid in consideration therefor
pursuant to Section 2.2(d). The holders of such certificates previously
evidencing such shares of Company Common Stock outstanding immediately
prior to the Effective Time shall cease to have any rights with respect to
such shares of Company Common Stock except as otherwise provided herein or
by law.
(b) Each share of Company Common Stock held in the treasury of the
Company and each share of Company Common Stock owned by Republic or any
direct or indirect wholly-owned subsidiary of
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Republic or of the Company immediately prior to the Effective Time shall
automatically be canceled and extinguished without any conversion thereof
and no payment shall be made with respect thereto.
(c) Each share of common stock of Mergersub issued and outstanding at
the Effective Time shall be converted into one share of the common stock,
$1.00 par value per share, of the Surviving Corporation.
SECTION 2.2. Exchange of Certificates. (a) Exchange Agent. Republic
shall deposit, or shall cause to be deposited, with Wells Fargo Bank (Texas),
National Association or such other bank or trust company as may be designated by
Republic (the "Exchange Agent"), for the benefit of the holders of shares of
Company Common Stock, for exchange in accordance with this Article II, through
the Exchange Agent, at the Effective Time, (i) certificates evidencing the
shares of Republic Common Stock issuable pursuant to Section 2.1 in exchange for
outstanding shares of Company Common Stock and (ii) upon the request of the
Exchange Agent, cash in an amount sufficient to make any cash payment in lieu of
fractional shares of Republic Common Stock pursuant to Section 2.2(d) (such
certificates for shares of Republic Common Stock, together with any dividends or
distributions with respect thereto, and cash in lieu of fractional shares of
Republic Common Stock being hereafter collectively referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions, deliver
the Republic Common Stock contemplated to be issued pursuant to Section 2.1 out
of the Exchange Fund to holders of shares of Company Common Stock. Except as
contemplated by Section 2.2(e) hereof, the Exchange Fund shall not be used for
any other purpose. Any interest, dividends or other income earned on the
investment of cash or other property held in the Exchange Fund shall be for the
account of Republic.
(b) Exchange Procedures. Republic shall instruct the Exchange Agent to
mail, within five (5) business days after the Effective Time, to each holder of
record of a certificate or certificates which immediately prior to the Effective
Time evidenced outstanding shares of Company Common Stock (the "Certificates")
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
proper delivery of the Certificates to the Exchange Agent and shall be in such
form and have such other provisions as Republic may reasonably specify) and (ii)
instructions to effect the surrender of the Certificates in exchange for the
certificates evidencing shares of Republic Common Stock and cash (if any). Upon
surrender of a Certificate for cancellation to the Exchange Agent together with
such letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to such instructions, the holder of such Certificate
shall be entitled to receive in exchange therefor (A) certificates evidencing
that number of whole shares of Republic Common Stock that such holder has the
right to receive in accordance with the Exchange Ratio in respect of the shares
of Company Common Stock formerly evidenced by such Certificate, (B) any
dividends or other distributions to which such holder is entitled pursuant to
Section 2.2(c), and (C) cash in lieu of fractional shares of Republic Common
Stock to which such holder is entitled pursuant to Section 2.2(d) (the shares of
Republic Common Stock, and the dividends, distributions and cash described in
clauses (A), (B) and (C) being, collectively, the "Merger Consideration"), and
the Certificate so surrendered shall forthwith be canceled. In the event of a
transfer of ownership of shares of Company Common Stock that is not registered
in the transfer records of the Company, Merger Consideration may be issued and
paid in accordance with this Article II to a transferee if the Certificate
evidencing such shares of Company Common Stock is presented to the Exchange
Agent, accompanied by all documents required to evidence and effect such
transfer and by evidence that any applicable stock transfer taxes have been paid
or by the transferee requesting such payment paying to the Exchange Agent any
such transfer tax. Until surrendered as contemplated by this Section 2.2, each
Certificate shall be deemed at any time after the Effective Time to evidence
only the right to receive upon such surrender the Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of Republic Common
Stock. No dividends or other distributions declared or made after the Effective
Time with respect to Republic Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate with
respect to the shares of Republic Common Stock represented thereby and no cash
payment in lieu of fractional shares of Republic Common Stock shall be paid to
any such holder pursuant to Section 2.2(d), until the holder of such Certificate
shall surrender such Certificate. Upon such surrender, there shall be paid to
the person or entity (hereinafter, any person or entity being referred to as a
"Person") in whose name the certificates
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representing the shares of Republic Common Stock into which such Certificates
were converted and registered, all dividends and other distributions payable in
respect of such Republic Common Stock on a date after, and in respect of a
record date after, the Effective Time.
(d) Fractional Shares. No fraction of a share of Republic Common Stock
shall be issued in the Merger and any such fractional share interest shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
Republic. In lieu of any such fractional shares, each holder of Company Common
Stock upon surrender of a Certificate for exchange pursuant to this Section 2.2
shall be paid an amount in cash (without interest), rounded to the nearest cent,
determined by multiplying (i) the per share closing price on The Nasdaq Stock
Market -- National Market ("Nasdaq") of Republic Common Stock on the date of the
Effective Time (or, if shares of Republic Common Stock are not quoted on the
Nasdaq on such date, the first date of trading of such Republic Common Stock on
Nasdaq after the Effective Time) by (ii) the fractional interest to which such
holder would otherwise be entitled (after taking into account all shares of
Company Common Stock then held of record by such holder).
(e) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the holders of Company Common Stock for six months
after the Effective Time shall be delivered to Republic, upon demand, and any
holders of Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Republic for the Merger Consideration
to which they are entitled pursuant to this Article II.
(f) No Liability. Neither Republic nor the Company shall be liable to any
holder of shares of Company Common Stock for any such shares of Republic Common
Stock (or dividends or distributions with respect thereto) from the Exchange
Fund delivered to a public official pursuant to any applicable abandoned
property, escheat or similar law.
(g) Withholding Rights. Republic or the Exchange Agent shall be entitled
to deduct and withhold from the Merger Consideration otherwise payable pursuant
to this Agreement to any holder of shares of Company Common Stock such amounts
as Republic or the Exchange Agent is required to deduct and withhold with
respect to the making of such payment under the Code or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by Republic
or the Exchange Agent, such withheld amounts shall be treated for all purposes
of this Agreement as having been paid to the holder of the shares of Company
Common Stock in respect of which such deduction and withholding was made by
Republic or the Exchange Agent.
(h) Lost Certificates. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the Person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen or destroyed Certificate the shares
of Republic Common Stock, any cash in lieu of fractional shares and any unpaid
dividends and distributions on shares of Republic Common Stock deliverable in
respect thereof, pursuant to this Agreement.
SECTION 2.3. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed, and there shall be no further
recordation of transfers of shares of Company Common Stock thereafter on the
stock transfer books of the Company. On or after the Effective Time, any
Certificates presented to the Exchange Agent or Republic in accordance with
Section 2.2(b) shall be converted into the Merger Consideration.
SECTION 2.4. Stock Options. At the Effective Time, the Company's
obligations with respect to each outstanding Company Stock Option (as defined in
Section 3.3) to purchase shares of Company Common Stock, as amended in the
manner described in the following sentence, shall be assumed by Republic. The
Company Stock Options so assumed by Republic shall continue to have, and be
subject to, the same terms and conditions as set forth in the stock option plans
and agreements pursuant to which such Company Stock Options were issued and any
other agreements evidencing such options, as in effect immediately prior to the
Effective Time, except that from and after the Effective Time each such Company
Stock Option shall be
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exercisable for that number of whole shares of Republic Common Stock equal to
the product of the number of shares of Company Common Stock covered by such
option immediately prior to the Effective Time multiplied by the Exchange Ratio
and rounded up to the nearest whole number of shares of Republic Common Stock,
with an exercise price per share equal to the exercise price per share of such
option immediately prior to the Effective Time divided by the Exchange Ratio;
provided, however, that in the case of any option to which Section 421 of the
Code applies by reason of its qualification under any of the requirements of
Section 421 of the Code, the option price, the number of shares purchasable
pursuant thereto and the terms and conditions of exercise thereof shall be
determined in order to comply with Section 424(a) of the Code. Republic shall
(i) reserve for issuance the number of shares of Republic Common Stock that will
become issuable upon the exercise of such Company Stock Options pursuant to this
Section 2.4 and (ii) promptly after the Effective Time issue to each holder of
an outstanding Company Stock Option a document evidencing the assumption by
Republic of the Company's obligations with respect thereto under this Section
2.4. Nothing in this Section 2.4 shall affect the schedule of vesting with
respect to the Company Stock Options to be assumed by Republic as provided in
this Section 2.4, except to the extent vesting is accelerated at the Effective
Time as a result of the Merger pursuant to the existing terms and conditions of
certain of the Company Stock Options as is indicated on Schedule 3.3.
SECTION 2.5. Stock Grants. At the Effective Time, the Company's
obligations with respect to each outstanding Stock Grant (as defined in Section
3.3) to deliver shares of Company Common Stock, as amended in the manner
described in the following sentence, shall be assumed by Republic. The Stock
Grants so assumed by Republic shall continue to have, and be subject to, the
same terms and conditions as set forth in the stock grant plans and agreements
pursuant to which such Stock Grants were issued and any other agreements
evidencing such Stock Grants (all of which are set forth on Schedule 3.3), as in
effect on the date hereof, except that from and after the Effective Time each
such Stock Grant shall be exercisable for that number of whole shares of
Republic Common Stock equal to the product of the number of shares of Company
Common Stock covered by such grant immediately prior to the Effective Time
multiplied by the Exchange Ratio and rounded up to the nearest whole number of
shares of Republic Common Stock. Republic shall (a) reserve for issuance the
number of shares of Republic Common Stock that will become issuable upon the
exercise of such Stock Grants pursuant to this Section 2.5 and (b) promptly
after the Effective Time issue to each holder of an outstanding Stock Grant a
document evidencing the assumption by Republic of the Company's obligations with
respect thereto under this Section 2.5. Nothing in this Section 2.5 shall affect
the schedule of vesting with respect to any of the Stock Grants to be assumed by
Republic as provided in this Section 2.5.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Republic that:
SECTION 3.1. Organization and Good Standing. Each of the Company and
its subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry
on its business as now being conducted. Each of the Company and its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or
licensing necessary, other than in such jurisdictions where the failure to
be so qualified or licensed or to be in good standing (individually or in
the aggregate) would not have a Company Material Adverse Effect (as defined
in Section 8.3(b)). The Company has delivered to Republic complete and
correct copies of its Certificate of Incorporation and By-Laws and the
certificates of incorporation and by-laws (or similar organizational
documents) of its subsidiaries, in each case as amended to the date hereof.
SECTION 3.2. Subsidiaries. Schedule 3.2 lists each subsidiary of the
Company, together with its jurisdiction of incorporation or organization.
Except as set forth on Schedule 3.2, all the outstanding shares of capital
stock of each such subsidiary have been validly issued and are fully paid
and
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nonassessable and are owned by the Company or by another subsidiary of the
Company, free and clear of all pledges, claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever
(collectively, "Liens"). Except for the capital stock of its subsidiaries
set forth on Schedule 3.2, the Company does not own, directly or
indirectly, any capital stock or other ownership interest in any
corporation, partnership, joint venture or other entity.
SECTION 3.3. Capital Structure. The authorized capital stock of the
Company consists of 30,000,000 shares of Company Common Stock. At the close
of business on May 31, 1996, (i) 15,172,984 shares of Company Common Stock
were issued and outstanding, (ii) 1,000,000 shares of Company Common Stock
were held by the Company in its treasury, (iii) 378,700 shares of Company
Common Stock were reserved for issuance upon the exercise of outstanding
stock options ("the Company Stock Options") granted pursuant to the Company
Restated Stock Option Plan, and (iv) 24,000 shares of Company Common Stock
were reserved for issuance upon the exercise of outstanding and vested
stock grants (the "Stock Grants"). Except as set forth above, as of the
date of this Agreement, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or
outstanding. A list of the names of the holders of all outstanding Company
Stock Options and Stock Grants, with the respective amounts of shares,
exercise prices (in the case of the Company Stock Options), vesting dates
and expiration dates thereof, is set forth on Schedule 3.3, and a copy of
the Company Restated Stock Option Plan, and of all plans and agreements
related to the Stock Grants, is attached thereto. All outstanding shares of
capital stock of the Company are, and all shares which may be issued
pursuant to the Company Stock Options and Stock Grants will be, when issued
against payment therefor in accordance with the terms thereof, duly
authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into
securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above and except for the
matters listed on Schedule 3.3, as of the date of this Agreement, there are
no securities, options, warrants, calls, rights, commitments, agreements,
arrangements or undertakings of any kind to which the Company or any of its
subsidiaries is a party or by which any of them is bound, obligating the
Company or any of its subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other
voting securities of the Company or of any of its subsidiaries, or
obligating the Company or any of its subsidiaries to issue, grant, extend
or enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. As of the date hereof, there are no
outstanding contractual obligations which require or will require or
obligate the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of the Company or any of its
subsidiaries.
SECTION 3.4. Authority; Noncontravention. The Company has the
requisite corporate power and authority to execute and deliver this
Agreement and, subject to approval of this Agreement by the holders of a
majority of the outstanding shares of Company Common Stock, to consummate
the transactions contemplated by this Agreement. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by
all necessary corporate action, subject to approval of this Agreement by
the holders of a majority of the outstanding shares of Company Common
Stock. This Agreement has been duly executed and delivered by the Company
and constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforceability
may be limited by bankruptcy, insolvency, reorganization or similar laws
affecting creditors' generally and general equitable principles. Except as
set forth on Schedule 3.4, the execution and delivery of this Agreement by
the Company does not, and performance of the Company's obligations
hereunder will not, conflict with, or result in any violation of, or
constitute a default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation or acceleration
of any obligation or to loss of a material benefit under, or result in the
creation of any Lien upon any of the properties or assets of the Company or
any of its subsidiaries under, any provision of (a) the Certificate of
Incorporation or By-laws of the Company or any provision of the comparable
charter or organizational documents of any of its subsidiaries, (b) any
loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement,
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instrument, permit, concession, franchise, or license to which the Company
or any of its subsidiaries is a party or by which their respective
properties or assets are bound, or (c) subject to the governmental filings
and other matters referred to in the following sentence, any (A) statute,
law, ordinance, rule or regulation or (B) judgment, order or decree
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clause (b) and clause (c),
any such conflicts, violations, defaults, rights, losses or Liens that
individually or in the aggregate would not (x) have a Company Material
Adverse Effect, (y) impair in any material respect the ability of the
Company to perform its obligations under this Agreement, or (z) prevent or
materially delay the consummation of any of the transactions contemplated
by this Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any federal, state or local
government or any court, tribunal, administrative agency or commission or
other governmental authority or agency, domestic or foreign (a
"Governmental Authority"), is required by or with respect to the Company or
any of its subsidiaries in connection with the execution, delivery and
performance of this Agreement by the Company, except for: (i) the filing of
a premerger notification and report form by the Company under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"); (ii) the filing with the Securities and Exchange Commission (the
"SEC") of a proxy statement relating to the approval by the Company's
stockholders of this Agreement and the Merger and other transactions
contemplated hereby (as amended or supplemented from time to time, the
"Proxy Statement") and such reports under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), as may be required in connection
with this Agreement and the transactions contemplated by this Agreement;
(iii) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do
business; (iv) the consents set forth on Schedule 3.4; and (v) such other
consents, approvals, orders, authorizations, registrations, declarations
and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Company Material Adverse Effect or
prevent or materially delay the consummation of any of the transactions
contemplated by this Agreement.
SECTION 3.5. SEC Documents and Financial Statements. The Company has
filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 (the "SEC Documents"). As of
their respective dates, the SEC Documents complied as to form in all
material respects with the requirements of the Securities Act of 1933, as
amended (the "Securities Act"), or the Exchange Act, as the case may be,
and the rules and regulations of the SEC promulgated thereunder applicable
to such SEC Documents, and none of the SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any SEC Document has
been revised or superseded by a later-filed SEC Document, filed and
publicly available prior to the date of this Agreement, as of the date of
this Agreement, none of the SEC Documents contains any untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The financial
statements of the Company included in the SEC Documents complied as of
their respective dates of filing with the SEC as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited statements, as permitted by Form 10-Q) applied on a
consistent basis during the period involved (except as may be indicated in
the notes thereto) and fairly present the consolidated financial position,
results of operations and cash flows as at the dates and for the periods
then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments). Except as set forth in the SEC Documents and
except for liabilities and obligations incurred in the ordinary course of
business consistent with past practice, neither the Company nor any of its
subsidiaries has any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
the Company and its consolidated subsidiaries or in
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the notes thereto which individually or in the aggregate, could reasonably
be expected to have a Company Material Adverse Effect.
SECTION 3.6. Information Supplied. None of the information supplied
or to be supplied by the Company specifically for inclusion or
incorporation by reference in (i) the registration statement on Form S-4 to
be filed with the SEC by Republic in connection with the issuance of
Republic Common Stock in the Merger (the "Registration Statement") will, at
the time the Registration Statement is filed with the SEC, at any time it
is amended or supplemented 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 or necessary to make
the statements therein, in light of the circumstances under which they are
made, not misleading, and (ii) the Proxy Statement will, at the date it is
first mailed to the Company's stockholders and at the time of the meeting
of the Company's stockholders held to vote on approval of this Agreement,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply in all material
respects with the requirements of the Exchange Act, and the rules and
regulations thereunder. No representation is made by the Company in this
Section 3.6 with respect to statements made or incorporated by reference in
the Proxy Statement based on information supplied by Republic or Mergersub
specifically for inclusion or incorporation by reference in the Proxy
Statement.
SECTION 3.7. Absence of Certain Changes or Events. Except as
disclosed in the SEC Documents filed and publicly available prior to the
date of this Agreement, and except as expressly contemplated by this
Agreement, since the date of the most recent audited financial statements
included in such SEC Documents, the Company has conducted its business only
in the ordinary course, and there has not been: (i) any material adverse
change in the business, assets, results of operations, customer and
employee relations, or business prospects of the Company and its
subsidiaries, taken as a whole; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to any of the Company's capital stock; (iii) any
split, combination or reclassification of any of its capital stock or any
issuance or the authorization of any issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock;
(iv) any granting by the Company or any of its subsidiaries to any officer
of the Company or any of its subsidiaries of any increase in compensation,
except in the ordinary course of business consistent with prior practice or
as was required under employment agreements in effect as of the date of the
most recent audited financial statements included in such SEC Documents;
(v) any granting by the Company or any of its subsidiaries to any officer
of any increase in severance or termination pay, except as was required
under any employment, severance or termination agreements in effect as of
the date of the most recent audited financial statements included in such
SEC Documents; (vi) an entry by the Company or any of its subsidiaries into
any employment, severance or termination agreement with any officer; (vii)
any damage, destruction or loss, whether or not covered by insurance, that
has had or is likely to have a Company Material Adverse Effect; (viii) any
change in accounting methods, principles or practices by the Company
materially affecting its assets, liabilities or business, except insofar as
may have been required by a change in generally accepted accounting
principles; or (ix) except as set forth on Schedule 3.7, any adoption or
amendment in any material respect by the Company or any of its subsidiaries
of any bonus, pension, profit sharing, deferred compensation, incentive
compensation, stock ownership, stock purchase, stock option, phantom stock,
retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding in
each case maintained or contributed to, or required to be maintained or
contributed to, by the Company or its subsidiaries for the benefit of any
current or former employee, officer or director of the Company or any of
its subsidiaries (each, a "Benefit Plan" and, collectively, "Benefit
Plans").
SECTION 3.8. Litigation. Except as disclosed on Schedule 3.8 or in
the SEC Documents filed and publicly available prior to the date of this
Agreement, there is no suit, action or proceeding pending or threatened in
writing against the Company or any of its subsidiaries challenging the
acquisition by Republic or Mergersub of any shares of Company Common Stock
or any provision of this Agreement or
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seeking to restrain or prohibit the consummation of the Merger, or that,
individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any Governmental Authority or arbitrator
outstanding against the Company or any of its subsidiaries having, or which
could reasonably be expected to have, any such Company Material Adverse
Effect.
SECTION 3.9. Compliance With Laws; Permits. Except as disclosed in
the SEC Documents filed and publicly available prior to the date of this
Agreement, the Company and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, regulations, rules, judgments,
decrees and orders of any Governmental Authority applicable to its business
or operations, except for instances of possible noncompliance that,
individually or in the aggregate, would not have a Company Material Adverse
Effect. Each of the Company and its subsidiaries has in effect all federal,
state, local and foreign governmental approvals, authorizations,
certificates, filings, franchises, licenses, notices, permits and rights
("Permits"), necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has
occurred no default under any such Permit, except for the absence of
Permits and for defaults under Permits which, individually or in the
aggregate, would not have a Company Material Adverse Effect. None of such
Permits is or will be impaired or in any way affected by the execution and
delivery of this Agreement, or consummation of the transactions
contemplated hereby, provided that the consents or filings referred to in
Section 3.4 are obtained or made prior to the Closing.
SECTION 3.10. Environmental Matters. (a) Except where the failure to
comply could not reasonably be expected to have a Company Material Adverse
Effect, the Company and each of its subsidiaries is and has at all times
been in full compliance with all Environmental Laws (as defined in clause
(h) below) governing its business, operations, properties and assets,
including, without limitation: (i) all requirements relating to the
Discharge (as defined in clause (h) below) and Handling (as defined in
clause (h) below) of Hazardous Substances (as defined in clause (h) below)
or other Wastes (as defined in clause (h) below); (ii) all requirements
relating to notice, record keeping and reporting; (iii) all requirements
relating to obtaining and maintaining Licenses (as defined in clause (h)
below) for the ownership of its properties and assets and the operation of
its business as presently conducted, including Licenses relating to the
Handling and Discharge of Hazardous Substances and other Wastes; or (iv)
all applicable writs, orders, judgements, injunctions, governmental
communications, decrees, informational requests or demands issued pursuant
to, or arising under, any Environmental Laws.
(b) There are no (and there is no basis for any) non-compliance
orders, warning letters, notices of violation (collectively "Notices"),
claims, suits, actions, judgments, penalties, fines, or administrative or
judicial investigations or proceedings (collectively "Proceedings") pending
or threatened against or involving the Company or any of its subsidiaries,
or any of their respective businesses, operations, properties, or assets,
issued by any Governmental Authority or third party with respect to any
Environmental Laws or Licenses issued to the Company or any of its
subsidiaries thereunder in connection with, related to or arising out of
the ownership by the Company or any of its subsidiaries of their properties
or assets or the operation of their businesses, which have not been
resolved to the satisfaction of the issuing Governmental Authority or third
party in a manner that would not impose any obligation, burden or
continuing liability on Republic or the Surviving Corporation in the event
that the transactions contemplated by this Agreement are consummated, or
which could have a Company Material Adverse Effect, including, without
limitation: (i) Notices or Proceedings related to the Company or any of its
subsidiaries being a potentially responsible party for a federal or state
environmental cleanup site or for corrective action under any applicable
Environmental Laws; (ii) Notices or Proceedings in connection with any
federal or state environmental cleanup site, or in connection with any of
the real property or premises where the Company or any of its subsidiaries
has transported, transferred or disposed of other Wastes; (iii) Notices or
Proceedings relating to the Company or any of its subsidiaries being
responsible to undertake any response or remedial actions or clean-up
actions of any kind; or (iv) Notices or Proceedings related to the Company
or any of its
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subsidiaries being liable under any Environmental Laws for personal injury,
property damage, natural resource damage, or clean up obligations.
(c) Except as set forth on Schedule 3.10, neither the Company nor any
of its subsidiaries has Handled or Discharged, nor have any of them allowed
or arranged for any third party to Handle or Discharge, Hazardous
Substances or other Waste to, at or upon: (i) any location other than a
site lawfully permitted to receive such Hazardous Substances or other
Waste; (ii) any of the Owned Properties (as defined in Section 3.16(a)) or
Leased Premises (as defined in Section 3.16(b)); or (iii) any site which,
pursuant to CERCLA (as defined in clause (h) below) or any similar state
law (x) has been placed on the National Priorities List or its state
equivalent; or (y) the Environmental Protection Agency or the relevant
state agency or other Governmental Authority has notified the Company or
any of its subsidiaries that such Governmental Authority has proposed or is
proposing to place on the National Priorities List or its state equivalent.
There has not occurred, nor is there presently occurring, a Discharge, or
threatened Discharge, of any Hazardous Substance on, into or beneath the
surface of, or adjacent to, any of the Owned Properties or Leased Premises
in an amount or otherwise requiring a notice or report to be made to a
Governmental Authority or in violation of any applicable Environmental
Laws.
(d) Schedule 3.10 identifies the operations and activities, and
locations thereof, which have been conducted and are being conducted by the
Company on any of the Owned Properties or Leased Premises which have
involved the Handling or Discharge of Hazardous Substances.
(e) Schedule 3.10 identifies the locations to which the Company has
transferred, transported, hauled, moved, or disposed of Waste over the past
five (5) years and the types and volumes of Waste transferred, transported,
hauled, moved, or disposed of to each such location.
(f) Except as set forth on Schedule 3.10, neither the Company nor any
of its subsidiaries uses, nor has any of them used, any Aboveground Storage
Tanks (as defined in clause (h) below) or Underground Storage Tanks (as
defined in clause (h) below), and there are not now nor have there ever
been any Underground Storage Tanks beneath any of the Owned Properties or
Leased Premises that are required to be registered under applicable
Environmental Laws.
(g) Schedule 3.10 identifies (i) all environmental audits, assessments
or occupational health studies undertaken since January 1, 1994 by the
Company or its agents or, to the knowledge of the Company, undertaken by
any Governmental Authority, or any third party, relating to or affecting
the Company or any of the Owned Properties or Leased Premises; (ii) the
results of any ground, water, soil, air or asbestos monitoring undertaken
by the Company or its agents or, to the knowledge of the Company,
undertaken by any Governmental Authority or any third party, relating to or
affecting the Company or any of the Owned Properties or Leased Premises
which indicate the presence of Hazardous Substances at levels requiring a
notice or report to be made to a Governmental Authority or in violation of
any applicable Environmental Laws; (iii) all material written
communications between the Company and any Governmental Authority arising
under or related to Environmental Laws; and (iv) all outstanding citations
issued under OSHA, or similar state or local statutes, laws, ordinances,
codes, rules, regulations, orders, rulings, or decrees, relating to or
affecting either the Company or any of the Owned Properties or Leased
Premises.
(h) For purposes of this Section 3.10, the following terms shall have the
meanings ascribed to them below:
"Aboveground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable
state or local statute, law, ordinance, code, rule, regulation, order
ruling, or decree governing Aboveground Storage Tanks.
"Discharge" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further be
defined in any Environmental Law, into any medium including, without
limitation, ground water, surface water, soil or air.
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"Environmental Laws" means all federal, state, regional or local
statutes, laws, rules, regulations, codes, orders, plans, injunctions,
decrees, rulings, and changes or ordinances or judicial or
administrative interpretations thereof, or similar laws of foreign
jurisdictions where the Company or any of its subsidiaries conducts
business, whether currently in existence or hereafter enacted or
promulgated, any of which govern (or purport to govern) or relate to
pollution, protection of the environment, public health and safety, air
emissions, water discharges, hazardous or toxic substances, solid or
hazardous waste or occupational health and safety, as any of these terms
are or may be defined in such statutes, laws, rules, regulations, codes,
orders, plans, injunctions, decrees, rulings and changes or ordinances,
or judicial or administrative interpretations thereof, including,
without limitation: the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended by the Superfund
Amendment and Reauthorization Act of 1986, 42 U.S.C. Section 9601, et
seq. (collectively "CERCLA"); the Solid Waste Disposal Act, as amended
by the Resource Conversation and Recovery Act of 1976 and subsequent
Hazardous and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et
seq. (collectively "RCRA"); the Hazardous Materials Transportation Act,
as amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as
amended, 33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended
(42 U.S.C. Section 7401-7642); the Toxic Substances Control Act, as
amended, 15 U.S.C. Section 2601 et seq.; the Federal Insecticide,
Fungicide, and Rodenticide Act as amended, 7 U.S.C. Section 136-136y
("FIFRA"); the Emergency Planning and Community Right-to-Know Act of
1986 as amended, 42 U.S.C. Section 11001, et seq. (Title III of SARA)
("EPCRA"); and the Occupational Safety and Health Act of 1970, as
amended, 29 U.S.C. Section 651, et seq. ("OSHA").
"Handle" means any manner of generating, accumulating, storing,
treating, disposing of, transporting, transferring, labeling, handling,
manufacturing or using, as any of such terms may further be defined in
any Environmental Law, of any Hazardous Substances or Waste.
"Hazardous Substances" shall be construed broadly to include any
toxic or hazardous substance, material, or waste, and any other
contaminant, pollutant or constituent thereof, whether liquid, solid,
semi-solid, sludge and/or gaseous, including without limitation,
chemicals, compounds, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated
biphenyls, the presence of which requires investigation or remediation
under any Environmental Laws or which are or become regulated, listed or
controlled by, under or pursuant to any Environmental Laws, including,
without limitation, RCRA, CERCLA, the Hazardous Materials Transportation
Act, the Toxic Substances Control Act, the Clean Air Act, the Clean
Water Act, FIFRA, EPCRA and OSHA, or any similar state statute, or any
future amendments to, or regulations implementing such statutes, laws,
ordinances, codes, rules, regulations, orders, rulings, or decrees, or
which has been or shall be determined or interpreted at any time by any
Governmental Authority to be a hazardous or toxic substance regulated
under any other statute, law, regulation, order, code, rule, order, or
decree.
"Licenses" means all licenses, certificates, permits, approvals and
registrations.
"Underground Storage Tank" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable
state or local statute, law, ordinance, code, rule, regulation, order
ruling, or decree governing Underground Storage Tanks.
"Waste" shall be construed broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special
wastes, used oils, white goods, and yard trash as those terms are
defined under any applicable Environmental Laws.
SECTION 3.11. Benefit Plan Compliance. (a) Schedule 3.11 contains a
list and brief description of all "employee pension benefit plans" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA")) (sometimes referred to herein as "Pension
Plans"), "employee welfare benefit plans" (as defined in Section 3(1) of
ERISA) and all other Benefit Plans maintained, or contributed to, or
required to be contributed to, by the Company or any of its
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subsidiaries or any other Person that, together with the Company, is
treated as a single employer under Section 414(b), (c), (m) or (o) of the
Code (the Company and each such other Person, a "Commonly Controlled
Entity") for the benefit of any current or former employees, officers or
directors of the Company or any of its subsidiaries. The Company has
delivered or made available to Republic true, complete and correct copies
of (i) each Benefit Plan (or, in the case of any unwritten Benefit Plans,
descriptions thereof), (ii) the most recent annual report on Form 5500
filed with the Internal Revenue Service with respect to each Benefit Plan
(if any such report was required), (iii) the most recent summary plan
description for each Benefit Plan for which such summary plan description
is required, and (iv) each trust agreement and group annuity contract
relating to any Benefit Plan. Each Benefit Plan has been administered in
all material respects in accordance with its terms and is in compliance
with the applicable provisions of ERISA, the Code, all other applicable
laws and all applicable collective bargaining agreements except where the
failure to comply would not be reasonably expected to result in a Company
Material Adverse Effect.
(b) All Pension Plans have been the subject of determination letters
from the Internal Revenue Service, or have filed a timely application
therefor, to the effect that such Pension Plans are qualified and exempt
from federal income taxes under Section 401(a) and 501(a), respectively, of
the Code, and no such determination letter has been revoked nor has any
such Pension Plan been amended since the date of its most recent
determination letter or application therefor in any respect that would
adversely affect its qualification or materially increase its costs.
(c) Neither the Company nor any Commonly Controlled Entity has adopted
any "defined benefit pension plan" as defined in Section 3(35) of ERISA
subject to Title IV of ERISA in the five years preceding the date hereof.
(d) No Commonly Controlled Entity has been required at any time within
the five calendar years preceding the date hereof or is required currently
to contribute to any "multiemployer plan" (as defined in Section 4001(a)(3)
of ERISA) or has withdrawn from any multiemployer plan where such
withdrawal has resulted or would result in any "withdrawal liability"
(within the meaning of Section 4201 of ERISA) that has not been fully paid.
(e) With respect to any Benefit Plan that is an employee welfare
benefit plan, (i) no such Benefit Plan is funded through a "welfare
benefits fund", as such term is defined in Section 419(e) of the Code, and
(ii) each such Benefit Plan that is a "group health plan", as such term is
defined in Section 5000(b)(1) of the Code, complies substantially with the
applicable requirements of Section 4980B(f) of the Code.
(f) Except with respect to the certain of the Company Stock Options as
indicated on Schedule 3.3 and severance benefits as indicated on Schedule
3.4, no employee of the Company or any of its subsidiaries will be entitled
to any additional compensation or benefits or any acceleration of the time
of payment or vesting of any compensation or benefits under any Benefit
Plan as a result of the transactions contemplated by this Agreement.
(g) Except as set forth on Schedule 3.4, neither the Company or any of
its subsidiaries nor any Person acting on behalf of the Company or any of
its subsidiaries has, in contemplation of any corporate transaction
involving Republic, issued any written communication to, or otherwise made
or entered into any legally binding commitment with, any employees of the
Company or of any of its subsidiaries to the effect that, following the
date hereof, (i) any benefits or compensation provided to such employees
under existing Benefit Plans or under any other plan or arrangement will be
enhanced, (ii) any new plans or arrangements providing benefits or
compensation will be adopted, (iii) any Benefit Plans will be continued for
any period of time, or (iv) any plans or arrangements provided by Republic
or Mergersub will be made available to such employees.
SECTION 3.12. Taxes. As used in this Section 3.12, "Taxes" shall
include all federal, state, local and foreign income, property, sales,
payroll, employee withholding, excise and other taxes, tariffs or
governmental charges of any nature whatsoever, including any interest,
penalties or additions with respect
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thereto. The Company and each of its subsidiaries, and each affiliated,
consolidated, combined or unitary group of which the Company or any of its
subsidiaries is a member (an "Affiliated Group"), has filed timely all
material tax returns and reports required to be filed by the Company and
its subsidiaries (or requests for extensions have been filed timely), each
such tax return is true and correct in all material respects and has been
prepared in material compliance with all applicable laws and regulations,
and the Company and each of its subsidiaries has paid (or the Company has
paid on their behalf) all Taxes required to be paid by it and them in
accordance with such tax returns. The most recent financial statements
contained in the SEC Documents filed and publicly available prior to the
date of this Agreement reflect an adequate reserve for all material Taxes
payable by the Company and its subsidiaries for all taxable periods and
portions thereof through the date of such financial statements. Except as
set forth on Schedule 3.12, as of the date hereof, no material deficiency
or proposed adjustment which has not been settled or otherwise resolved for
any Taxes has been asserted or assessed by any taxing authority against the
Company or any of its subsidiaries or any Affiliated Group. Except as set
forth on Schedule 3.12, the Company and each of its subsidiaries has not
consented to extend the time in which any Taxes may be assessed or
collected by any taxing authority. None of the assets or properties of the
Company or any of its subsidiaries is subject to any material tax lien
except for taxes not yet due and payable. Except as set forth on Schedule
3.12, neither the Company nor any of its subsidiaries is a party to or
bound by any material tax allocation or tax sharing agreement and has no
current or potential material contractual obligation to indemnify any other
Person with respect to Taxes. Since January 1, 1994, no material claim has
been made by a taxing authority in a jurisdiction where the Company or any
of its subsidiaries do not file tax returns that the Company or any such
subsidiary is or may be subject to Taxes assessed by such jurisdiction. As
of the date hereof, the federal income tax returns of the Company and each
of its subsidiaries consolidated in such returns have been examined or
audited by the Internal Revenue Service for all years through December 31,
1992, and the Company has not received notice of any proposed tax audit.
True, correct and complete copies of all federal and state income tax
returns filed by or with respect to the Company and each of its
subsidiaries for the past three years have been made available to Republic.
SECTION 3.13. No Excess Parachute Payments. Except as set forth on
Schedule 3.13, neither the Company nor any of its affiliates has made any
payments, is obligated to make any payments, or is a party to any agreement
that could obligate it to make any payments that will not be deductible
under Section 280G of the Code (or any corresponding provision of state,
local or foreign law).
SECTION 3.14. Contracts. (a) Neither the Company nor any of its
subsidiaries is a party to or bound by, and neither they nor their
properties are subject to, any contracts, agreements or arrangements
required to be disclosed in a Form 10-K or 10-Q under the Exchange Act
which is not filed as an exhibit to one or more of the SEC Documents filed
and publicly available prior to the date of this Agreement.
(b) Schedule 3.14 sets forth as of the date hereof (x) a list of all
written and oral contracts, agreements or arrangements to which the Company
or any of its subsidiaries is a party or by which the Company or such
subsidiary or any of their respective assets is bound which would be
required to be filed as exhibits to the Company's Annual Report on Form
10-K for the year ending December 31, 1996 and (y) the following written
and oral arrangements (all such written or oral agreements, arrangements or
commitments as are required to be set forth on Schedule 3.14 or filed as
exhibits to any SEC Document, collectively the "Designated Contracts"),
which schedule further identifies each of the Designated Contracts which
contain change of control provisions:
(i) each partnership, joint venture or similar agreement of the
Company or any of its subsidiaries with another Person;
(ii) each contract or agreement under which the Company or any of
its subsidiaries have created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness of more than $1,000,000
in principal amount or under which the Company or any of its
subsidiaries have imposed (or may impose) a security interest or lien on
any of their respective assets, whether tangible or intangible securing
indebtedness in excess of $1,000,000;
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(iii) each contract or agreement to which the Company or any of its
subsidiaries is a party which involves an obligation or commitment to
pay or be paid an amount in excess of $1,000,000 per year;
(iv) each contract or agreement which involves or contributes to
the Company or any of its subsidiaries aggregate annual remuneration
which exceeds 5% of the Company's and its subsidiaries' consolidated
annual net revenues for the twelve months ended December 31, 1994 or
December 31, 1995;
(v) each contract or agreement relating to employment or consulting
which provides for annual compensation in excess of $100,000 and each
severance, termination, confidentiality, non-competition or
indemnification agreement or arrangement with any of the directors,
officers, consultants or employees of the Company or any of its
subsidiaries;
(vi) each contract or agreement to which the Company or any of its
subsidiaries or affiliates is a party limiting, in any material respect,
the right of the Company or any of its subsidiaries prior to the
Effective Time, or the Surviving Corporation or any of its subsidiaries
or affiliates at or after the Effective Time (i) to engage in, or to
compete with any Person in, any business, including each contract or
agreement containing exclusivity provisions restricting the geographical
area in which, or the method by which, any business may be conducted by
the Company or any of its subsidiaries or affiliates prior to the
Effective Time, or the Surviving Corporation or any of its subsidiaries
or affiliates after the Effective Time or (ii) to solicit any customer
or client;
(vii) all contracts or agreements between the Company or any of its
subsidiaries, and any Person controlling, controlled by or under common
control with the Company;
(viii) each contract, agreement and franchise with any
municipality, county or city for waste collection, disposal, recycling
or other services which is for a term of one year or longer;
(ix) all other contracts or agreements which are material to the
Company and its subsidiaries taken as a whole, or the conduct of their
respective business, other than those made in the ordinary course of
business or those which are terminable by the Company or any of its
subsidiaries upon no greater than 60 days prior notice and without
penalty or other adverse consequence.
(c) All the Designated Contracts are valid, subsisting, in full force
and effect, binding upon the Company or one of its subsidiaries in
accordance with their terms, and to the knowledge of the Company binding
upon the other parties thereto in accordance with their terms. The Company
and its subsidiaries have paid in full or accrued all amounts now due from
them under the Designated Contracts and have satisfied in full or provided
for all of their liabilities and obligations under the Designated Contracts
which are presently required to be satisfied or provided for, and are not
(with or without notice or lapse of time or both) in default in any
material respect under any of the Designated Contracts nor to the knowledge
of the Company is any other party to any such Designated Contract (with or
without notice or lapse of time or both) in default in any material respect
thereunder, except for any defaults that could not be reasonably expected
to have a Company Material Adverse Effect.
SECTION 3.15. Voting Requirements. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock
approving this Agreement is the only vote of the holders of any class or
series of the Company's capital stock necessary to approve this Agreement
and the Merger.
SECTION 3.16. Real Estate. (a) The Company and each of its
subsidiaries does not own any real property or any interest therein except
as set forth on Schedule 3.16(a) (the "Owned Properties"), which Schedule
sets forth the location and size of, and principal improvements and
buildings on, the Owned Properties, together with a list of all title
insurance policies relating to such properties, all of which policies have
previously been delivered or made available to Republic by the Company.
With respect to each such parcel of Owned Property, except as set forth on
Schedule 3.16(a): (i) the Company has good and marketable title to the
parcel of Owned Property, free and clear of any Lien other than
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(w) Liens for real estate taxes not yet due and payable, (x) recorded
easements, covenants, encumbrances and other restrictions which do not
materially impair the current use, occupancy or value of the property
subject thereto, (y) the matters described in the title insurance policies
listed on Schedule 3.16(a), including the mortgages in favor of The First
National Bank of Boston noted therein, and (z) any matters disclosed on the
surveys of certain of the parcels of the Owned Properties included in
Schedule 3.16(a) and any matters that would be disclosed by an accurate and
current survey of each of the other parcels of the Owned Properties which
would not materially impair the current use, occupancy or value of the
property so surveyed; (ii) there are no pending or threatened condemnation
proceedings, suits or administrative actions relating to the Owned
Properties materially affecting adversely the current use, occupancy or
value thereof; (iii) the legal descriptions for the parcels of Owned
Property contained in the deeds thereof describe such parcels fully and
adequately, and the Owned Properties are not located within any flood plain
(such that a mortgagee would require a mortgagor to obtain flood insurance)
for which any permits or licenses necessary to the use thereof have not
been obtained; (iv) there are no outstanding options or rights of first
refusal to purchase the parcels of Owned Property, or any portion thereof
or interest therein; and (v) there are no parties (other than the Company
and its subsidiaries) in possession of the parcels of Owned Property except
pursuant to written leases entered into by the Company or a subsidiary
thereof with respect thereto in the capacity as landlord.
(b) Schedule 3.16(b) sets forth a list of all material leases,
licenses or similar agreements to which the Company or its subsidiaries is
a party, which are for the use or occupancy of real estate owned by a third
party and which are material to the operations or the business of the
Company and its subsidiaries taken as a whole ("Leases")(copies of which
have previously been furnished to Republic), in each case, setting forth
(A) the lessor and lessee thereof and the date and term of each of the
Leases, (B) the street address of each property covered thereby, and (C) a
brief description (including size and function) of the principal
improvements and buildings thereon (the "Leased Premises"). The Leases are
in full force and effect and have not been amended, and neither the Company
or its subsidiaries nor, to the knowledge of the Company, any other party
thereto is in material default or material breach under any such Lease. No
event has occurred which, with the passage of time or the giving of notice
or both, would cause a breach of or default under any of such Leases,
except for breaches or defaults which in the aggregate could not reasonably
be expected to have a Company Material Adverse Effect.
SECTION 3.17. Good Title To, Condition and Adequacy of
Assets. Except as set forth on Schedule 3.17, the Company and its
subsidiaries have good title to all of their respective Assets (as
hereinafter defined), free and clear of any Liens or restrictions on use.
The Assets constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of the Company and its
subsidiaries in the manner in which and to the extent to which such
business is currently being conducted. All vehicles, machinery, equipment,
tools, supplies, leasehold improvements, furniture and fixtures
constituting part of the Assets and which are used by or located on the
premises of the Company or its subsidiaries, and which are currently in use
or necessary for the business and operations of the Company or its
subsidiaries, are in operating condition, normal wear and tear excepted.
For purposes of this Agreement, the term "Assets" means all of the
properties and assets owned by the Company and its subsidiaries, whether
personal or mixed, tangible or intangible, wherever located.
SECTION 3.18. Labor and Employment Matters. Schedule 3.18 sets forth
the name, address, and social security number of each of the officers and
key employees of the Company and its subsidiaries. The current rate of
compensation of each of the officers and key employees of the Company and
its subsidiaries has been previously provided to Republic. Neither the
Company nor any of its subsidiaries is a party to or bound by any
collective bargaining agreement or any other agreement with a labor union,
and there has been no effort by any labor union during the 24 months prior
to the date hereof to organize any employees of the Company or any of its
subsidiaries into one or more collective bargaining units. There is no
pending or threatened labor dispute, strike or work stoppage which affects
or which may affect the business of the Company or any of its subsidiaries.
As of the date hereof, the Company is not aware that any officer, key
employee or group of employees has any plans to terminate his or their
employment with the Company or any of its subsidiaries as a result of the
Merger or otherwise.
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SECTION 3.19. Insurance. Section 3.19 sets forth a list of all
insurance policies maintained as of the date hereof by the Company and its
subsidiaries. There are valid and enforceable policies of insurance
covering the respective properties, assets and businesses of the Company
and its subsidiaries against risks of the nature normally insured against
by entities in the same or similar lines of business and in coverage
amounts typically and reasonably carried by such entities. Such policies
are in full force and effect, and all premiums due thereon have been paid.
None of such policies will lapse or terminate as a result of the
transactions contemplated by this Agreement. The Company has not failed to
give, in a timely manner, any notice required under any of such policies to
preserve its material rights thereunder.
SECTION 3.20. Related Party Transactions. Except as set forth in the
SEC Documents, since January 1, 1996, none of the officers or directors of
the Company or any of its subsidiaries, and no Person owning of record or
beneficially more than 5% of the Company Common Stock, or any members of
their immediate families, has been a party to any transaction, or series of
similar transactions, with the Company or any of its subsidiaries, in which
the amount involved exceeds $60,000 per annum, and in which any such
Persons had or will have a direct or indirect material interest.
SECTION 3.21. Names; Prior Acquisitions. All names under which the
Company and its subsidiaries do business as of the date hereof are
specified on Schedule 3.21. Except as set forth on Schedule 3.21, neither
the Company nor any of its subsidiaries has changed its name or used any
assumed or fictitious name, or been the surviving entity in a merger,
acquired any business or changed its principal place of business or chief
executive office, within the past three years.
SECTION 3.22. State Takeover Statutes. The Board of Directors of the
Company has approved the Merger and this Agreement, and such approval is
sufficient to render inapplicable to this Agreement, the Merger and the
other transactions contemplated by this Agreement, the provisions of
Section 203 of the Delaware Law, to the extent, if any, such provisions of
Section 203 are applicable to this Agreement, the Merger and the other
transactions contemplated by this Agreement.
SECTION 3.23. Brokers. No broker, investment banker, financial
advisor or other Person is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by
or on behalf of the Company, except that the Company has retained
Oppenheimer & Co., Inc. as a financial advisor to render a fairness opinion
with respect to the Merger. A true and correct copy of the Company's
retainer agreement with Oppenheimer & Co., Inc. has been delivered to
Republic.
SECTION 3.24. Accounting Matters. Neither the Company nor any of its
affiliates has taken or agreed to take 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 business
combination to be effected by the Merger as a pooling of interests.
SECTION 3.25. Tax Matters. Neither the Company nor any of its
affiliates has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be
taken by Republic or any of its affiliates) would prevent the Merger from
qualifying as a reorganization within the meaning of Section 368(a)(2)(E)
of the Code.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF REPUBLIC
Republic hereby represents and warrants to the Company that:
SECTION 4.1. Organization and Good Standing. Each of Republic and
Mergersub is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and
has the requisite corporate power and authority to carry on its business as
now being conducted. Each of Republic and Mergersub is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the
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failure to be so qualified or licensed or to be in good standing
(individually or in the aggregate) would not have a Republic Material
Adverse Effect (as defined in Section 8.2(b)). Republic has delivered to
the Company complete and correct copies of the Certificate of Incorporation
and By-Laws of Republic and of Mergersub, in each case as amended to the
date hereof. Mergersub is controlled by Republic within the meaning of
Section 368(a)(2)(E) of the Code.
SECTION 4.2. Capital Structure. The authorized capital stock of
Republic consists 500,000,000 shares of Republic Common Stock and 5,000,000
shares of preferred stock, par value $0.01 per share ("Republic Preferred
Stock"). At the close of business on June 19, 1996, (i) 184,023,886 shares
of Republic Common Stock were issued and outstanding, (ii) no shares of
Republic Common Stock were held by Republic in its treasury, (iii)
15,735,194 shares of Republic Common Stock were reserved for issuance upon
the exercise of outstanding stock options granted pursuant to Republic's
various stock option plans, (iv) 34,853,900 shares of Common Stock were
reserved for issuance upon the exercise of outstanding and vested warrants,
and (v) no shares of Republic Preferred Stock were issued or outstanding.
All outstanding shares of capital stock of Republic are, and all shares
which may be issued pursuant to outstanding options and warrants will be,
when issued in accordance with the terms thereof, duly authorized, validly
issued, fully paid and nonassessable and not subject to preemptive rights.
There are no bonds, debentures, notes or other indebtedness of Republic
having the right to vote (or convertible into securities having the right
to vote) on any matters on which stockholders of Republic may vote. Except
as set forth above and except in connection with other acquisitions of
businesses and business combinations by Republic and its subsidiaries, as
of the date of this Agreement, there are no securities, options, warrants,
calls, rights, commitments, agreements, arrangements or undertakings of any
kind to which Republic or any of its subsidiaries is a party or by which
any of them is bound, obligating Republic or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of capital stock or other voting securities of Republic
or of any of its subsidiaries, or obligating Republic or any of its
subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. As of the date of this Agreement, there are not any
outstanding contractual obligations which require or will require or
obligate Republic or any of its subsidiaries to repurchase, redeem or
otherwise acquire any shares of capital stock of Republic or any of its
subsidiaries.
SECTION 4.3. Authority; Noncontravention. Republic and Mergersub
have the requisite corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by Republic and
Mergersub has been duly authorized by all necessary corporate action on the
part of Republic and Mergersub, respectively. This Agreement has been duly
executed and delivered by Republic and Mergersub and constitutes a valid
and binding obligation of Republic and Mergersub, enforceable against
Republic and Mergersub in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization or
similar laws affecting creditors' rights generally and general equitable
principles. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with,
or result in any violation of, or constitute a default (with or without
notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of
the properties or assets of Republic or any of its subsidiaries under, any
provision of (a) the Certificate of Incorporation or By-laws of Republic or
any provision of the comparable charter or organizational documents of any
of its subsidiaries, (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise, or license applicable to Republic or any of its
subsidiaries or their respective properties or assets, or (c) subject to
the governmental filings and other matters referred to in the following
sentence, any (A) statute, law, ordinance, rule or regulation or (B)
judgment, order or decree to which Republic or any of its subsidiaries is a
party or by which their respective properties or assets are bound, other
than, in the case of clause (b) and clause (c), any such conflicts,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a Republic Material Adverse Effect, (y) impair
in any material respect the ability of Republic or Mergersub to
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perform its obligations under this Agreement, or (z) prevent or materially
delay the consummation of any of the transactions contemplated by this
Agreement. No consent, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Authority, is
required by or with respect to Republic or any of its subsidiaries in
connection with the execution, delivery and performance of this Agreement
by Republic or Mergersub, except for: (i) the filing of a premerger
notification and report form by Republic under the HSR Act; (ii) the filing
with the SEC of the Registration Statement and such reports under the
Exchange Act as may be required in connection with this Agreement and the
transactions contemplated by this Agreement; (iii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware;
and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained
or made would not, individually or in the aggregate, have a Republic
Material Adverse Effect or prevent or materially delay the consummation of
any of the transactions contemplated by this Agreement.
SECTION 4.4. SEC Documents and Financial Statements. Republic has
filed all required reports, schedules, forms, statements and other
documents with the SEC since January 1, 1995 (the "Republic SEC
Documents"). As of their respective dates, the Republic SEC Documents
complied as to form in all material respects with the requirements of
Securities Act, or the Exchange Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to such Republic
SEC Documents, and none of the Republic SEC Documents contained any untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading.
Except to the extent that information contained in any Republic SEC
Document has been revised or superseded by a later-filed Republic SEC
Document, filed and publicly available prior to the date of this Agreement,
as of the date of this Agreement, none of the Republic SEC Documents
contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of Republic included in the
Republic SEC Documents complied as of their respective dates of filing with
the SEC as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles (except, in the case of unaudited statements, as
permitted by Form 10-Q or 8-K) applied on a consistent basis during the
period involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position, results of operations
and cash flows as at the dates and for the periods then ended (subject, in
the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the Republic SEC Documents and except for
liabilities and obligations incurred in the ordinary course of business
consistent with past practice, neither Republic nor any of its subsidiaries
has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by generally accepted
accounting principles to be set forth on a consolidated balance sheet of
Republic and its consolidated subsidiaries or in the notes thereto which
individually or in the aggregate, could reasonably be expected to have a
Republic Material Adverse Effect.
SECTION 4.5. Information Supplied. None of the information supplied
or to be supplied by Republic specifically for inclusion or incorporation
by reference in (i) the Registration Statement will, at the time the
Registration Statement is filed with the SEC, at any time it is amended or
supplemented 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 or necessary to make the
statements therein, in light of the circumstances under which they are
made, not misleading, and (ii) the Proxy Statement will, at the date it is
first mailed to the Company's stockholders and at the time of the meeting
of the Company's stockholders held to vote on approval of this Agreement,
contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make
the statement therein, in light of the circumstances under which they are
made, not misleading. The Registration Statement will comply as to form in
all material respects with the requirements of the Exchange Act, and the
rules and regulations thereunder. No representation is made by Republic in
this Section 4.5 with respect to statements made or incorporated by
reference in the Registration Statement
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based on information supplied by the Company specifically for inclusion or
incorporation by reference in the Registration Statement.
SECTION 4.6. Absence of Certain Changes or Events. Except as
disclosed in the Republic SEC Documents filed and publicly available prior
to the date of this Agreement, and except as expressly contemplated by this
Agreement, since the date of the most recent audited financial statements
included in such Republic SEC Documents, Republic has conducted its
business only in the ordinary course, and there has not been: (i) any
material adverse change in the business, results of operations, or business
prospects of Republic and its subsidiaries taken as a whole; (ii) any
declaration, setting aside or payment of any dividend or other distribution
(whether in cash, stock or property) with respect to any of Republic's
capital stock; (iii) any split, combination or reclassification of any of
its capital stock or any issuance or the authorization of any insurance of
any other securities in respect of, in lieu of or in substitution for
shares of its capital stock; (iv) any damage, destruction or loss, whether
or not covered by insurance, that has had or is likely to have a Republic
Material Adverse Effect; or (v) any change in accounting methods,
principles or practices by Republic materially affecting its assets,
liabilities or business, except insofar as may have been required by a
change in generally accepted accounting principles.
SECTION 4.7. Litigation. Except as disclosed in the Republic SEC
Documents filed and publicly available prior to the date of this Agreement,
there is no suit, action or proceeding pending or threatened against
Republic or any of its subsidiaries challenging the acquisition by Republic
or Mergersub of any shares of the Company Common Stock or any provision of
this Agreement or seeking to restrain or prohibit the consummation of the
Merger, or that, individually or in the aggregate, could reasonably be
expected to have a Republic Material Adverse Effect, nor is there any
judgment, decree, injunction, rule or order of any Governmental Authority
or arbitrator outstanding against Republic or any of its subsidiaries
having, or which could reasonably by expected to have, a Republic Material
Adverse Effect.
SECTION 4.8. Compliance With Laws. Except as disclosed in the
Republic SEC Documents filed and publicly available prior to the date of
this Agreement, Republic and its subsidiaries are in compliance with all
applicable statutes, laws, ordinances, regulations, rules, judgments,
decrees and orders of any Governmental Authority applicable to its business
or operations, except for instances of possible noncompliance that,
individually or in the aggregate, would not have a Republic Material
Adverse Effect. Each of Republic and its subsidiaries has in effect all
Permits, necessary for it to own, lease or operate its properties and
assets and to carry on its business as now conducted, and there has
occurred no default under any such Permit, except for the lack of Permits
and for defaults under Permits which, individually or in the aggregate,
would not have a Republic Material Adverse Effect. None of such Permits is
or will be impaired or in any way affected by the execution and delivery of
this Agreement, or the consummation of the transactions contemplated
hereby.
SECTION 4.9. Contracts. Neither Republic nor any of its subsidiaries
is a party to or bound by, and neither they nor their properties are
subject to, any contracts, agreements or arrangements required to be
disclosed in its most recently filed Form 10-K, 10-Q or 8-K under the
Exchange Act which has not been filed as an exhibit to one or more of the
Republic SEC Documents filed and publicly available prior to the date of
this Agreement ("Republic Designated Contracts"). Republic and its
subsidiaries have satisfied in full or provided for all of their
liabilities and obligations under the Republic Designated Contracts which
are presently required to be satisfied or provided for, and are not (with
or without notice or lapse of time or both) in default in any material
respect under any of the Republic Designated Contracts nor to the knowledge
of Republic is any other party to any such Republic Designated Contract
(with or without notice or lapse of time or both) in default in any
material respect thereunder, except for any defaults that could not
reasonably be expected to have a Republic Material Adverse Effect.
SECTION 4.10. Brokers. No broker, investment banker, financial
advisory or other Person, is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with
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the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Republic.
SECTION 4.11. Accounting Matters. Neither Republic nor any of its
affiliates has taken or agreed to take any action that (without regard to
any action taken or agreed to be taken by the Company or any of its
affiliates) would prevent Republic from accounting for the business
combination to be effected by the Merger as a pooling of interests.
SECTION 4.12. Tax Matters. Neither Republic nor any of its
affiliates has taken or agreed to take any action, or knows of any
circumstances, that (without regard to any action taken or agreed to be
taken by the Company or any of its affiliates) would prevent the Merger
from qualifying as a reorganization within the meaning of Sections
368(a)(2)(E) of the Code.
SECTION 4.13. Ownership of Company Common Stock. As of the date
hereof, except for the voting proxies granted to Republic as described in
Section 5.8, neither Republic nor any of its affiliates or associates (as
such terms are defined under the Exchange Act), (i) beneficially owns,
directly or indirectly, or (ii) is party to any agreement, arrangement or
understanding providing for the acquisition, holding, voting or disposition
of, in each case, shares of capital stock of the Company or any securities
convertible into or exercisable or exchangeable for capital stock of the
Company, which in the aggregate represent 10% or more of the outstanding
shares of the Company Common Stock after giving effect to the conversion,
exercise or exchange of all such securities beneficially owned by Republic
and its affiliates and associates which are convertible into or exercisable
or exchangeable for capital stock of the Company.
SECTION 4.14. Interim Operations of Mergersub. Mergersub was formed
solely for the purpose of engaging in a business combination transaction with
the Company and has engaged in no other business activities and has conducted
its operations only as contemplated hereby.
ARTICLE V
COVENANTS OF THE COMPANY
SECTION 5.1. Conduct of Business of the Company. Except as may be agreed
to in writing by Republic, from the date hereof to the Effective Time, the
Company shall, and shall cause its subsidiaries to, (i) use its and their best
efforts to conduct its and their operations according to its and their ordinary
and usual course of business, consistent with past practice, (ii) use its and
their best efforts to preserve intact its and their business organization, (iii)
keep or cause to be kept in full force and effect all of its and their material
rights, contracts and agreements, (iv) maintain all of its and their property in
good operating condition and repair, (v) use its and their best efforts to
maintain satisfactory relationships with licensors, licensees, supplies,
contractors, distributors, customers and others having business relationships
with any of them, consistent with the Company's past practices, and (vi)
maintain continuously insurance coverage substantially equivalent to the
insurance coverage in existence on the date of this Agreement. Subject to the
exercise of the applicable fiduciary duties of the Board of Directors of the
Company as set forth in Section 5.2(a), the Company and its subsidiaries shall
not take any action that would, or that could reasonably be expected to, result
in any of the conditions to the obligations of the Company or Republic to
consummate the Merger set forth in Article VIII not being satisfied. Without
limiting the generality of the foregoing and except as provided above, the
Company shall not, and shall not permit any of its subsidiaries to:
(a) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of
additional employee or other options, warrants, commitments, subscriptions,
rights to purchase or otherwise) any stock of any class or any options or
rights to acquire, or any securities convertible into, shares of stock of
any class; provided that the Company shall be entitled to issue shares of
the Company Common Stock upon exercise of Company Stock Options and Stock
Grants against payment therefor in accordance with their terms;
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(b) split, combine or reclassify any shares of its or any of its
subsidiaries' capital stock; declare, set aside or pay any dividend or
other distribution (whether in cash, stock or property or any combination
thereof) to its stockholders whether or not in respect of its capital
stock; or redeem, purchase or otherwise acquire any shares of, or rights to
acquire shares of, its or any of its subsidiaries' capital stock;
(c) amend its charter or by-laws;
(d) voluntarily sell, transfer, surrender, abandon or dispose of any
of its material assets or property rights (tangible or intangible), other
than in the ordinary course of business consistent with past practices;
(e) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisitions of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof, or make any investment in any such entity either by
purchase of securities, contributions of capital or transfer of property,
or make any loans or advances to any Person;
(f) grant or make any mortgage or pledge or subject itself or any of
its material properties or assets to any lien, charge or encumbrance of any
kind, except liens for taxes not currently due;
(g) create, incur or assume any indebtedness for borrowed money
(contingent or otherwise), in an amount exceeding $1,000,000 individually
or $2,500,000 in the aggregate, except borrowings under the Company's
credit facilities with Bank of Boston to the extent such borrowings are in
the ordinary course of business consistent with past practices;
(h) make or commit to make any capital expenditures in excess of
$1,000,000 individually or $2,500,000 in the aggregate, other than as set
forth on the capital expenditure budget provided by the Company to
Republic, a copy of which is attached as Schedule 5.1;
(i) grant any increase in the compensation payable or to become
payable to directors, officers or employees (including, without limitation,
any such increase pursuant to any Benefit Plan or otherwise), other than
merit increases to employees of the Company or its subsidiaries who are not
directors or officers of the Company, in the ordinary course of business
and consistent with past practices;
(j) alter the manner of keeping its books, accounts or records, or
change in any manner the accounting practices therein reflected;
(k) enter into any material commitment, transaction or agreement,
other than in the ordinary course of business consistent with past
practices and other than commitments, transactions or agreements that are
terminable by the Company without cost or penalty on no more than 60 days
prior notice;
(l) apply any of its assets to the direct or indirect payment,
discharge, satisfaction or reduction of any amount payable directly or
indirectly to or for the benefit of any affiliate of the Company or any of
its subsidiaries except in the ordinary course of business consistent with
past practices;
(m) modify any provision of any Benefit Plan, any stock option plans
of the Company or the terms of any stock options granted thereunder;
(n) modify any of the Designated Contracts other than in the ordinary
course of business consistent with past practices;
(o) enter into any agreement or transaction with any Person
controlling, controlled by or under common control with the Company; or
(p) agree, whether in writing or otherwise, to do any of the
foregoing.
SECTION 5.2. No Solicitation; Competing Transactions. (a) From the date
hereof until the earlier of (A) the Effective Time, or (B) the date this
Agreement shall terminate in accordance with its terms (the "Non-Solicitation
Period"), the Company shall not, directly or indirectly, solicit or initiate
discussion with, enter into negotiations or agreements with, or furnish any
information about the Company that is not publicly available to, or otherwise
assist, facilitate or encourage, any Person or group (other than Republic, an
affiliate
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of Republic or their authorized representatives) concerning any proposal for a
merger, sale of substantial assets, sale of shares of capital stock or other
securities, recapitalization or other business combination transactions
involving the Company or any of the subsidiaries of the Company (a "Competing
Transaction"). The Company will instruct the respective officers, directors,
employees, advisors, affiliates, counsel and agents of the Company and its
subsidiaries (collectively, the "Representatives") not to take any action
contrary to the provisions of the previous sentence; provided, however, that the
Company and the Representatives shall not be prohibited from furnishing
confidential information to, entering into discussions with or entering into any
negotiations (or entering into an agreement resulting from such negotiations)
which were not so solicited or initiated to the extent such action is taken by,
or upon the authority of, the Board of Directors of the Company due to the
applicable fiduciary duties of such Board of Directors to the stockholders of
the Company, as determined by such directors in the exercise of good faith
judgment based upon the written advice of independent, outside legal counsel
that a failure of the Board of Directors of the Company to take such action
would be likely to constitute a breach of its fiduciary duties to the
stockholders of the Company; and provided, further, that for a period of thirty
(30) days following the date hereof, if the Company receives an offer or
proposal involving a Competing Transaction it may furnish all information
pertaining to the Company and its subsidiaries as the Board of Directors of the
Company believes in good faith to be appropriate, if the Board of Directors of
the Company (after consultation with its independent, outside legal counsel)
determines in good faith that such action is required due to the applicable
fiduciary duties of the directors. The Company will notify Republic immediately
in writing if the Company becomes aware that any inquiries or proposals are
received by, any information is requested from, or any negotiations or
discussions are sought to be initiated with, the Company or its subsidiaries
with respect to a Competing Transaction. Each time, if any, that the Board of
Directors of the Company determines, upon written advice of such legal counsel
and in the exercise of its good faith judgment as to its fiduciary duties to the
Company's stockholders, that it must enter into negotiations with, or furnish
any information that is not publicly available to, any Person or other entity or
group (other than Republic, an affiliate of Republic or their authorized
representatives) concerning any Competing Transaction, the Company will give
Republic prompt notice of such determination (which shall include a copy of the
written advice of such legal counsel), the Company will promptly provide
Republic copies of the information provided to such other Person or group, and
the Company will fully inform Republic of the status and substance of such
negotiations in a prompt manner.
(b) To induce Republic to enter into this Agreement, the Company agrees
that should it or any of the Representatives during the Non-Solicitation Period
either (i) receive an unsolicited proposal for a Competing Transaction (an
"Acquisition Proposal"), other than from Republic or an affiliate of Republic or
their authorized representatives, and, during the Non-Solicitation Period or,
provided that this Agreement has not been terminated by the Company pursuant to
Section 9.1(j), within one (1) year after the date hereof, consummate a
transaction of a kind that would constitute a Competing Transaction with (x) the
offeror or any affiliate of the offeror who made the Acquisition Proposal (the
"Original Offeror") or (y) another party who makes an Acquisition Proposal prior
to the termination of negotiations with the Original Offeror, or (ii) solicit or
initiate any discussions for a Competing Transaction (regardless of whether it
is consummated); then, in either instance, the Company shall pay to Republic, as
liquidated damages (and not as a penalty) to compensate Republic for the effort
and expense which Republic will be expending in entering into and performing
this Agreement and for its lost opportunity, the sum of $1,000,000 (which shall
be paid contemporaneously with consummation of the Competing Transaction if the
Acquisition Proposal was not solicited, or contemporaneously with the
solicitation or initiation of any discussion if the Acquisition Proposal was
solicited).
SECTION 5.3. Approval by the Company's Stockholders. The Company shall,
as soon as practicable following the date hereof, establish a record date for,
duly call, give notice of, convene and hold a meeting of its stockholders, to be
held as promptly as practicable after the date of this Agreement, for the
purpose of voting upon the Merger and this Agreement (the "Company Special
Meeting"). Subject to the exercise of its applicable fiduciary duties under
Delaware Law to the stockholders of the Company, the Board of Directors of the
Company (i) shall recommend that the Company's stockholders approve this
Agreement and the Merger, and include such recommendation in the Proxy
Statement, provided that the Board of Directors shall not be obligated to make
such recommendation if the Company shall have received an offer for a Competing
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Transaction that the Board of Directors determines in good faith is more
favorable to the stockholders of the Company from a financial point of view than
the transactions contemplated by this Agreement, and (ii) shall use its
reasonable best efforts to solicit from stockholders of the Company votes in
favor of the Merger and the transactions contemplated hereby. The parties will
use their respective best efforts to cause the Company Special Meeting to be
held and to close the transactions contemplated hereby on or before August 12,
1996.
SECTION 5.4. Access to Information. From the date of this Agreement to
the Effective Time, the Company shall, and shall cause its subsidiaries and its
and their representatives, officers, directors, employees, auditors and agents
to, afford the representatives, officers, employees and agents of Republic
reasonable access at all reasonable times to its representatives, officers,
employees, agents, properties, offices, and other facilities and to all books
and records, and shall furnish Republic with all financial, operating and other
data and information Republic, through its representatives, officers, employees
or agents, may reasonably request. Republic shall be entitled to conduct, at its
own cost and expense, an environmental assessment of the Owned Properties and,
to the extent permitted under the terms of the Leases, of the Leased Premises
(hereinafter referred to as the "Environmental Assessment"). The Environmental
Assessment may include, but not be limited to, a physical examination of such
real property, and any structures, facilities, or equipment located thereon,
soil samples, ground and surface water samples, storage tank testing, review of
pertinent records, documents, and licenses of the Company. The Company shall
fully cooperate with Republic's conduct of the Environmental Assessment. Any
such Environmental Assessment shall be conducted with a view to their completion
as promptly as practicable, but in any event prior to the date of first mailing
of the Proxy Statement to stockholders of the Company. Any Environmental
Assessment by Republic will be conducted in a manner that does not cause any
meaningful interruption to the business or operations of the Company and its
subsidiaries. Republic shall indemnify and hold the Company and its subsidiaries
harmless against, and agrees to promptly reimburse them for, any losses, costs,
penalties, injuries, or damages to their respective assets or to any third
parties resulting from the conduct (but not the results or discoveries) of the
Environmental Assessment. Republic shall hold, and will cause its directors,
officers, employees, agents, advisors (including attorneys, auditors, and
representatives) to hold in confidence, all documents and information concerning
the Company and its subsidiaries furnished to Republic in connection with the
transactions contemplated in this Agreement, to the extent required by, and in
accordance with, the provisions of the letter dated November 9, 1995 between
Republic and the Company.
SECTION 5.5. Affiliate Letters. (a) Schedule 5.5 sets forth a list of
names and addresses of those Persons who may be deemed "affiliates" of the
Company within the meaning of Rule 145 under the Securities Act ("Rule 145"),
including the Principal Stockholders (as defined in Section 5.7) and all
officers and directors of the Company (each an "Affiliate"). The Company shall
provide Republic such information and documents as Republic shall reasonably
request for purposes of reviewing the accuracy and completeness of such list.
There shall be added to such list the names and addresses of any other Person
who becomes an Affiliate of the Company at any time after the date hereof up to
and including the time of the Company Special Meeting or who Republic reasonably
identifies (by written notice to the Company) as being a Person who may be
deemed to be an Affiliate of the Company. The Company shall deliver or cause to
be delivered to Republic, concurrent herewith, from each of the Affiliates
identified on Schedule 5.5 (as the same may be supplemented as aforesaid), a
letter in the form of Exhibit A hereto (the "Affiliate Letter"), which shall
contain (i) a representation that on the date hereof, such Affiliate had no plan
or intention to sell, exchange or otherwise dispose of the Republic Common Stock
received by it pursuant to the Merger, (ii) a covenant that such Affiliate shall
not sell or otherwise dispose of any shares of Republic Common Stock issued to
it in the Merger until such time as final results of operations of Republic
covering at least thirty (30) days of combined operations of Republic and the
Company have been published and (iii) a covenant that such Affiliate will not
sell or otherwise dispose of any shares of Republic Common Stock issued to it in
the Merger, except pursuant to an effective registration statement under the
Securities Act or in accordance with the provisions of paragraph (d) of Rule 145
or another exemption from registration under the Securities Act.
(b) Republic shall be entitled to place appropriate legends on the
certificates evidencing the Republic Common Stock to be received by such
Affiliates pursuant to the terms of this Agreement, and to issue appropriate
stock transfer instructions to the transfer agent for the Republic Common Stock,
to the effect that
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the shares of the Republic Common Stock received or to be received by such
Affiliates pursuant to the terms of this Agreement may only be sold, transferred
or otherwise conveyed, and the holder thereof may only reduce his interest in or
risks relating to such shares of Republic Common Stock, pursuant to an effective
registration statement under the Securities Act or in accordance with the
provisions of paragraph (d) of Rule 145 or another exemption from registration
under the Securities Act and, in any event, only after financial results
covering at least 30 days of combined operations of Republic and the Company
after the Effective Time shall have been published. The foregoing restrictions
on the transferability of the Republic Common Stock shall apply to all purported
sales, transfers and other conveyances of the shares of Republic Common Stock
received or to be received by such Affiliates pursuant to this Agreement and to
all purported reductions in the interest in or risks relating to such shares of
the Republic Common Stock whether or not such Affiliate has exchanged the
certificates previously evidencing such Affiliate's shares of Company Common
Stock for certificates evidencing the shares of Republic Common Stock into which
such shares of Company Common Stock were converted. The Proxy Statement and the
Registration Statement shall disclose the foregoing in a reasonably prominent
manner.
SECTION 5.6. Letter of the Company's Accountants. The Company shall cause
to be delivered to Republic a letter of Arthur Andersen LLP, the Company's
independent public accountants, dated a date within two business days before (a)
the date on which the Registration Statement shall become effective, (b) the
date of the Company Special Meeting, and (c) the Effective Time, and addressed
to Republic in form and substance reasonably satisfactory to Republic and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement. In connection with the Company's efforts to obtain such
letter, if requested by Arthur Andersen LLP, Republic shall provide a
representation letter to Arthur Andersen LLP complying with SAS 72 (as amended),
if then required.
SECTION 5.7. Covenant Not to Compete. On the date hereof, each of HPB
Associates, L.P., Larry Addington, Robert Addington, Bruce Addington, Harold
Blumenstein, and James Grosfeld (collectively, the "Principal Stockholders")
shall execute and deliver to Republic a covenant not to compete and
non-disclosure agreement in the form of Exhibit B hereto (the "Covenant
Letter").
SECTION 5.8. Voting Agreement. On the date hereof, the Principal
Stockholders shall execute and deliver to Republic a voting agreement and voting
proxy in the form of Exhibit C hereto (the "Voting Agreement").
ARTICLE VI
COVENANTS OF REPUBLIC AND MERGERSUB
SECTION 6.1. Certain Actions. Republic and its subsidiaries shall not
take any action that would, or that could reasonably be expected to, result in
any of the conditions to the obligations of Republic to consummate the Merger
set forth in Article VIII not being satisfied.
SECTION 6.2. Access to Information. From the date of this Agreement to
the Effective Time, Republic shall furnish the Company with all publicly
available information relating to Republic and allow Representatives of the
Company to engage in discussions with such senior management of Republic as the
parties mutually agree upon.
SECTION 6.3. Letter of Republic's Accountants. Republic shall cause to be
delivered to the Company a letter of Arthur Andersen LLP, Republic's independent
public accountants, dated a date within two business days before the date on
which the Registration Statement shall become effective and addressed to the
Company, in form and substance reasonably satisfactory to the Company and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement. In connection with Republic's efforts to obtain such
letter, if requested by Arthur Andersen LLP, the Company shall provide a
representation letter to Arthur Andersen LLP complying with SAS 72 (as amended),
if then required.
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SECTION 6.4. Compliance with NASDAQ and SEC Requirements. From the date
hereof to the Effective Time, Republic shall comply in all material respects
with all applicable requirements of Nasdaq and the SEC with respect to the
filing of information and reports.
SECTION 6.5. Benefit Plans. As soon as practicable after the Effective
Time but in no event later than January 1, 1997, Republic shall provide benefits
to employees of the Company and its subsidiaries which are substantially similar
to the benefits provided to similarly situated employees of Republic and its
subsidiaries (the date(s) on which employees of the Company and its subsidiaries
are provided such benefits is hereinafter referred to as the "Benefit Plan
Transition Dates"). Subject to requirements of applicable law, after the
Effective Time, Republic shall cause the Surviving Corporation to maintain the
Benefit Plans in substantially the same form as in effect on the date of this
Agreement until the applicable Benefit Plan Transition Date. With respect to
employee benefit plans and other benefit arrangements covering employees of
Republic and its subsidiaries ("Republic Benefit Plans"), Republic shall grant
all employees of the Company and its subsidiaries who become participants in
such plans after the applicable Benefit Plan Transition Date credit for all
service with the Company and its subsidiaries and their respective predecessors
prior to the applicable Benefit Plan Transition Date for all purposes for which
such service was recognized by the Company. To the extent the Republic Benefit
Plans provide medical or dental welfare benefits after the applicable Benefit
Plan Transition Date, for all employees who have already met the pre-existing
conditions and actively at work requirements under the Benefit Plans that
provide medical or dental welfare benefits, Republic shall cause all
pre-existing conditions exclusions and actively at work requirements to be
waived. For all other employees of the Company and its subsidiaries, Republic
shall credit all service with the Company and its subsidiaries that counted
toward the pre-existing conditions and actively at work requirements of such
Benefit Plans toward satisfying the pre-existing conditions and actively at work
requirements of the Republic Benefit Plans. Republic shall provide that any
expenses incurred on or before the applicable Benefit Plan Transition Date shall
be taken into account under the Republic Benefit Plans for purposes of
satisfying the applicable deductible, coinsurance and maximum out-of-pocket
provisions for such employees and their covered dependents. On and after the
Effective Time, Republic shall cause the Benefit Plans that provide medical or
dental welfare benefits to provide continuation coverage (within the meaning of
Section 4980B of the Code) to employees of the Company and its subsidiaries who
terminated employment prior to the Effective Time and their dependents.
ARTICLE VII
COVENANTS OF THE COMPANY, REPUBLIC AND MERGERSUB
SECTION 7.1. Legal Conditions to Merger. Each of the Company, Republic
and Mergersub, shall use its best efforts to comply promptly with all legal
requirements which may be imposed on it with respect to the Merger, this
Agreement and the transactions contemplated hereby. Such actions shall include,
without limitation, filing or causing to be filed under the HSR Act a premerger
notification and report form, with respect to the transactions contemplated
hereby, furnishing all additional information required under the HSR Act and in
connection with approvals of or filings with any Governmental Authority. Each of
the Company, Republic and Mergersub promptly shall cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them or any of their subsidiaries in connection with such transactions.
Each of the Company, Republic and Mergersub shall, and shall cause each of its
subsidiaries to, use its best efforts to obtain (and shall cooperate with each
other in obtaining) any consent, authorization, order or approval of, or any
exemption by, any Governmental Authority or other public or private third party,
required to be obtained or made by the Company, Republic or any of their
subsidiaries in connection with the Merger and the other transactions
contemplated by this Agreement. In connection with the filings under the HSR
Act, each party shall request early termination of the HSR waiting period.
SECTION 7.2. Preparation of Proxy Statement and Registration
Statement. (a) Republic promptly shall prepare, with the Company's cooperation
and assistance, and file with the SEC the Proxy Statement and Republic promptly
shall prepare and file with the SEC the Registration Statement relating to the
issuance of the Merger Consideration, in which the Proxy Statement will be
included as a prospectus. Each of Republic
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and the Company shall use its best efforts to have the Registration Statement
declared effective under the Securities Act as promptly as practicable after
such filing.
(b) Republic shall use its best efforts to obtain, prior to the effective
date of the Registration Statement, all necessary state securities law or "Blue
Sky" permits or approvals in connection with the issuance of Republic Common
Stock in the Merger and under the Company Stock Options, except that Republic
shall not be required to execute or file any general consent to service of
process in any jurisdiction in which it is not qualified to transact business or
to register as a dealer in any jurisdiction. Republic shall advise the Company
(promptly after it receives notice thereof) of the time when the Registration
Statement has become effective, of any supplement or amendment that has been
filed, of the issuance of any stop order, of the suspension of the qualification
of the shares of Republic Common Stock for offering or sale in any jurisdiction,
or of any request by the SEC for amendment of the Registration Statement or for
additional information.
(c) If at any time prior to the Effective Time any event relating to
Republic or any of its subsidiaries or Mergersub should be discovered which
should be set forth in an amendment of, or a supplement to, the Proxy Statement,
Republic promptly shall so inform the Company and shall furnish all necessary
information to the Company relating to such event. If at any time prior to the
Effective Time any event relating to the Company or any of its subsidiaries
should be discovered which should be set forth in an amendment of, or a
supplement to, the Registration Statement, the Company promptly shall so inform
Republic and shall furnish all necessary information to Republic relating to
such event.
SECTION 7.3. Best Efforts. Upon the terms and subject to the conditions
of this Agreement (including, without limitation, the provisions of Section
5.2(a) relating to the exercise of the applicable fiduciary duties of the Board
of Directors of the Company), each of the parties to this Agreement shall use
its best efforts to take or cause to be taken all actions and to do or cause to
be done all things necessary, proper or advisable under applicable laws and
regulations to consummate the transactions contemplated by this Agreement, and
shall use its best efforts to obtain all necessary waivers, consents and
approvals, including the actions described in Sections 7.1 and 7.2 above.
SECTION 7.4. Notification of Certain Matters. The Company shall give
prompt notice to Republic and Republic shall give prompt notice to the Company,
of (a) the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would, in the reasonable judgment of their respective
management, be likely to cause either (i) any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
at any time from the date of this Agreement to the Effective Time or (ii) any
condition set forth herein to be unsatisfied in any material respect at any time
from the date of this Agreement to the Effective Time, and (b) any material
failure of the Company, Republic or Mergersub, as the case may be, or any
officer, director, employee or agent thereof, to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder, provided that the delivery of any notice pursuant to this Section 7.4
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 7.5. Brokers or Finders. Each of the Company and Republic
represents that no agent, broker, investment banker, financial advisor or other
firm or Person is or shall be entitled to any brokers' or finder's fee or any
other commission or similar fee in connection with any of the transactions
contemplated by this Agreement (except as set forth in Section 3.23), and each
of the Company and Republic shall indemnify and hold the other harmless from and
against any and all claims, liabilities or obligations with respect to any other
fees, commissions or expenses asserted by any Person on the basis of any act or
statement alleged to have been made by such party.
SECTION 7.6. Public Announcements. Neither the Company nor Republic shall
issue any press release or public announcement, including announcements by any
party for general reception by or dissemination to employees, agents or
customers, with respect to this Agreement, the Merger and the other transactions
contemplated by this Agreement without the prior written consent of the other
party (which consent shall not be withheld unreasonably), provided that the
Company or Republic may make any disclosure or announce with such party, in the
opinion of its counsel, is obligated to make pursuant to applicable law or
regulation of the Nasdaq or any national securities exchange, as applicable, in
which case the
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party desiring to make the disclosure shall reasonably consult with the other
party prior to making such disclosure or announcement.
SECTION 7.7. Tax Treatment. Until the Effective Time, the Company and
Republic shall, and from and after the Effective Time Republic shall, use its
best efforts to qualify the Merger, and shall use best efforts not to take any
action to cause the Merger not to qualify, as a reorganization within Section
368(a) of the Code. From and after the Effective Time, (a) Republic shall cause
the Surviving Corporation to continue the Company's historic business or use a
significant portion of the Company's historic business assets in a business
within the meaning of the Treasury regulation Section 1.368-1(d), and (b)
Republic and Mergersub shall, and Republic shall cause the Surviving Corporation
to, treat the Merger as a "reorganization" within the meaning of Section 368(a)
of the Code and shall file such information with their income tax returns as may
be required by Treasury regulation Section 1.368-3 or other applicable law.
SECTION 7.8. Indemnification and Insurance of Company Officers and
Directors. (a) The Company shall, and from and after the Effective Time the
Surviving Corporation shall, indemnify, defend and hold harmless each Person who
is now, or who becomes prior to the Effective Time, an officer or director of
the Company or any of its subsidiaries (the "Indemnified Parties") against (i)
all losses, claims, damages, costs, expenses, liabilities or judgments or
amounts that are paid in settlement with the approval of the indemnifying party
(which approval shall not be withheld unreasonably) of or in connection with any
claim, action, suit, proceeding or investigation based in whole or in part on or
arising in whole or in part out of the fact that such Person is or was a
director or officer of the Company or any of its subsidiaries, whether
pertaining to any matter existing or occurring at or prior to the Effective Time
and whether asserted or claimed prior to, or at or after, the Effective Time
("Indemnified Liabilities"), and (ii) all Indemnified Liabilities based in whole
or in part on, or arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated by this Agreement, in each case to
the full extent provided under the Certificate of Incorporation and By-laws of
the Company as in effect as of the date hereof or permitted under Delaware Law,
as applicable, to indemnify directors and officers. As of the date hereof, the
Company has no knowledge, after due inquiry of its directors and executive
officers, of any pending or threatened claims, actions or other matters which
reasonably could give rise to Indemnified Liabilities.
(b) The Certificate of Incorporation and the Bylaws of the Surviving
Corporation shall contain the provisions with respect to indemnification set
forth in the Company's Certificate of Incorporation and Bylaws on the date of
this Agreement, and such provisions shall not be amended, repealed or otherwise
modified for a period of six years from the Effective Time in any manner that
would adversely affect the rights thereunder of individuals who on or prior to
the Effective Time were directors or officers of the Company, unless such
modification is required by law.
(c) From and after the Effective Time, the Surviving Corporation shall
honor the terms and conditions of the various indemnification agreements
previously entered into by the Company.
(d) The Company shall, and from and after the Effective Time the Surviving
Corporation shall, obtain and maintain in effect an extended reporting period
under the Company's existing directors' and officers' liability insurance policy
for a period of at least five years from the Effective Time.
(e) The provisions of this Section 7.8 are intended for the benefit of, and
shall be enforceable by, each Indemnified Party and his or her heirs and
executors after the Effective Time.
SECTION 7.9. Further Assurances. In the event that at any time after the
Effective Time any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and/or directors of the Company,
Republic and Mergersub shall take such necessary action.
ARTICLE VIII
CONDITIONS TO CLOSING
SECTION 8.1. Conditions to Obligations of the Company, Republic and
Mergersub. The obligations of the Company, Republic and Mergersub to consummate
the Merger and the other transactions contem-
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plated by this Agreement are subject to the fulfillment, on or before the
Effective Time, of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall have
been approved and adopted by the affirmative vote of the holders of a
majority of the outstanding shares of Company Common Stock entitled to vote
at the Company Special Meeting.
(b) Approvals of Governmental Authorities and Other Persons. All
authorizations, consents, orders or approvals of, or declarations or
filings with, or expiration or termination of any notice and waiting period
imposed by, any Governmental Authority or any other Person upon the
consummation of the transactions contemplated by this Agreement, the
failure of which to obtain could reasonably be expected to have a Company
Material Adverse Effect or a Republic Material Adverse Effect, shall have
been filed or obtained or shall have occurred. All of such authorizations,
consents, orders or approvals shall have been obtained without the
imposition of any conditions which would require the divestiture of any of
the Company's or Republic's assets or would otherwise materially adversely
effect Republic's ability to operate the businesses of the Company and its
subsidiaries following the Effective Time.
(c) Registration Statement. The Registration Statement shall have
been declared effective, and no stop order terminating the effectiveness of
the Registration Statement shall have been issued or threatened.
(d) No Order or Injunction. The consummation of the Merger shall not
be precluded, enjoined, prohibited or materially restricted by any order or
injunction of a court of competent jurisdiction (each party agreeing to use
its best efforts to have any such order reversed or injunction lifted), and
no litigation, arbitration, or other proceeding initiated by any
Governmental Authority shall be pending which seeks to enjoin prohibit or
materially restrict the consummation of the Merger.
(e) Pooling Letters. The Company shall have received a letter from
Arthur Andersen LLP addressed to the Company, dated the date the Proxy
Statement is first mailed to the stockholders of the Company and confirmed
in writing as of the Effective Time, and Republic shall have received a
letter from Arthur Anderson LLP, addressed to Republic, dated the date the
Proxy Statement is first mailed to the stockholders of the Company and
confirmed in writing as of the Effective Time, stating that the Merger
shall qualify as a pooling of interests business combination under
applicable accounting and SEC rules.
(f) Accountants Letters. The Company and Republic shall have received
the letters of Arthur Andersen LLP described in Sections 5.6 and 6.3 above.
(g) Nasdaq Listing. The shares of Republic Common Stock included in
the Merger Consideration shall have been duly listed for trading on Nasdaq,
subject to official notice of issuance.
SECTION 8.2. Conditions to Obligations of the Company. Except as
otherwise provided below, the obligations of the Company to consummate the
Merger and the other transactions contemplated by this Agreement shall be
subject to the fulfillment on or prior to the Effective Time of the following
additional conditions, any one or more of which may be waived by the Company:
(a) Performance of Obligations of Republic and Mergersub. Republic
and Mergersub shall have performed and complied in all material respects
with all agreements required by this Agreement to be performed or complied
with by them on or prior to the Effective Time, and the Company shall have
received a certificate signed on behalf of each of Republic and Mergersub
by an executive officer of each such company to such effect.
(b) Representations and Warranties; Change in Condition. The
representations and warranties of Republic and Mergersub set forth in this
Agreement shall be true and correct on and as of the date hereof and on and
as of the Effective Time, with the same force and effect as through such
representations and warranties had been made on and as of the Effective
Time, and the Company shall have received a certificate signed on behalf of
each of Republic and Mergersub by an executive officer of each such company
to such effect. Since the date hereof, no event or condition shall have
occurred (or shall be
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discovered) that could reasonably be expected to have a material adverse
effect on the business, results of operations or business prospects of
Republic and its subsidiaries, taken as a whole (a "Republic Material
Adverse Effect"). Notwithstanding the foregoing, the Company acknowledges
and agrees that: (i) the enactment or proposal of any legislation relating
to solid waste flow control, (ii) the occurrence of any event (or series of
events) which materially effects solid waste companies and/or electronic
security services companies generally, or (iii) the commencement of any
litigation by Republic stockholders in the name of or against Republic or
any of its subsidiaries or affiliates arising as a result of the
transactions contemplated by this Agreement, shall in no event be deemed to
have had or reasonably be expected to have a Republic Material Adverse
Effect.
(c) Corporate Action. The Company shall have received from Republic
(i) copies of the certificates of incorporation and bylaws of Republic and
Mergersub, (ii) copies of resolutions of Republic's and Mergersub's Boards
of Directors approving and adopting this Agreement and the transactions
contemplated hereby, certified on behalf of each of Republic and Mergersub
by the corporate secretary of each such company, and (iii) a certificate of
good standing from the Secretary of State of the State of Delaware for each
of Republic and Mergersub (dated as of a date not more than 10 days prior
to the Closing).
(d) Opinion of Counsel. The Company shall have received an opinion of
counsel to Republic and Mergersub, dated the Effective Time, in the form of
Exhibit C.
(e) Opinion of Financial Advisor. The Company shall have received the
opinion of Oppenheimer & Co., Inc., dated as of the date of this Agreement
and confirmed or updated in writing as of the date that the Proxy Statement
is first mailed to stockholders of the Company, to the effect that, as of
the date thereof, the consideration to be received in the Merger by the
Company's stockholders is fair to such stockholders from a financial point
of view, and such opinion shall not have been withdrawn prior to the
Effective Time.
(f) Tax Opinion of the Company's Counsel. The Company shall have
received the opinion, based on appropriate representations of the Company
and Republic, of Schulte Roth & Zabel, counsel to the Company, to the
effect that the Merger will be treated for federal income tax purposes as a
reorganization within the meaning of Section 368(a) of the Code, and that
the Company, Republic and Mergersub each will be a party to that
reorganization within the meaning of Section 368(b) of the Code, which
opinion shall have been dated on or about the date the Proxy Statement is
first mailed to stockholders of the Company.
(g) Tax Opinion of Republic's Counsel. Republic shall have received
the opinion, based on appropriate representations of the Company and
Republic, of Akerman, Senterfitt & Eidson, P.A., counsel to Republic, to
the effect that the Merger will be treated for federal income tax purposes
as a reorganization within the meaning of Section 368(a) of the Code, and
that the Company, Republic and Mergersub each will be a party to that
reorganization within the meaning of Section 368(b) of the Code, which
opinion shall have been dated on or about the date the Proxy Statement is
first mailed to stockholders of the Company.
SECTION 8.3. Conditions to Obligations of Republic and Mergersub. The
obligations of Republic and Mergersub to consummate the Merger and the other
transactions contemplated by this Agreement shall be subject to the fulfillment
on or prior to the Effective Time of the following additional conditions, any
one or more of which may be waived by Republic and Mergersub:
(a) Performance of Obligations of the Company. The Company shall have
performed and complied in all material respects with all agreements
required by this Agreement to be performed or complied with by the Company
at or prior to the Effective Time, and Republic and Mergersub shall have
received a certificate of the Company, signed by the chief executive
officer and the chief financial officer of the Company, to such effect.
(b) Representations and Warranties; Change in Condition. The
representations and warranties of the Company set forth in this Agreement
shall be true and correct on and as of the date hereof and at and
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as of the Effective Time, with the same force and effect as though such
representations and warranties had been made on and as of the Effective
Time, and Republic and Mergersub shall have received a certificate of the
Company, signed by the chief executive officer and the chief financial
officer of the Company, to such effect. Since the date hereof, no event or
condition shall have occurred (or shall be discovered) that could
reasonably be expected to have a material adverse effect on the business,
assets, results of operations, customer and employee relations, or business
prospects of the Company and its subsidiaries, taken as a whole (a "Company
Material Adverse Effect"). Notwithstanding the foregoing, each of Republic
and Mergersub acknowledges and agrees that: (i) the enactment or proposal
of any legislation relating to solid waste flow control, (ii) the
occurrence of any event (or series of events) which materially effects
solid waste companies generally, or (iii) the commencement of any
litigation by the Company stockholders in the name of or against the
Company or any of its subsidiaries or affiliates arising as a result of the
transactions contemplated by this Agreement, shall in no event be deemed to
have had or reasonably be expected to have a Company Material Adverse
Effect.
(c) Corporate Action. Republic and Mergersub shall have received from
the Company (i) copies of the certificates of incorporation and bylaws of
the Company and each of its subsidiaries, (ii) copies of resolutions of the
Company's Board of Directors approving and adopting this Agreement and the
transactions contemplated hereby, certified on behalf of the Company by its
corporate secretary, and (iii) a certificate of good standing from the
Secretary of State of the State of Delaware for the Company (dated as of a
date not more than 10 days prior to the Closing).
(d) Opinion of Counsel. Republic and Mergersub shall have received an
opinion of counsel to the Company, dated the Effective Time, in the form of
Exhibit E.
(e) Environmental Assessment. The Environmental Assessment shall not
have disclosed environmental conditions, which were not otherwise disclosed
to Republic in the SEC Documents or Schedule 3.10 prior to the date of this
Agreement, which individually or in the aggregate would reasonably be
expected to have a Company Material Adverse Effect; provided, that this
Section 8.3(e) shall be of no further force or effect unless the
Environmental Assessment has been completed by the date of the first
mailing of the Proxy Statement to the stockholders of the Company and
Republic shall have given notice to the Company of the failure of this
condition to be satisfied by such mailing date.
ARTICLE IX
TERMINATION
SECTION 9.1. Termination. This Agreement may be terminated and the Merger
contemplated by this Agreement may be abandoned at any time after the occurrence
of any of the following events, but prior to the Effective Time (notwithstanding
any approval of this Agreement by the stockholders of the Company);
(a) by mutual written consent of Republic and the Company;
(b) by either Republic or the Company, if any Governmental Authority
shall have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Merger, and
such order, decree, ruling or other action shall have become final and
nonappealing;
(c) by either Republic or the Company, if the Merger has not been
consummated by December 31, 1996 (such date, or such later date mutually
agreed to in writing by the parties, hereto referred to as the "End Date")
(other than due to the failure of the party seeking to terminate this
Agreement to perform its obligations under this Agreement required to be
performed at or prior to the Effective Time);
(d) by either Republic or the Company, if the Company's Special
Meeting shall have been held, and the stockholders of the Company shall
have failed to approve and adopt this Agreement and the Merger at the
Company Special Meeting (or any adjournment thereof);
(e) by Republic, if a tender offer or exchange offer for more than 30%
of the outstanding shares of the Company Common Stock is commenced, and the
Board of Directors of the Company, within ten
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business days after such tender offer or exchange offer is so commenced,
fails to recommend against acceptance of such tender offer or exchange
offer by its stockholders or takes no position with respect to such offer;
(f) by Republic, if any Person or group (as that term is defined under
Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder), other than the Principal Stockholders, shall have acquired
beneficial ownership or the right to acquire beneficial ownership of more
than 50% of the then combined voting power of all classes of the capital
stock of the Company;
(g) by Republic, if the Board of Directors of the Company does not
recommend to its stockholders the approval of the Merger, this Agreement
and the transactions contemplated hereby, or withdraws, modifies or changes
its recommendation to approve the Merger, this Agreement and the
transactions contemplated hereby, or shall have resolved to do any of the
foregoing, except as permitted in accordance with the terms of Section
9.1(h) below;
(h) by either Republic or the Company, if the Company or its
stockholders receives an offer for a Competing Transaction that the Board
of Directors of the Company determines in good faith is more favorable to
the stockholders of the Company from a financial point of view than the
transactions contemplated by this Agreement, and the Board of Directors of
the Company accepts, recommends or resolves to accept or recommend to the
Company's stockholders such a Competing Transaction;
(i) by Republic, if any of the representations and warranties of the
Company in this Agreement are not true and correct and could not reasonably
be expected to become true and correct prior to the End Date, or if the
Company breaches in any material respects any covenant of the Company
contained in this Agreement and such breach could not reasonably be
expected to be cured prior to the End Date; or
(j) by the Company, if any of the representations and warranties of
Republic in this Agreement are not true and correct and could not
reasonably be expected to become true and correct prior to the End Date, or
if Republic breaches in any material respect any covenant of Republic
contained in this Agreement and such breach could not reasonably be
expected to be cured prior to the End Date.
SECTION 9.2. Effect of Termination. In the event this Agreement is
terminated pursuant to Section 9.1, this Agreement shall terminate and become
void and of no force and effect, the Merger shall be abandoned without further
action by any of the parties to this Agreement, and no party to this Agreement
shall have any liability or further obligation under this Agreement, except for
the agreements contained in Sections 5.2 (No Solicitations), 7.5 (Brokers or
Finders), 10.3 (Fees and Expenses) and 10.8 (Governing Law); provided that any
termination of this Agreement pursuant to Sections 9.1(i) or 9.1(j) of this
Agreement shall not relieve any party from any liability for the breach of any
material representation, warranty or covenant contained in this Agreement or be
deemed to constitute a waiver of any remedy available for such breach, and
further provided, that if Republic terminates this Agreement pursuant to Section
9.1(i), then Republic shall be entitled to recover its reasonable attorney's
fees and costs incurred in any action brought by Republic against the Company to
recover its damages caused by such breach, or if the Company terminates this
Agreement pursuant to Section 9.1(j), then the Company shall be entitled to
recover its reasonable attorney's fees and costs incurred in any action brought
by the Company against Republic to recover its damages caused by such breach.
Upon termination of this Agreement, each party shall return all documents and
other materials of any other party which constitute confidential or proprietary
information or trade secrets, whether so obtained before or after the execution
of this Agreement, to the party furnishing the same.
ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1. Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified and supplemented only by written agreement of
the Company, on the one hand, and Republic and Mergersub, on the other hand, at
any time prior to the Effective Time with respect to any of the terms contained
herein; provided, however, that, after the adoption of this Agreement by the
Company's
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stockholders, no such amendment or modification shall reduce the amount or
change the form the consideration to be delivered to the stockholders of the
Company as contemplated by Article II of this Agreement.
SECTION 10.2. Waiver of Compliance; Consents. Any failure of the Company,
or of Republic or Mergersub, to comply with any obligation, covenant, agreement
or condition herein may be waived in writing by Republic or Mergersub, or by the
Company, respectively, but such waiver or failure to insist upon strict
compliance with such obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure. Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent shall be given in writing in a manner consistent
with the requirements for a waiver of compliance as set forth in this Section
10.2.
SECTION 10.3. Fees and Expenses. Except as otherwise provided in this
Agreement or by law, all fees and expenses incurred in connection with the
Merger, this Agreement and the transactions contemplated by this Agreement shall
be paid by the party incurring such fees or expenses, except that (i) the
expenses payable in connection with printing and mailing the Proxy Statement and
the Registration Statement, and all SEC filing fees relating to the transactions
contemplated herein, shall be borne by Republic and (ii) all HSR Act filing fees
payable with respect to the Merger shall be shared equally by Republic and the
Company.
SECTION 10.4. No Third-Party Beneficiaries. Except as provided in Section
7.8, this Agreement is for the sole benefit of the parties hereto and nothing
herein expressed or implied shall give or be construed or is intended to give to
any Person, other than the parties hereto, any legal or equitable rights
hereunder.
SECTION 10.5. Reliance on and Survival of Representations and
Warranties. Notwithstanding any knowledge of facts determined or determinable
by any party by investigation, each party shall have the right to fully rely on
the representations and warranties of the other parties contained in this
Agreement or in any other documents or certificates delivered in connection
herewith. Each representation and warranty contained in this Agreement is
independent of each other representation and warranty. None of the
representation, warranties, or covenants in this Agreement or in any Schedule,
certificate, or other document delivered pursuant to this Agreement shall
survive beyond the Effective Time, except for the agreements in Article I (The
Merger), Article II (Conversion of Securities; Exchange of Certificates),
Section 6.5 (Benefit Plans), Section 7.7 (Tax Treatment), Section 7.8
(Indemnification and Insurance of Company Officers and Directors), Section 7.9
(Further Assurances), and Section 10.8 (Governing Law), and for those set forth
in the Affiliate Letters, the Covenant Letters, and the Voting Agreements.
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SECTION 10.6. Notices. All notice and other communications required or
permitted hereunder shall be in writing and shall be deemed duly given if
delivered by hand, faxed (provided a confirmation is sent by guaranteed
overnight delivery), guaranteed overnight delivery or mailed, first class
certified mail with postage prepaid, to the parties at the following addresses,
or such other addresses as such party shall furnish to the other in writing:
(a) If to Republic or Mergersub to:
Republic Industries, Inc.
200 East Las Olas Blvd., Suite 1400
Fort Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
Fax: (954) 522-8219
with a copy to:
Akerman, Senterfitt & Eidson, P.A.
One S.E. Third Avenue, 28th Floor
Miami, FL 33131
Attn: Jonathan L. Awner, Esq.
Fax: (305) 374-5095
(b) If to the Company to:
Addington Resources, Inc.
771 Corporate Drive, Suite 1000
Lexington, Kentucky 40503
Attn: Howard P. Berkowitz
Fax: (212) 757-0577
with a copy to:
Schulte Roth & Zabel
900 Third Avenue, 23rd Floor
New York, NY 10022
Attn: Stuart D. Freedman, Esq.
Fax: (212) 593-5955
SECTION 10.7. Assignment. This Agreement and all of its provisions shall
be binding upon and inure to the benefit of the parties to this Agreement, but
neither this Agreement nor any of the rights, interests or obligations hereunder
may be assigned by operation of law or otherwise.
SECTION 10.8. Governing Law. This Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Delaware
applicable to contracts executed and to be wholly performed within such State.
SECTION 10.9. Headings. The table of contents and the article and section
headings contained in this Agreement are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement. When
reference is made in this Agreement to a Section, Exhibit or Schedule, such
reference shall be to a Section of, or an Exhibit or Schedule to, this Agreement
unless otherwise indicated.
SECTION 10.10. Entire Agreement. This Agreement (which term as used
throughout includes the Exhibits and Schedules hereto) and the other documents
and certificates contemplated herein embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein, and supersedes all prior agreements and understandings (oral or written)
between or among the parties with respect to such subject matter. There are no
restrictions, promises, representations, warranties, covenants or undertakings,
other than those expressly set forth or referred to herein.
SECTION 10.11. Severability. Wherever possible, each provision or portion
of any provisions of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any
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provision or portion of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such jurisdiction as if
such invalid, illegal or unenforceable provision or portion of any provision had
never been contained herein.
SECTION 10.12. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have made and entered into this
Agreement on the date set forth above.
REPUBLIC INDUSTRIES, INC.,
a Delaware corporation
By: /s/ H. WAYNE HUIZENGA
------------------------------------
H. Wayne Huizenga
Chairman of the Board and
Chief Executive Officer
RI/AR MERGER CORP.,
a Delaware corporation
By: /s/ RICHARD L. HANDLEY
------------------------------------
Richard L. Handley
Vice President
ADDINGTON RESOURCES, INC.,
a Delaware corporation
By: /s/ HOWARD P. BERKOWITZ
------------------------------------
Howard P. Berkowitz
Chairman of the Board
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ANNEX B
Oppenheimer Tower
World Financial Center
New York, New York 10281
OPPENHEIMER & CO., INC. (212) 667-7000 - Fax: (212) 667-4468
Environmental Services Group
Investment Banking Department
December 5, 1996
The Board of Directors
Addington Resources, Inc.
771 Corporate Drive, Suite 1000
Lexington, KY 40503
Dear Sirs:
You have requested our opinion as to the fairness to the holders of the
common stock of Addington Resources, Inc. ("Addington"), from a financial point
of view, of the consideration to be received by such holders pursuant to the
proposed Agreement and Plan of Merger (the "Merger Agreement"), by and among
Republic Industries, Inc. ("Republic"), RI/AR Merger Corp. ("Mergersub") and
Addington. The Merger Agreement provides that, among other things, (i) Mergersub
will be merged with and into Addington and Addington will be the surviving
corporation and become a wholly-owned subsidiary of Republic and the separate
corporate existence of Mergersub shall cease, and (ii) each issued and
outstanding share of Addington common stock shall be converted into the right to
receive 9/10 of one share of Republic Common Stock.
In arriving at our opinion, we (i) reviewed the latest available draft of
the Merger Agreement, (ii) reviewed the historical financial statements and the
financial projections and other information prepared by representatives of
Addington and Republic, (iii) reviewed publicly available information for
Addington and Republic, such as periodic and other reports filed with the
Securities and Exchange Commission on Forms 10-K, 10-Q and 8-K; (iv) reviewed
the reported market prices and trading volumes for Addington's and Republic's
common stock; (v) held discussions with representatives of Addington and
Republic concerning Addington's and Republic's historical and current
operations, financial condition and prospects; and (vi) reviewed such other
documents and financial, economic and market criteria and made such other
investigations as we deemed appropriate for the purposes of such opinion.
We also considered certain stock market data of Addington and compared that
data with similar data for other publicly held companies in businesses similar
to those of Addington. We considered, to the extent publicly available, the
financial terms of certain other business combinations which have recently been
effected.
In connection with out review, we have not assumed responsibility for
independent verification of any of the foregoing information and have relied
upon its being complete and accurate in all respects. With respect to the
financial forecasts and other data concerning Addington and Republic reviewed by
us, the managements of Addington and Republic advised us that such forecasts and
other data have been reasonably prepared on bases reflecting their best
currently available estimates and judgments as to their future financial
performance. In addition, we have not made an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Addington or
Republic, nor have we been furnished with any such evaluations or appraisals. We
have assumed, without independent verification, the accuracy of the advice and
conclusions of Addington's legal counsel and accountants with respect to
accounting and tax matters as provided to Oppenheimer by Addington's management,
including without limitation, the treatment of the Merger as a tax free
reorganization for federal income tax purposes and the accounting of the merger
as a pooling of interests. We express no
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The Board of Directors
Addington Resources, Inc. -- December 5, 1996
Page 2
opinion as to what the value of the Republic common stock actually will be when
issued to holders of Addington common stock pursuant to the Merger or the price
at which the Republic common stock will trade subsequent to the Merger. For
purposes of our opinion, we were not requested to, and did not, solicit third
party indications of interest in acquiring all or any part of Addington. Our
opinion is necessarily based on information available to us and general
economic, financial and stock market conditions and circumstances as they exist
and can be evaluated by us on the date hereof.
As part of our investment banking business, we are regularly engaged in
valuations of businesses and securities in connection with acquisitions and
mergers, underwritings, secondary distributions of securities, private
placements and valuations for other purposes.
We acted as financial advisor to the Board of Directors of Addington in
rendering this opinion and will receive a fee for our services. In the ordinary
course of its business, Oppenheimer & Co., Inc. and its affiliates may actively
trade securities of Addington and Republic for their own accounts and for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is intended for the benefit and
information of Addington's Board of Directors in its evaluation of the Merger
and does not constitute a recommendation to any Addington stockholder as to how
to vote shares in connection with the Merger.
Based upon and subject to the foregoing, it is our opinion that as of the
date hereof, the consideration to be received in the Merger by the holders of
Addington common stock is fair to such holders from a financial point of view.
Very truly yours,
Oppenheimer & Co., Inc.
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ANNEX C
VOTING AGREEMENT
VOTING AGREEMENT, dated as of June 25, 1996 (this "Agreement"), by HPB
ASSOCIATES, L.P., HAROLD BLUMENSTEIN, JAMES GROSFELD, LARRY ADDINGTON, ROBERT
ADDINGTON and BRUCE ADDINGTON (collectively, the "Stockholders") with REPUBLIC
INDUSTRIES, INC., a Delaware corporation ("Acquiror").
WHEREAS, Acquiror and RI/AR Merger Corp., a Delaware corporation and a
wholly owned subsidiary of Acquiror ("Acquiror Sub"), propose to enter into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), with Addington Resources, Inc., a Delaware corporation (the
"Company"), which provides, among other things, that the Company will merge with
Acquiror Sub pursuant to the merger contemplated by the Merger Agreement (the
"Merger").
WHEREAS, as of the date hereof, the Stockholders own 6,867,615 shares of
common stock, par value $1.00 per share, of the Company ("Company Common
Stock"), which represent in the aggregate approximately 45% of the total issued
and outstanding Company Common Stock; and
WHEREAS, as a condition to the willingness of Acquiror to enter into the
Merger Agreement, Acquiror has required that the Stockholders agree, and in
order to induce Acquiror to enter into the Merger Agreement, the Stockholders
have agreed, to enter into this Agreement with respect to all the shares of
Company Common Stock now owned and which may hereafter be acquired by the
Stockholders (the "Shares") and any other securities, if any, which the
Stockholders are entitled to vote at any meeting of stockholders of the Company
(the "Other Securities").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereto hereby agree as follows:
ARTICLE I
PROXY OF THE STOCKHOLDERS
SECTION 1.01. Voting Agreement. Each Stockholder hereby agrees that
during the time this Agreement is in effect, at any meeting of the shareholders
of the Company, however called, and in any action by consent of the shareholders
of the Company, each of the Stockholders shall vote the Shares and the Other
Securities: (a) in favor of the Merger, the Merger Agreement (as amended from
time to time) or any of the transactions contemplated by the Merger Agreement;
and (b) against any proposal for any merger, sale of substantial assets, sale of
shares of Company Common Stock or other securities, recapitalization, or other
business combination transactions between the Company or any of the subsidiaries
of the Company and any person or entity (other than the Merger) or any other
corporate action or agreement that would result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or which could result in any of the conditions to the
Company's obligations under the Merger Agreement not being fulfilled. Each
Stockholder acknowledges receipt and review of a copy of the Merger Agreement.
SECTION 1.02. Irrevocable Proxy. Each Stockholder hereby irrevocably
appoints Acquiror, until termination of the Merger Agreement, as his or its
attorney and proxy pursuant to the provisions of Section 212(c) of the General
Corporation Law of the State of Delaware, with full power of substitution, to
vote and otherwise act (by written consent or otherwise) with respect to the
Shares and the Other Securities, which such Stockholder is entitled to vote at
any meeting of stockholders of the Company (whether annual or special and
whether or not an adjourned or postponed meeting) or consent in lieu of any such
meeting or otherwise, on the matters and in the manner specified in Section 1.01
hereof. THIS PROXY AND POWER OF ATTORNEY IS IRREVOCABLE AND COUPLED WITH AN
INTEREST. The Stockholders hereby revoke all other proxies and powers of
attorney with respect to the Shares and the Other Securities which they may have
heretofore appointed or granted, and no subsequent proxy or power of attorney
shall be given or
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written consent executed (and if given or executed, shall not be effective) by
the Stockholders with respect to the matters specified in Section 1.01 hereof.
All authority herein conferred or agreed to be conferred shall survive the death
or incapacity of any Stockholder and any obligation of any Stockholder under
this Agreement shall be binding upon the heirs, personal representatives and
successors of such Stockholder.
SECTION 1.03. Waiver of Restrictions. HPB Associates, L.P. and Robert
Addington, Bruce Addington and Larry Addington agree hereby to waive any
restrictions placed on the granting of proxies pursuant to the Stock Purchase
Agreement, dated August 4, 1995, by and between HPB Associates, L.P. and Robert
Addington, Bruce Addington and Larry Addington.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS
Each Stockholder hereby represents and warrants, severally but not jointly,
to Acquiror as follows:
SECTION 2.01. Authority Relative to This Agreement. Each Stockholder has
all necessary power and authority to execute and deliver this Agreement, to
perform his or its obligations hereunder and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by such
Stockholder and constitutes a legal, valid and binding obligation of such
Stockholder, enforceable against such Stockholder in accordance with its terms.
SECTION 2.02. No Conflict. (a) The execution and delivery of this
Agreement by such Stockholder do not, and the performance of this Agreement by
such Stockholder shall not, (i) conflict with or violate any federal, state or
local law, statute, ordinance, rule, regulation, order, judgment or decree
applicable to such Stockholder or by which the Shares or the Other Securities
owned by such Stockholder are bound or affected or (ii) result in any breach of
or constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the Shares or the Other Securities owned by such
Stockholder pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which such Stockholder is a party or by which such Stockholder or the Shares
or Other Securities owned by such Stockholder are bound or affected.
(b) The execution and delivery of this Agreement by such Stockholder do
not, and the performance of this Agreement by such Stockholder shall not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any Governmental Entity (as such term is defined in the Merger
Agreement) except for applicable requirements, if any, of the Securities
Exchange Act of 1934, as amended, or the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended.
SECTION 2.03. Title to the Shares. As of the date hereof, each
Stockholder is the record and beneficial owner of the number of shares of
Company Common Stock set forth opposite such Stockholder's name on Appendix A
hereto, which Shares represent on the date hereof the percentage of the
outstanding Company Common Stock set forth on such Appendix. Such Shares are all
the securities of the Company owned, either of record or beneficially, by such
Stockholder. Except as set forth on Appendix A, such Shares are owned free and
clear of all security interests, liens, claims, pledges, options, rights of
first refusal, agreements, limitations on such Stockholder's voting rights,
charges and other encumbrances of any nature whatsoever. Except as provided in
this Agreement, no Stockholder has appointed or granted any proxy, which
appointment or grant is still effective, with respect to the Shares or Other
Securities owned by such Stockholder.
ARTICLE III
COVENANTS OF THE STOCKHOLDERS
SECTION 3.01. No Disposition or Encumbrance of Shares. Each Stockholder
hereby covenants and agrees that, except as contemplated by this Agreement, such
Stockholder shall not offer or agree to sell, transfer, tender, assign,
hypothecate or otherwise dispose of, grant a proxy or power of attorney with
respect to, or create or permit to exist any security interest, lien, claim,
pledge, option, right of first refusal, agreement,
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<PAGE> 355
limitation on any Stockholder's voting rights, charge or other encumbrance of
any nature whatsoever with respect to the Shares or, directly or indirectly,
initiate, solicit or encourage, subject to the provisions of Section 5.2 of the
Merger Agreement, any person to take actions which could reasonably be expected
to lead to the occurrence of any of the foregoing.
SECTION 3.02. No Solicitation of Transactions. Each Stockholder hereby
agrees, jointly and severally, to be bound and to comply with the obligations of
the Company set forth in Section 5.2(a) of the Merger Agreement as if such
obligations were set forth in their entirety in this Section 3.02 as obligations
of such Stockholder.
SECTION 3.03. No Profit From Competing Transaction. Each Stockholder
hereby covenants and agrees that should the Company or the Representatives (as
defined in Section 5.2(a) of the Merger Agreement) during the Non-Solicitation
Period (as defined in Section 5.2(a) of the Merger Agreement) either (i) receive
an unsolicited proposal for a Competing Transaction (an "Acquisition Proposal"),
other than from Acquiror or an affiliate of Acquiror or their authorized
representatives, and, during the Non-Solicitation Period or within one (1) year
after the date hereof, consummate a transaction of a kind that would constitute
a Competing Transaction with (x) the offeror or any affiliate of the offeror who
made the Acquisition Proposal (the "Original Offeror") or (y) another party who
makes an Acquisition Proposal prior to the termination of negotiations with the
Original Offeror, or (ii) solicit or initiate any discussions for a Competing
Transaction (regardless of whether it is consummated); then, in either instance,
each Stockholder shall pay to Acquiror an amount in cash (or if the
consideration to be received in such Competing Transaction is securities of the
acquiror, an amount of such securities, or payment in such form, as permitted by
the Competing Transaction) equal to the consideration paid by the acquiror (the
"Third Party Acquisition Consideration") on a per share of Company Common Stock
basis in excess of (1) $21.50 (in the case of proposals noted in (i) above) or
(2) $15.00 (in the case of solicitations under (ii) above) (in either case, the
"Base Amount") multiplied by the number of shares beneficially owned by each
such Stockholder (which amounts shall be paid contemporaneously with
consummation of the acquisition, whether or not such Acquisition Proposal was
solicited); provided that the number of shares and the Base Amount shall be
appropriately adjusted for stock splits, stock dividends, stock combinations,
recapitalizations, reclassifications and other similar transactions; provided
further that no payments shall be required pursuant to the terms of this Section
3.03 if the Merger Agreement is terminated as a result of the breach of any of
the terms of the Merger Agreement by Acquiror. The Third Party Acquisition
Consideration shall be deemed to include both cash and any securities or other
property received in the transaction, as well as debts of the Stockholders
assumed in the transaction. In the event that any Third Party Acquisition
Consideration shall be payable in securities; debt securities shall be valued at
market value on the day of delivery; preferred stock shall be valued at market
value on the day of delivery; and common stock shall be valued by its market
value on the day of delivery based on the ten day average closing price of such
common stock on the principal stock exchange or Nasdaq market on which it is
traded or quoted for the period prior to the consummation of such acquisition.
In the event that any Third Party Acquisition Consideration shall be payable in
other property, such other property shall be valued at an amount to be
reasonably determined by Acquiror.
ARTICLE IV
MISCELLANEOUS
SECTION 4.01. Termination. This Agreement (except for Section 3.03 and
Article IV of this Agreement) shall terminate upon the termination of the Merger
Agreement in accordance with its terms. Section 3.03 and Article IV of this
Agreement shall survive termination of this Agreement.
SECTION 4.02. Further Assurances. Each Stockholder and Acquiror will
execute and deliver all such further documents and instruments and take all such
further action as may be necessary in order to consummate the transactions
contemplated hereby.
SECTION 4.03. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement was
not performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law
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<PAGE> 356
or in equity. Acquiror shall be entitled to its reasonable attorneys' fees in
any action brought to enforce this Agreement in which it is the prevailing
party.
SECTION 4.04. Entire Agreement. This Agreement constitutes the entire
agreement between Acquiror and the Stockholders with respect to the subject
matter hereof and supersedes all prior agreements and understandings, both
written and oral, between Acquiror and the Stockholders with respect to the
subject matter hereof.
SECTION 4.05. Amendment. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 4.06. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
SECTION 4.07. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware applicable to
contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any Delaware state or federal court.
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<PAGE> 357
IN WITNESS WHEREOF, each Stockholder has duly executed this Agreement.
HPB ASSOCIATES, L.P.
BY: HPB GROUP LLC
<TABLE>
<S> <C>
By: /s/ HOWARD P. BERKOWITZ
-----------------------------------------------
Howard P. Berkowitz,
Dated: June 25, 1996 Managing Member
/s/ HAROLD BLUMENSTEIN
-----------------------------------------------
Harold Blumenstein,
Dated: June 25, 1996 individually
/s/ JAMES GROSFELD
-----------------------------------------------
James Grosfeld,
Dated: June 25, 1996 individually
/s/ LARRY ADDINGTON
-----------------------------------------------
Larry Addington,
Dated: June 25, 1996 individually
/s/ ROBERT ADDINGTON
-----------------------------------------------
Robert Addington,
Dated: June 25, 1996 individually
/s/ BRUCE ADDINGTON
-----------------------------------------------
Bruce Addington,
Dated: June 25, 1996 individually
Agreed and Accepted as of
June 25, 1996:
REPUBLIC INDUSTRIES, INC.
By: /s/ RICHARD L. HANDLEY
-------------------------------------
Richard L. Handley
Senior Vice President
</TABLE>
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<PAGE> 358
APPENDIX A
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
OF OUTSTANDING COMPANY
---------------------------------------
NUMBER OF
SHARES SHARES SHARES PLEDGED
--------- ------ --------------
<S> <C> <C> <C>
HPB Associates, L.P........................................ 2,455,285 16.2
Larry Addington............................................ 2,263,324 10.9 550,000(1)
Robert Addington........................................... 980,000 6.5 900,000(2)
Bruce Addington............................................ 914,006 6.0 910,000(3)
Harold Blumenstein......................................... 100,000 0.1
James Grosfeld............................................. 155,000 0.1
</TABLE>
- - ---------------
(1) 250,000 shares are pledged to CIT; 200,000 shares are pledged to National
City Bank; and 100,000 shares are pledged to Nations Bank.
(2) Pledged to Nations Bank.
(3) 560,006 shares are pledged to Prudential Securities; 250,000 shares are
pledged to CIT; and 100,000 shares are pledged to Bear Stearns.
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<PAGE> 359
ADDINGTON RESOURCES, INC. (THE "CORPORATION")
THIS CONSENT IS SOLICITED BY THE BOARD OF DIRECTORS
Unless otherwise indicated below, the undersigned being a stockholder of
record of the Corporation on December 4, 1996 (the "Record Date") hereby
consents, pursuant to Section 228 of the General Corporation Law of the State of
Delaware and the Bylaws of the Corporation, with respect to all shares of common
stock of the Corporation held of record by the undersigned on the Record Date,
to the taking of the following corporate action without a meeting of the
stockholders of the Corporation:
Approval and adoption of the Merger Agreement described in the Solicitation
Statement/Prospectus dated December 13, 1996 relating thereto.
[ ] CONSENT [ ] DOES NOT CONSENT [ ] ABSTAIN
A consent is recommended by the Board of Directors
(Continued and to be signed and dated on the reverse side)
<PAGE> 360
THIS CONSENT FORM WHEN PROPERLY EXECUTED, DATED, AND DELIVERED WILL BE GIVEN
EFFECT IN ACCORDANCE WITH THE DIRECTION ON THE OTHER SIDE. IF NO DIRECTION IS
INDICATED, THIS CONSENT WILL BE DEEMED A CONSENT IN FAVOR OF THE PROPOSAL SET
FORTH ON THE OTHER SIDE.
Dated , 1996
-----------------
------------------------------
Signature
------------------------------
Additional signature, if held
jointly
Please sign exactly as name
appears at left. When shares
are held by joint tenants,
both should sign. When signing
as attorney, executor,
administrator, trustee or
guardian, please give full
title as such. If a
partnership, please sign in
partnership name by authorized
person.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS CONSENT FORM USING THE ENCLOSED
ENVELOPE.
<PAGE> 361
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Certificate of Incorporation of the Registrant entitles the Board of
Directors to provide for indemnification of directors and officers to the
fullest extent provided by law, except for liability (i) for any breach of a
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payments of dividends, or for
unlawful stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
Article VII of the Bylaws of the Registrant provides that to the fullest
extent and in the manner permitted by the laws of the State of Delaware and
specifically as is permitted under Section 145 of the General Corporation Law of
the State of Delaware, the Registrant shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, other than an action by or in the right of the Registrant, by
reason of the fact that such person is or was a director, officer, employee or
agent of the Registrant, or is or was serving at the request of the Registrant
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses, including attorneys'
fees, judgments, fines and amounts paid in settlement actually and reasonably
incurred in connection with such action, suit, or proceeding if he acted in
good faith and in a manner he reasonably believed to be in and not opposed to
the best interests of the Registrant, and with respect to any criminal action
or proceeding, he had no reasonable cause to believe his conduct was unlawful.
Determination of an action, suit, or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in
a manner which he reasonably believed to be in and not opposed to the best
interests of the Registrant, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was lawful.
The Bylaws provide that any decision as to indemnification shall be
made: (a) by the Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding; or (b) if
such a quorum is not obtainable, or even if obtainable, if a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion; or (c) by the stockholders. The Board of Directors may authorize
indemnification of expenses incurred by an officer or director in defending a
civil or criminal action, suit or proceeding in advance of the final disposition
of such action, suit or proceeding. Indemnification pursuant to these
provisions is not exclusive of any other rights to which those seeking
indemnification may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise and shall continue as to a person who
has ceased to be a director or officer. The Registrant may purchase and
maintain insurance on behalf of any person who is or was a director or officer.
II-1
<PAGE> 362
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) A list of the exhibits filed as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits.
(b) Financial Statement Schedule
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants on Schedule ......... II-3
Schedule II -- Valuation and Qualifying Accounts and Reserves........... II-4
</TABLE>
II-2
<PAGE> 363
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
To the Shareholders and Board of Directors of Republic Industries, Inc.:
We have audited, in accordance with generally accepted auditing
standards, the consolidated financial statements of Republic Industries, Inc.
included in this Registration Statement and have issued our report thereon
dated December 5, 1996. Our audits were made for the purpose of forming an
opinion on the basic consolidated financial statements taken as a whole. The
schedule listed in Item 21(b) is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic consolidated financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 5, 1996.
II-3
<PAGE> 364
REPUBLIC INDUSTRIES, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN THOUSANDS)
=============================================================================
<TABLE>
<CAPTION>
Balance Balance
at Additions Accounts at End
Beginning Charged to Written of
Classifications of Year Income Off Other(1) Year
--------------- -------------- ------------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
1995 . . . . . . . . . . $ 1,581 $ 1,505 $ (1,148) $ 621 $ 2,559
1994 . . . . . . . . . . $ 1,555 $ 858 $ (836) $ 4 $ 1,581
1993 . . . . . . . . . . $ 1,382 $ 936 $ (846) $ 83 $ 1,555
</TABLE>
- - ---------
(1) Allowance of acquired businesses.
(c) The opinion of Oppenheimer & Co., Inc. is attached as Annex B to the
Solicitation Statement/Prospectus enclosed in this Registration Statement.
II-4
<PAGE> 365
ITEM 22. UNDERTAKINGS
(1) The undersigned Registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The Registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415, will be filed as a part of an
amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial BONA FIDE offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(4) The undersigned Registrant hereby undertakes to respond to requests
for information that are incorporated by reference into the prospectus pursuant
to Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
any such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
(5) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
(6) The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
ii) To reflect in the prospectus any facts or events arising after
the effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in this Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in this Registration Statement;
iii) To include any material information with respect to the plan
of distribution not previously disclosed in this Registration Statement
or any material change to such information in this Registration
Statement.
(b) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
II-5
<PAGE> 366
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Ft. Lauderdale, State of
Florida, on December 13, 1996.
REPUBLIC INDUSTRIES, INC.
By: /s/ H. Wayne Huizenga
------------------------------------
H. Wayne Huizenga
Chairman of the Board and
Co-Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------------------------------------------- ----------------------------- ------------------
<S> <C> <C>
/s/ H. Wayne Huizenga Chairman of the Board and December 13, 1996
- - --------------------------------------------- Co-Chief Executive Officer
H. Wayne Huizenga (Principal Executive
Officer)
/s/ Steven R. Berrard Co-Chief Executive Officer, December 13, 1996
- - --------------------------------------------- President and Director
Steven R. Berrard
/s/ Harris W. Hudson Vice Chairman of the Board December 13, 1996
- - ---------------------------------------------
Harris W. Hudson
/s/ Michael S. Karsner Senior Vice Presient and December 13, 1996
- - --------------------------------------------- Chief Finanical Officer
Michael S. Karsner (Principal Financial Officer)
/s/ Michael R. Carpenter Vice President and Controller December 13, 1996
- - --------------------------------------------- (Principal Accounting
Michael R. Carpenter Officer)
/s/ Michael G. DeGroote Director December 13, 1996
- - ---------------------------------------------
Michael G. DeGroote
/s/ J.P. Bryan Director December 13, 1996
- - ---------------------------------------------
J.P. Bryan
/s/ Rick L. Burdick Director December 13, 1996
- - ---------------------------------------------
Rick L. Burdick
/s/ George D. Johnson, Jr. Director December 13, 1996
- - ---------------------------------------------
George D. Johnson, Jr.
/s/ John J. Melk Director December 13, 1996
- - ---------------------------------------------
John J. Melk
</TABLE>
II-6
<PAGE> 367
EXHIBIT INDEX
Exhibit
No. Description of Exhibit
- - ------- ----------------------
2.1 Agreement and Plan of Merger and Reorganization, dated May 30, 1991,
by and between Republic Waste Industries, Inc., an Oklahoma
corporation, and Republic Waste Industries, Inc., a Delaware
corporation (incorporated by reference to Exhibit 3.1 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1991).
3.1 Second Amended and Restated Certificate of Incorporation of Republic
Industries, Inc. (incorporated by reference to Exhibit 3.1 to the
Registrant's Post-Effective Amendment No. 3 to Registration Statement
on Form S-1, No. 33-63209).
3.2 Bylaws of Republic Industries, Inc., as amended to date (incorporated
by reference to Exhibit 3.2 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1995).
4.1 Credit Facilities and Reimbursement Agreement, dated December 19, 1995
("Credit Facilities and Reimbursement Agreement"), by and among
Republic Industries, Inc., as Borrower, NationsBank of Florida,
National Association, The First National Bank of Boston, The
Bank of Nova Scotia, The First National Bank of Chicago, SunTrust
Bank, South Florida, National Association, United States National Bank
of Oregon, ABN AMRO Bank, N.V., The Bank of New York, Barnett Bank of
Broward County, N.A., Credit Lyonnais New York Branch, Credit Lyonnais
Cayman Island Branch, and LTCB Trust Company, as Lenders and
NationsBank of Florida, National Association, as Agent and The First
National Bank of Boston, as Co-Agent (incorporated by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995).
4.2* Amendment Agreement Number One to Credit Facilities and Reimbursement
Agreement, dated June 11, 1996.
4.3* Amendment Agreement Number Two to Credit Facilities and Reimbursement
Agreement, dated November 25, 1996.
4.4 Form of Indenture among Alamo Rent-A-Car, Inc., Alamo Rent-A-Car
(Belgium), Inc., Alamo Rent-A-Car (Canada), Inc., DKBERT Assoc.,
Green Corn, Inc., Guy Salmon USA, Inc., Guy Salmon USA, Ltd., Tower
Advertising Group, Inc., Territory Blue, Inc., as Co-Issuers, and
The Bank of New York, as Trustee (incorporated by reference to
Exhibit 4.1 to the Registration Statement on Form S-1 of Alamo
Rent-A-Car, Inc. Commission File No. 33-80271).
4.5 Loan Agreement, dated as of June 20, 1994 ("Alamo Funding Loan
Agreement"), between Alamo Rent-A-Car, Inc. and Alamo Funding, L.P.
(incorporated by reference to Exhibit 4.8 to the Registration
Statement on Form S-1 of Alamo Rent-A-Car, Inc. Commission File
No. 33-80271).
4.6 Amendment to Alamo Funding Loan Agreement, dated as of December 29,
1994 (incorporated by reference to Exhibit 4.9 to the Registration
Statement on Form S-1 of Alamo Rent-A-Car, Inc. Commission File
No. 33-80271).
4.7 Second Amendment to Alamo Funding Loan Agreement, dated as of
June 11, 1996 (incorporated by reference to Exhibit 4.1 to the
Quarterly Report on Form 10-Q of Alamo Rent-A-Car, Inc. for the
period ending June 30, 1996).
4.8* Third Amendment to Alamo Funding Loan Agreement, dated as of
November 25, 1996.
4.9 Liquidity Loan Agreement, dated as of June 20, 1994 ("Liquidity
Loan Agreement"), among Alamo Funding, L.P., AFL Fleet Funding, Inc.,
certain financial institutions, as the liquidity lenders, and
Citibank N.A., as the liquidity agent for the liquidity lenders
(incorporated by reference to Exhibit 4.10 to the Registration
Statement on Form S-1 of Alamo Rent-A-Car, Inc. Commission File
No. 33-80271).
4.10 Consent of Liquidity Lenders to Extension of the Scheduled Liquidity
Commitment Termination Date (incorporated by reference to
Exhibit 4.11 to the Registration Statement on Form S-1 of Alamo
Rent-A-Car, Inc. Commission File No. 33-80271).
4.11 First Amendment to Liquidity Loan Agreement dated June 11, 1996
(incorporated by reference to Exhibit 4.1 to the Quarterly Report on
Form 10-Q of Alamo Rent-A-Car, Inc. for the period ending June 30,
1996).
4.12* Second Amendment to Liquidity Loan Agreement, dated as of November 25,
1996.
4.13 Letter of Credit Reimbursement Agreement, dated as of June 20, 1994
("Letter of Credit Reimbursement Agreement"), among Alamo Rent-A-Car,
Inc., Alamo Funding, L.P., AFL Fleet Funding, Inc. and Credit Suisse,
as Credit Enhancer (incorporated by reference to Exhibit 4.12 to the
Registration Statement on Form S-1 of Alamo Rent-A-Car, Inc. Commission
File No. 33-80271).
4.14 Amendment to Letter of Credit Reimbursement Agreement, dated as of
December 29, 1994 (incorporated by reference to Exhibit 4.13 to the
Registration Statement on Form S-1 of Alamo Rent-A-Car, Inc.
Commission File No. 33-80271).
4.15* Second Amendment to Letter of Credit Reimbursement Agreement, dated as
of November 25, 1996.
4.16* Guaranty, dated as of November 25, 1996, by Republic Industries, Inc. in
favor of Credit Suisse.
4.17 Amended and Restated Security Agreement, dated as of December 17, 1993
("Restated Security Agreement"), between Alamo Rent-A-Car, Inc. and
NationsBank of Georgia N.A., as collateral agent (incorporated by
reference to Exhibit 4.14 to the Registration Statement on Form S-1 of
Alamo Rent-A-Car, Inc. Commission File No. 33-80271).
4.18 First Amendment to Restated Security Agreement, dated as of
November 30, 1994 (incorporated by reference to Exhibit 4.15 to the
Registration Statement on Form S-1 of Alamo Rent-A-Car, Inc. Commission
File No. 33-80271).
Note: Pursuant to the provisions of Item 601(b)(4)(iii) of
Regulation S-K, the registrant hereby undertakes to
furnish to the Commission upon request copies of any
instruments governing long-term debt of Republic and its
consolidated subsidiaries that does not exceed 10% of the total
assets of Republic and its subsidiaries on a consolidated
basis.
5.1* Opinion of Akerman, Senterfitt & Eidson, P.A. as to the validity of
the Shares.
8.1* Opinion of Schulte Roth & Zabel LLP as to certain federal income tax
consequences.
8.2* Opinion of Akerman, Senterfitt & Eidson, P.A. as to certain federal
income tax consequences.
10.1 Republic Waste Industries, Inc. 1990 Stock Option and Stock Purchase
Plan (incorporated by reference to Exhibit 10.1(a) to the Registrant's
Registration Statement on Form S-1, No. 33-37191).
10.2 Form of Stock Option Agreement (incorporated by reference to Exhibit
10.1(b) to the Registrant's Registration Statement on Form S-1, No.
33-37191).
10.3 Letter Agreement, dated March 18, 1991, by and among MGD Holdings
Ltd., Republic Waste Industries, Inc., Tom J. Fatjo, Jr., Republic
Investors, Ltd., Investors, Inc., Robert Alpert, First Financial
Environmental Investors, Pete Boyas, James D. Lee, Richard K. Reiling,
William M. DeArman, Frank C. Payton, David C. Payton and Richard
Morton (incorporated by reference to Exhibit 10.31 to the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1990).
10.4 Warrant to Purchase 1,150,000 Shares of Republic Waste Industries,
Inc. Common Stock issued to MGD Holdings Ltd. (incorporated by
reference to Exhibit 10.18 to the Registrant's Registration Statement
on Form S-1, No. 33-42530).
10.5 Stock Exchange Agreement between Republic Waste Industries, Inc. and
MGD Holdings Ltd. (incorporated by reference to Exhibit 10.22 to the
Registrant's Registration Statement on Form S-1, No. 33-42530).
10.6 Republic Waste Industries, Inc. 1991 Stock Option Plan (incorporated
by reference to Exhibit 10.42 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992).
10.7 Form of Stock Option Agreement (incorporated by reference to Exhibit
10.43 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1992).
10.8 Form of Warrant to purchase 300,000 shares of Republic Waste
Industries, Inc. Common Stock, issued to Donald E. Koogler
(incorporated by reference to Exhibit 10.54 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1992).
10.9 Agreement of Settlement and Mutual Release by and among Republic Waste
Industries, Inc. and Michael G. DeGroote, Donald E. Koogler, Gary W.
DeGroote, Kevin J. Comeau, Rick L. Burdick, Douglas R. Gowland, Lance
R. Ruud, August C. Schultes, III, Mark S. Alsentzer, Gary J. Ziegler,
Eugene J. Kerins, Edward A. Schultes, Richard J. Schultes, Peter
Schultes, Barbara Schultes ITF Elizabeth Schultes (Minor), Barbara
Schultes ITF Deborah Schultes (Minor) and August C. Schultes, IV,
dated as of January 29, 1994 (incorporated by reference to Exhibit
10.46 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993).
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<PAGE> 368
10.10 Form of Warrant to purchase 100,000 shares of Republic Waste
Industries, Inc. Common Stock issued to MGD Holdings Ltd.
(incorporated by reference to Exhibit 10.33 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994).
10.11 Form of Warrant to purchase 50,000 shares of Republic Waste
Industries, Inc. Common Stock issued to J.P. Bryan (incorporated by
reference to Exhibit 10.34 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 1994).
10.12 Form of Warrant to purchase 50,000 shares of Republic Waste
Industries, Inc. Common Stock issued to Rick L. Burdick (incorporated
by reference to Exhibit 10.35 to the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994).
10.13 Distribution Agreement, dated February 14, 1995, by and between
Republic Waste Industries, Inc. and Republic Environmental Systems,
Inc. (incorporated by reference to Exhibit 10.36 to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1994).
10.14 Stock Purchase Agreement, dated May 21, 1995, by and between H. Wayne
Huizenga and Republic Waste Industries, Inc. (incorporated by
reference to Exhibit (c)(1) to the Registrant's Current Report on Form
8-K/A, dated July 17, 1995).
10.15 Agreement and Plan of Merger, dated May 21, 1995, by and among
Republic Waste Industries, Inc., Republic Hudson Acquisition
Corporation, Hudson Management Corporation and Harris W. Hudson and
Bonnie J. Hudson (incorporated by reference to Exhibit (c)(2) to the
Registrant's Current Report on Form 8-K/A, dated July 17, 1995).
10.16 Agreement and Plan of Merger, dated May 21, 1995, by and among
Republic Waste Industries, Inc., Republic Hudson Acquisition
Corporation, Envirocycle, Inc. and Harris W. Hudson and Bonnie J.
Hudson (incorporated by reference to Exhibit (c)(3) to the
Registrant's Current Report on Form 8-K/A, dated July 17, 1995).
10.17 Stock Purchase Agreement, dated May 21, 1995, by and between Harris W.
Hudson and Republic Waste Industries, Inc. (incorporated by reference
to Exhibit (c)(4) to the Registrant's Current Report on Form 8-K/A,
dated July 17, 1995).
10.18 Stock Purchase Agreement, dated May 21, 1995, by and between Westbury
(Bermuda) Ltd. and Republic Waste Industries, Inc. (incorporated by
reference to Exhibit (c)(5) to the Registrant's Current Report on Form
8-K/A, dated July 17, 1995).
10.19 Proxy, dated as of May 21, 1995, by MGD Holdings Ltd., in favor of H.
Wayne Huizenga (incorporated by reference to Exhibit (c)(6) to the
Registrant's Current Report on Form 8-K/A, dated July 17, 1995).
10.20 Stockholder Stock Option Agreement, dated as of May 21, 1995, by MGD
Holdings Ltd., in favor of H. Wayne Huizenga (incorporated by
reference to Exhibit (c)(7) to the Registrant's Current Report on Form
8-K/A, dated July 17, 1995).
10.21 First Amendment to Stock Purchase Agreement, dated July 17, 1995, by
and between Republic Waste Industries, Inc. and H. Wayne Huizenga
(incorporated by reference to Exhibit (c)(8) to the Registrant's
Current Report on Form 8-K/A, dated July 17, 1995).
10.22 Republic Industries, Inc. 1995 Amended and Restated Employee
Stock Option Plan (incorporated by reference to Appendix B to the
Registrant's Proxy Statement for the 1996 Annual Meeting of
Stockholders).
10.23 Republic Industries, Inc. Amended and Restated 1995 Non-employee
Director Stock Option Plan (incorporated by reference to Exhibit B to
the Registrant's Information Statement dated November 8, 1995).
II-8
<PAGE> 369
10.24 Merger Agreement, dated August 24, 1995, by and among Republic Waste
Industries, Inc., RS Mergersub, Inc., Southland Environmental
Services, Inc., Felix A. Crawford, Individually and as Trustee of the
Felix A. Crawford Revocable Living Trust, and CFP, Ltd. (incorporated
by reference to Exhibit (c)(1) to the Registrant's Current Report on
Form 8-K, dated August 24, 1995).
10.25 Merger Agreement, dated as of August 24, 1995, by and among Republic
Waste Industries, Inc., RKSA, Inc., RKSA II, Inc., Kertz Security
Systems, Inc., Kertz Security System II, Inc., Leon W. Brauser,
Michael Brauser, Robert Brauser and Joel Brauser (incorporated by
reference to Exhibit (c)(2.1) to the Registrant's Current Report on
Form 8-K, dated August 28, 1995).
10.26 First Amendment to Merger Agreement, dated as of October 17, 1995, to
the Merger Agreement, dated August 24, 1995, by and among Republic
Waste Industries, Inc., RS Mergersub, Inc., Southland Environmental
Services, Inc., Felix A. Crawford, Individually and as Trustee of the
Felix A. Crawford Revocable Living Trust, and CFP, Ltd. (incorporated
by reference to Exhibit 2.2 to the Registrant's Current Report on Form
8-K, dated October 17, 1995).
10.27 Merger Agreement, dated as of October 31, 1995, by and among Republic
Waste Industries, Inc., RWI/GDS Mergersub, Inc., Garbage Disposal
Service, Inc., Lee G. Brown and Mina Brown McLean (incorporated by
reference to Exhibit 2.1 to the Registrant's Current Report on Form
8-K, dated October 31, 1995).
10.28 Merger Agreement, dated as of November 11, 1995, by and among
Republic Waste Industries, Inc., RWI/JCD Inc., RWI/Grand Inc.,
RWI/Trashaway Inc., RWI/Tos-It Inc., RWI/WestTex Inc., RWI Pantego I
Inc., RWI/Pantego II Inc., J.C. Duncan Company, Inc., Arlington
Disposal Company, Inc., Grand Prairie Disposal Company, Inc.,
Trashaway Services, Inc., Tos-It Service Company, Inc., Wes Tex Waste
Services, Inc., Pantego Service Company, Pantego I, Inc., Pantego II,
Inc., E & E Truck Leasing, Ltd., EETL I, Inc., EETL II, Inc., Robert
C. Duncan, Janette T. Duncan, Dan R. Duncan, Debra A. Duncan, DeeDee
Duncan Elliot, George Martin Duncan, Melinda Duncan Vince and Robert
C. Duncan as Trustee of the Robert C. Duncan Annuity Trusts Nos. One,
Two, Three and Four (incorporated by reference to Exhibit 2.2 to the
Registrant's Current Report on Form 8-K, dated October 31, 1995).
10.29 Merger Agreement, dated as of November 13, 1995, by and among Republic
Waste Industries, Inc., RI/FCC Mergersub, Inc., RI/FWS Mergersub,
Inc., RI/FV Mergersub, Inc., RI/PD Mergersub, Inc., RI Investment Co.,
Inc., Fennell Waste Systems, Inc., Fennell Container Co., Inc.,
Fenn-Vac, Inc., Pepperhill Development Co., Inc., GF/WWF, Inc., George
W. Fennell, Robert N. Shepard, G. Scott Fennell, S. Allison Fennell,
Debra A. Haschker, James R. Bland, John H. Chapman, Jeffrey A.
Forslund and Leo J. Zolnierowicz (incorporated by reference to Exhibit
2.3 to the Registrant's Current Report on Form 8-K, dated October 31,
1995).
10.30 Merger Agreement, dated as of February 15, 1996, by and among Republic
Industries, Inc., RI/DFRP, Inc., RI/GS Merger Corp., The Denver
Fire Reporter & Protective Co., Guardian Security Services, Inc., and
John Stewart Jackson (incorporated by reference to Exhibit 2.1 to
the Registrant's Current Report on Form 8-K, dated February 14, 1996).
10.31 Reorganization Agreement, dated as of February 14, 1996, by and among
Republic Industries, Inc., RI/Area, Inc., RI/Smith, Inc., Incendere,
Inc., Area Container Services, Inc., Smithton Sanitation Service,
Inc., Dwight C. Schaubach, James D. Schaubach, Emmett K. Moore, Charles
F. Moore and R.D. Cuthrell (incorporated by reference to Exhibit 2.2
to the Registrant's Current Report on Form 8-K, dated February 14,
1996).
II-9
<PAGE> 370
10.32 Merger Agreement, dated as of May 8, 1996 ("AutoNation Merger
Agreement"), by and among Republic Industries, Inc., RI/ANI
Merger Corp., AutoNation Incorporated, H. Wayne Huizenga, Steven R.
Berrard and JM Family Enterprises, Inc. (incorporated by reference to
Exhibit 99.1 to the Registrant's Current Report on Form 8-K, dated May
8, 1996).
10.33 Loan Agreement, dated May 8, 1996 ("AutoNation Loan Agreement"), by and
between AutoNation Incorporated and Republic Industries, Inc.
(incorporated by reference to Exhibit 99.2 to the Registrant's
Current Report on Form 8-K, dated May 8, 1996).
10.34* Employment Agreement, dated as of May 8, 1996, among Republic
Industries, Inc. and Steven R. Berrard.
10.35 First Amendment to AutoNation Merger Agreement, dated as of September
30, 1996 (incorporated by reference to Annex A to the Registrant's
Schedule 14A Proxy Statement, dated December 13, 1996).
10.36 Second Amendment to AutoNation Merger Agreement and First Amendment to
AutoNation Loan Agreement and Related Loan Documents, dated as of
October 31, 1996 (incorporated by reference to Annex A to the
Registrant's Schedule 14A Proxy Statement, dated December 13, 1996).
10.37 Agreement and Plan of Merger, dated as of June 25, 1996, among
Addington Resources, Inc., Republic Industries, Inc. and RI/AR Merger
Corp. (incorporated by reference to Exhibit 99.1 to the Registrant's
Current Report on Form 8-K dated June 25, 1996).
10.38 Agreement and Plan of Merger, dated as of June 27, 1996, among
Continental Waste Industries, Inc., Republic Industries, Inc., and
RI/CW Merger Corp. (incorporated by reference to Exhibit 99.1 to the
Registrant's Current Report on Form 8-K, dated June 27, 1996).
10.39 Agreement and Plan of Reorganization, dated November 6, 1996, among
Republic Industries, Inc., certain acquisition subsidiaries of
Republic Industries, Inc., Michael S. Egan, Norman D. Tripp, William
H. Kelly, Michael S. Egan as trustee of certain trusts, Alamo
Rent-A-Car, Inc., and certain affiliates of Alamo Rent-A-Car, Inc.
(incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K dated November 25, 1996).
10.40 Letter Agreement between Alamo Rent-A-Car, Inc. and General Motors
Corporation (incorporated by reference to Exhibit 10.16 to the
Registration Statement Form S-1 of Alamo Rent-A-Car, Inc. Commission
File No. 33-80271).
21.1* Subsidiaries of Republic Industries, Inc. as of December 13, 1996.
23.1* Consent of Arthur Andersen LLP.
23.2* Consent of KPMG Peat Marwick LLP.
23.3* Consent of Munson, Cronick & Associates.
23.4 Consent of Akerman, Senterfitt & Eidson, P.A. (included in
Exhibits 5.1 and 8.2 above).
23.5 Consent of Schulte Roth & Zabel LLP (included in Exhibit 8.1 above).
23.6* Consent of Lawrence S. Rich
23.7* Consent of Oppenheimer & Co., Inc.
99.1 Historical Financial Statements of DKBERT Assoc. and Guy Salmon USA,
Ltd. and Subsidiaries (incorporated by reference to Exhibit 99.2 to
the Registrant's Current Report on Form 8-K dated November 25, 1996).
- - -------------
* Filed herewith.
II-10
<PAGE> 1
EXHIBIT 4.2
AMENDMENT AGREEMENT NO. 1 TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into this 11th day of
June, 1996, by and among REPUBLIC INDUSTRIES, INC., a Delaware corporation
(herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (SOUTH) (the
"Agent") (successor by merger to NationsBank of Florida, National Association),
as Agent for the lenders (the "Lenders") party to the Credit Facilities and
Reimbursement Agreement dated December 19, 1995 among such Lenders, Borrower and
the Agent (the "Agreement").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the principal amount of up to $250,000,000 as evidenced by the
Notes (as defined in the Agreement) and to issue Letters of Credit for the
benefit of the Borrower; and
WHEREAS, as a condition to the making of the revolving loans pursuant
to the Agreement the Lenders have required that all Material Subsidiaries of the
Borrower guaranty payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, the Borrower has requested that certain provisions of the
Agreement be amended for the purpose, inter alia, of making acquisitions in
addition to those currently permitted by the Agreement, and the Agent and the
Lenders, subject to the terms and conditions hereof, are willing to make such
amendments, as provided herein;
NOW THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. Definitions. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. Amendments. Subject to the conditions hereof, the Agreement is
hereby amended, effective as of the date hereof, as follows:
(a) Two new definitions "Automobile Retailing Activities" and
"AutoNation" is hereby added to Section 1.01 immediately following the
definition of "Authorized Representative" which definitions shall read
as follows:
"Automobile Retailing Activities" means new and used
vehicle retailing, wholesaling, renting, leasing, financing,
servicing and related activities;
<PAGE> 2
"AutoNation" means AutoNation Incorporated, a
corporation organization under the laws of the State of
Florida and its subsidiaries;
(b) The definition of "Permitted Acquisition" in Section 1.01
is amended in its entirety, so that as amended it shall read as
follows:
"'Permitted Acquisition' means an acquisition of a
Person or the assets of a Person effected with the consent and
approval of the Board of Directors or other applicable
governing body of such Person and the duly obtained approval
of such shareholders or other holders of equity interests in
such Person as may be required to be obtained under applicable
law, the charter documents of or any shareholder agreements or
similar agreements pertaining to such Person, which Person
derives the majority of its revenues either (x) from service
or service related activities or engages in other business or
owns other assets which support or complement these service
revenues or (y) from Automobile Retailing Activities, provided
that (i) after giving effect to such acquisition no Default or
Event of Default exists hereunder and (ii) after giving effect
to such acquisition if the Person or assets so acquired shall
either be a material Subsidiary or owned by a Material
Subsidiary, such Subsidiary shall have complied in all
respects with Section 7.19;
(c) the definition of "Material Subsidiary" in Section 1.01 is
hereby amended by adding the following proviso at the end thereof:
" provided, however, that notwithstanding the foregoing, upon
the acquisition of AutoNation by the Borrower, AutoNation
shall at all times be deemed a Material Subsidiary;"
(d) Section 8.02 is hereby amended in its entirety so that as
amended it shall read as follows:
"8.02 Consolidated Fixed Charge Ratio. Permit at any
time the Consolidated Fixed Charge Ratio to be less than 1.50
to 1.00; provided, however, that for the period ending on or
prior to September 30, 1996 there shall be disregarded in
calculating the Consolidated Fixed Charge Ratio all Capital
Expenditures associated with Automobile Retailing Activities."
(e) Clause (iv) of Section 8.04 is hereby amended in its
entirety, so that amended it shall read as follows:
"(vi) secured Indebtedness in an aggregate
outstanding amount not to exceed at any time then percent
(10%) of Consolidated Total Capitalization;"
(f) Clause (iii) of Section 8.05 is hereby amended in its
entirety, so that as
2
<PAGE> 3
amended it shall read as follows:
"(iii) Liens on (x) property owned by the Borrower or
its Subsidiaries as of June 7, 1996 (other than Collateral, as
defined in the Loan Agreement between AutoNation and the
Borrower dated May 8, 1996) securing Indebtedness of up to
five percent (5%) of Consolidated Total Capitalization
permitted under Section 8.04(iv), and (y) property acquired
after June 7, 1996 (other than Collateral, as defined in the
Loan Agreement between AutoNation and the Borrower dated May
8, 1996) securing Indebtedness permitted under Section
8.04(iv); and"
(g) Clause (v) of Section 8.07 is hereby amended by adding the
following proviso at the end thereof:
"Notwithstanding the foregoing, in no event shall the
aggregate amount of loans and investments of cash and Capital
Expenditures associated with Automobile Retailing activities
by the Borrower and its Subsidiaries in any Person or in
assets of a Person engaged in or relating to the auto
retailing business exceed in the aggregate $250,000,000."
(h) Clause (vi) of Section 8.07 is hereby amended by inserting
the following proviso immediately preceding the period at the end
thereof:
"; provided, however, that in addition to the above the
Borrower and its Subsidiaries may have additional loans and
investments in AutoNation in an amount of ten percent (10%) of
Consolidated Shareholders' Equity, but in no event shall the
aggregate of loans and investments in AutoNation exceed twenty
five percent (25%) of Consolidated Shareholders' Equity;"
3. Subsidiary Consents. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendments to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.
4. Representations and Warranties. The Borrower hereby represents and
warrants that:
(a) The representations and warranties made by Borrower in
Article VI of the Agreement are true on and as of the date hereof
except that the financial statements referred to in Section 6.01(f)
shall be those most recently furnished to each Lender pursuant to
Section 7.01(a) and (b);
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries
since the date of the most recent financial reports of the Borrower
received by each Lender under Section 7.01 thereof, other than
3
<PAGE> 4
changes in the ordinary course of business, none of which has
been a material adverse change;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent financial
report of the Borrower and its Subsidiaries received by each Lender
under Section 7.01 thereof have not been, adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) No event has occurred and no condition exists which, upon
the consummation of the transaction contemplated hereby, constitutes a
Default or an Event of Default on the part of the Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. Conditions. This Amendment Agreement shall become effective upon
satisfaction of all of the following conditions:
(i) The Borrower shall deliver or cause to be delivered to the
Agent, the following:
(a) fourteen (14) counterparts of this Amendment
Agreement duly executed by the Borrower and consented to by
each of the Subsidiaries;
(b) an opinion of counsel for the Borrower and its
Subsidiaries in form and content acceptable to the Agent; and
(c) such other instruments and documents as the Agent
may reasonably request;
(ii) the Agent shall receive the written consent to this
Amendment Agreement of the Required Lenders; and
(iii) all instruments and documents incident to the
consummation of the transactions contemplated hereby shall be
satisfactory in form and substance to the Agent and its counsel; the
Agent shall have received copies of all additional agreements,
instruments and documents which it may reasonably request in connection
therewith, including evidence of the authority of Borrower and its
Subsidiaries to enter into the transactions contemplated by this
Amendment Agreement, such documents, when appropriate, to be certified
by appropriate corporate or governmental authorities; and all
proceedings of the borrower and its Subsidiaries relating to the
matters provided for herein shall be satisfactory to the Agent and its
counsel.
6. Entire Agreement. This Amendment Agreement sets forth the entire
understanding
4
<PAGE> 5
and agreement of the parties hereto in relation to the subject matter hereof and
supersedes any prior negotiations and agreements among the parties relative to
such subject matter. No promise, conditions, representation or warranty, express
or implied, not herein set forth shall bind any party hereto, and no one of them
has relied on any such promise, condition, representation or warranty. Each of
the parties hereto acknowledges that, except as in this Amendment Agreement
otherwise expressly stated, no representations, warranties or commitments,
express or implied, have been made by any other party to the other. None of the
terms or conditions of this Amendment Agreement may be changed, modified, waived
or canceled orally or otherwise, except by writing, signed by all the parties
hereto, specifying such change, modification, waiver or cancellation of such
terms or conditions, or of any proceeding or succeeding breach thereof.
7. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
REPUBLIC INDUSTRIES, INC.
WITNESS:
By: /s/
- - ----------------------------- -----------------------------------------
Name: Courtland Peddy
Title: Vice President and Treasurer
- - -----------------------------
6
<PAGE> 7
GUARANTORS:
Absolute Systems, Inc.
All Service Refuse Company
Anderson Solid Waste, Inc.
Arlington Disposal Company, Inc.
Assured Security Company
Astro Waste Services, Inc.
Bay County Development, Inc.
Bontana Aviation, Inc.
C.S.C. Disposal and Landfill, Inc.
CANA First Corporation
Cleveland Container Service, Inc.
D&L Waste, Inc.
EETL I, Inc.
East Bay Sanitation Service, Inc.
El Centro Sanitation Service, Co.
Enviro-Comp Services, Inc.
Envirocycle, Inc.
Environmental Specialists, Inc.
Fennell Container Co., Inc.
Fennell Waste Systems, Inc.
Fenn-Vac Inc.
Florida Refuse Service, Inc.
GF/WWF, Inc.
Garbage Disposal Service, Inc.
Grand Prairie Disposal Company, Inc.
Gulf Coast Waste Service, Inc.
Hudson Management Corporation
J.C. Duncan Company, Inc.
JMN, Inc.
Kertz Security Systems, Inc.
Kertz Security Systems II, Inc.
Laughlin Environmental, Inc.
Living Earth Technology Co.
Medical Waste Services, Inc.
Midwest Sanitation Service, Inc.
Nine Mile Road, Inc.
Panego I, Inc.
By: /s/
-----------------------------------------
Name Courtland Peddy
Title: Treasurer and Assistant Secretary for
each of the above-name corporations
7
<PAGE> 8
Pepperhill Development Co., Inc.
RCLJ Construction, Inc.
R.E. Wolfe Enterprises of Edinburg, Inc.
R.E. Wolfe Enterprises of Texas, Inc.
Reliable Sanitation, Inc.
Republic Acquisition Company
Republic Finance Company
Republic Imperial Acquisition, Corp.
Republic/Maloy Landfill and Sanitation
Company
Republic Resources Company
Republic Solutions, Inc.
Republic Trademark Company
Republic Wabash Company
Republic Waste Management Company
Scott Alarm of Birmingham, Inc.
Scott Alarm of Cocoa, Inc.
Scott Alarm of Charlotte, Inc.
Scott Alarm of Ft. Myers, Inc.
Scott Alarm of Gainesville, Inc.
Scott Alarm of Jensen Beach, Inc.
Scott Alarm of Lakeland, Inc.
Scott Alarm of Nashville, Inc.
Scott Alarm of Orlando, Inc.
Scott Alarm of Sarasota, Inc.
Scott Alarm of Savannah, Inc.
Scott Alarm of St. Augustine, Inc.
Scott Alarm of Tallahassee, Inc.
Scott Alarm of Tampa Bay, Inc.
Scott Alarm of West Palm Beach, Inc.
SeaBoard Waste Systems, Inc.
Southland Environmental Services, Inc.
Southland Maintenance Services, Inc.
Southland Recycling Services, Inc.
Southland Waste Systems of Jax, Inc.
Sunburst Sanitation Corporation
TATS Corporation of Jax, Inc.
Tos-It Service Company, Inc.
Trashaway Services, Inc.
Treasure Coast Refuse, Inc.
United Waste Service Corp.
By: /s/
---------------------------------------------
Name: Courtland Peddy
Title: Treasurer and Assistant Secretary for
each of the above-named corporation
8
<PAGE> 9
Wabash Valley Refuse Removal, Inc.
Waste Collection Services Corp.
Waste Handling Systems, Inc.
Wes Tex Waste Services, Inc.
By: /s/
----------------------------------------
Name: Courtland Peddy
Title: Treasurer and Assistant
Secretary for each of the
above-named corporations
Republic Waste Management I Limited Partnership
By: Republic Waste Management Co.,
its General Partner
By: /s/
-----------------------------------------
Name: Courtland Peddy
Title: Treasurer and Assistant Secretary
Wabash Valley Landfill Company Ltd.
By: Republic Acquisition Company,
its General Partner
By: /s/
-----------------------------------------
Name: Courtland Peddy
Title: Treasurer and Assistant Secretary
9
<PAGE> 10
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Agent for the Lenders
By: /s/
-------------------------------------
Name: Beth A. Tiffin
Title: Vice President
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Lender
By: /s/
------------------------------------
Name: Beth A. Tiffin
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
as Co-Agent and a Lender
By: /s/
-------------------------------------
Name: Arthur J. Oberheim
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/
-------------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/
-------------------------------------
Name: Courtney R. Wood
Title: Vice President
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/
-------------------------------------
Name: Joseph Cannally
Title: Assistant Vice President
UNITED STATES NATIONAL BANK
OF OREGON
By: /s/
-------------------------------------
Name: Stephen Mitchell
Title: Vice President
ABN AMRO BANK N.V.
ABN AMRO North America, as agent
By:/s/
-------------------------------------
Name: Richard Lavifla
Title: Group Vice President and Director
By: /s/
-------------------------------------
Name: Deborah Day Orozco
Title: Vice President and Director
THE BANK OF NEW YORK
By: /s/
-------------------------------------
Name: H. Stephen Griffith
Title: Senior Vice President
BARNETT BANK OF BROWARD COUNTY,
N.A.
By: /s/
-------------------------------------
Name: Michael Cooney
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/
-------------------------------------
Name: Robert Ivosevich
Title: Senior Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/
-------------------------------------
Name: Robert Ivosevich
Title: Authorized Signature
LTCB TRUST COMPANY
By: /s/
-------------------------------------
Name: Satoru Otsubo
Title: Executive Vice President
10
<PAGE> 1
EXHIBIT 4.3
AMENDMENT AGREEMENT NO. 2 TO
CREDIT FACILITIES AND REIMBURSEMENT AGREEMENT
THIS AMENDMENT AGREEMENT is made and entered into this 21st day of
November, 1996, by and among REPUBLIC INDUSTRIES, INC., a Delaware corporation
(herein called the "Borrower"), NATIONSBANK NATIONAL ASSOCIATION (SOUTH) (the
"Agent") (successor by merger to NationsBank of Florida, National Association),
as Agent for the lenders (the "Lenders") party to the Credit Facilities and
Reimbursement Agreement dated December 19, 1995 among such Lenders, Borrower and
the Agent (the "Agreement").
W I T N E S S E T H:
WHEREAS, the Borrower, the Agent and the Lenders have entered into the
Agreement pursuant to which the Lenders have agreed to make revolving loans to
the Borrower in the principal amount of up to $250,000,000 as evidenced by the
Notes (as defined in the Agreement) and to issue Letters of Credit for the
benefit of the Borrower; and
WHEREAS, as a condition to the making of the revolving loans pursuant
to the Agreement the Lenders have required that all Material Subsidiaries of the
Borrower guaranty payment of all Obligations of the Borrower arising under the
Agreement; and
WHEREAS, the Borrower has requested that certain provisions of the
Agreement be amended for the purpose, inter alia, of making acquisitions in
addition to those currently permitted by the Agreement, and the Agent and the
Lenders, subject to the terms and conditions hereof, are willing to make such
amendments, as provided herein;
NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:
1. Definitions. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.
2. Amendments. Subject to the conditions hereof, the Agreement is
hereby amended, effective as of the date hereof, as follows:
(a) A new definition "Alamo" is hereby added to Section 1.01
immediately following the definition of "Affiliate" which definition
shall read as follows:
"Alamo" means Alamo Rent-A-Car, Inc., a Florida
corporation and the other Conveyed Entities, as
defined in the Agreement and Plan of Reorganization
dated November 6, 1996 among Borrower and its
Subsidiaries, the
<PAGE> 2
Shareholders and the Conveyed Entities;"
(b) The definition of "Funded Indebtedness" is hereby amended
by adding the following proviso at the end hereof:
"provided, however, that there shall be included in
Consolidated Funded Indebtedness (i) the Guarantor's
Obligations as defined in the Republic Guaranty
Agreements dated November 18, 1996 in favor of First
Security Bank, N.A. and NationsBank, N.A., respectively
and (ii) Indebtedness described in Section 8.04(vi)
hereof."
(c) the definition of "Subsidiary" in Section 1.01 is hereby
amended by adding the following proviso at the end thereof:
"; provided, however, that until March 31, 1997 Alamo
shall not be deemed a Subsidiary for purposes of this
Agreement;"
(d) Section 8.02 is hereby amended in its entirety so that as
amended it shall read as follows:
"8.02 Consolidated Fixed Charge Ratio. Permit at any
time the Consolidated Fixed Charge Ratio to be less than
1.50 to 1.00; provided, however, that until March 30,
1997 there shall be disregarded in calculating the
Consolidated Fixed Charge Ratio all Capital Expenditures
incurred by AutoNation or a Person acquired by Borrower
or its Subsidiaries that is engaged in Automobile
Retailing Activities."
(e) Section 8.04 is hereby amended by (i) deleting the period
at the end of clause (v) and inserting in lieu thereof a semi-colon and
the word "and" and (ii) adding a new clause (vi) thereto reading as
follows:
"(vi) Indebtedness of Alamo under standby letters of
credit issued by a financial institution for the benefit
of Alamo in an aggregate amount not to exceed
$135,000,000."
(f) (A) Clause (v) of Section 8.07 is hereby amended in its
entirety so that as amended it shall read as follows:
"(v) loans and advances to and investments in
Subsidiaries who are Guarantors; notwithstanding the
foregoing, in no event shall the aggregate amount of
loans and investments of cash and Capital Expenditures
and guaranties of obligations by the Borrower and its
Subsidiaries in (x) AutoNation exceed in the aggregate
$450,000,000 and (y) the amount of
2
<PAGE> 3
loan advances in Guarantors, other than AutoNation,
engaged in Automobile Retailing Activities exceed in the
aggregate $150,000,000."
(B) Clause (vi) is hereby amended by deleting the period at
the end thereof and inserting in lieu thereof a semi-colon and the word
"and"; and
(C) A new clause (vii) is added thereto which shall read as
follows:
"(vii) loans to Alamo in an aggregate amount of up to
$550,000,000, provided that not less than 75% of any
outstanding principal amount of such loans are secured."
3. Subsidiary Consents. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendments to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.
4. Representations and Warranties. The Borrower hereby
represents and warrants that:
(a) The representations and warranties made by Borrower in
Article VI of the Agreement are true on and as of the date hereof
except that the financial statements referred to in Section 6.01(f)
shall be those most recently furnished to each Lender pursuant to
Section 7.01(a) and (b);
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries
since the date of the most recent financial reports of the Borrower
received by each Lender under Section 7.01 thereof, other than changes
in the ordinary course of business, none of which has been a material
adverse change;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent financial
report of the Borrower and its Subsidiaries received by each Lender
under Section 7.01 thereof have not been, adversely affected in any
substantial way as the result of any fire, explosion, earthquake,
accident, strike, lockout, combination of workers, flood, embargo,
riot, activities of armed forces, war or acts of God or the public
enemy, or cancellation or loss of any major contracts; and
(d) No event has occurred and no condition exists which, upon
the consummation of the transaction contemplated hereby, constitutes a
Default or an Event of Default on the part of the Borrower under the
Agreement, the Notes or any other Loan Document either immediately or
with the lapse of time or the giving of notice, or both.
5. Conditions. This Amendment Agreement shall become effective upon
satisfaction
3
<PAGE> 4
of all of the following conditions:
(i) The Borrower shall deliver or cause to be delivered to the
Agent, the following:
(a) fourteen (14) counterparts of this Amendment
Agreement duly executed by the Borrower and consented to by
each of the Subsidiaries;
(b) an opinion of counsel for the Borrower and its
Subsidiaries in form and content acceptable to the Agent; and
(c) such other instruments and documents as the Agent
may reasonably request;
(ii) the Agent shall receive the written consent to this
Amendment Agreement of the Required Lenders; and
(iii) all instruments and documents incident to the
consummation of the transactions contemplated hereby shall be
satisfactory in form and substance to the Agent and its counsel; the
Agent shall have received copies of all additional agreements,
instruments and documents which it may reasonably request in connection
therewith, including evidence of the authority of Borrower and its
Subsidiaries to enter into the transactions contemplated by this
Amendment Agreement, such documents, when appropriate, to be certified
by appropriate corporate or governmental authorities; and all
proceedings of the borrower and its Subsidiaries relating to the
matters provided for herein shall be satisfactory to the Agent and its
counsel.
6. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
7. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
REPUBLIC INDUSTRIES, INC.
WITNESS:
By: /s/
- - ------------------------- ------------------------------
Name: Richard L. Handley
- - ------------------------- Title: Senior Vice President and
Chief Legal Counsel
5
<PAGE> 6
GUARANTORS:
Absolute Systems, Inc.
All Service Refuse Company
Anderson Solid Waste, Inc.
Arlington Disposal Company, Inc.
Assured Security Company
Astro Waste Services, Inc.
Bay County Development, Inc.
Bontana Aviation, Inc.
C.S.C. Disposal and Landfill, Inc.
CANA First Corporation
Cleveland Container Service, Inc.
D&L Waste, Inc.
EETL I, Inc.
East Bay Sanitation Service, Inc.
El Centro Sanitation Service, Co.
Enviro-Comp Services, Inc.
Envirocycle, Inc.
Environmental Specialists, Inc.
Fennell Container Co., Inc.
Fennell Waste Systems, Inc.
Fenn-Vac Inc.
Florida Refuse Service, Inc.
GF/WWF, Inc.
Garbage Disposal Service, Inc.
Grand Prairie Disposal Company, Inc.
Gulf Coast Waste Service, Inc.
Hudson Management Corporation
J.C. Duncan Company, Inc.
JMN, Inc.
Kertz Security Systems, Inc.
Kertz Security Systems II, Inc.
Laughlin Environmental, Inc.
Living Earth Technology Co.
Medical Waste Services, Inc.
Midwest Sanitation Service, Inc.
Nine Mile Road, Inc.
Panego I, Inc.
By: /s/
------------------------------------
Name Richard L. Handley
Title: Senior Vice President and Chief
Legal Counsel for each of the above-
name corporations
6
<PAGE> 7
Pepperhill Development Co., Inc.
RCLJ Construction, Inc.
R.E. Wolfe Enterprises of Edinburg, Inc.
R.E. Wolfe Enterprises of Texas, Inc.
Reliable Sanitation, Inc.
Republic Acquisition Company
Republic Finance Company
Republic Imperial Acquisition, Corp.
Republic/Maloy Landfill and Sanitation
Company
Republic Resources Company
Republic Solutions, Inc.
Republic Trademark Company
Republic Wabash Company
Republic Waste Management Company
Scott Alarm of Birmingham, Inc.
Scott Alarm of Cocoa, Inc.
Scott Alarm of Charlotte, Inc.
Scott Alarm of Ft. Myers, Inc.
Scott Alarm of Gainesville, Inc.
Scott Alarm of Jensen Beach, Inc.
Scott Alarm of Lakeland, Inc.
Scott Alarm of Nashville, Inc.
Scott Alarm of Orlando, Inc.
Scott Alarm of Sarasota, Inc.
Scott Alarm of Savannah, Inc.
Scott Alarm of St. Augustine, Inc.
Scott Alarm of Tallahassee, Inc.
Scott Alarm of Tampa Bay, Inc.
Scott Alarm of West Palm Beach, Inc.
SeaBoard Waste Systems, Inc.
Southland Environmental Services, Inc.
Southland Maintenance Services, Inc.
Southland Recycling Services, Inc.
Southland Waste Systems of Jax, Inc.
Sunburst Sanitation Corporation
TATS Corporation of Jax, Inc.
Tos-It Service Company, Inc.
Trashaway Services, Inc.
Treasure Coast Refuse, Inc.
United Waste Service Corp.
By: /s/
----------------------------------------
Name: Richard L. Handley
Title: Senior Vice President and Chief
Legal Counsel for each of the above-
named corporation
7
<PAGE> 8
Wabash Valley Refuse Removal, Inc.
Waste Collection Services Corp.
Waste handling Systems, Inc.
Wes Tex Waste Services, Inc.
By: /s/
---------------------------------
Name: Richard L. Handley
Title: Senior Vice President and
Chief Legal Counsel for each
of the above-named
corporations
Republic Waste Management I Limited Partnership
By: Republic Waste Management Co.,
its General Partner
By: /s/
--------------------------------------
Name: Richard L. Handley
Title: Senior Vice President and Chief
Legal Counsel
Wabash Valley Landfill Company Ltd.
By: Republic Acquisition Company,
its General Partner
By: /s/
--------------------------------------
Name: Richard L. Handley
Title: Senior Vice President and Chief
Legal Counsel
8
<PAGE> 9
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Agent for the Lenders
By: /s/
-------------------------------------
Name: Beth A. Tiffin
Title: Vice President
NATIONSBANK, NATIONAL ASSOCIATION
(SOUTH), as Lender
By: /s/
------------------------------------
Name: Beth A. Tiffin
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
as Co-Agent and a Lender
By: /s/
-------------------------------------
Name: Arthur J. Oberheim
Title: Vice President
THE BANK OF NOVA SCOTIA
By: /s/
-------------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/
-------------------------------------
Name: James D. Heinz
Title: Vice President
SUNTRUST BANK, SOUTH FLORIDA, N.A.
By: /s/
-------------------------------------
Name: Joseph Connolly
Title: Assistant Vice President
UNITED STATES NATIONAL BANK
OF OREGON
By:
-------------------------------------
Name:
Title:
ABN AMROBANK N.V.
By:
-------------------------------------
Name:
Title:
By: /
-------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By: /s/
-------------------------------------
Name: Stephen Griffith
Title: Senior Vice President
BARNETT BANK, N.A., successor to
BARNETT BANK OF BROWARD COUNTY,
N.A.
By: /s/
-------------------------------------
Name: Michael Cooney
Title: Vice President
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:
-------------------------------------
Name:
Title:
LTCB TRUST COMPANY
By:
-------------------------------------
Name:
Title:
9
<PAGE> 1
EXHIBIT 4.8
EXECUTION COPY
THIRD AMENDMENT TO
LOAN AGREEMENT
THIS THIRD AMENDMENT TO LOAN AGREEMENT (this "Amendment") is
dated as of November 25, 1996 among ALAMO RENT-A-CAR, INC., a Florida
corporation ("Alamo"), and ALAMO FUNDING, L.P., a limited partnership organized
under the laws of the State of New York (the "Lender").
W I T N E S S E T H
WHEREAS, Alamo and the Lender are parties to that certain
Loan Agreement dated as of June 20, 1994 (as amended, restated or modified from
time to time, the "Loan Agreement");
WHEREAS, Alamo and the Lender are parties to that certain
Amendment to Loan Agreement, dated as of December 29, 1994;
WHEREAS, Alamo and the Lender are parties to that certain
Second Amendment to Loan Agreement, dated as of June 11, 1996;
WHEREAS, Alamo and the Lender desire to amend certain
provisions of the Loan Agreement;
NOW, THEREFORE, the parties to this Amendment hereby agree as
follows:
Section 1. Defined Terms. All capitalized terms used
herein (including in the preamble and in the recitals) and not otherwise
defined herein shall have the meanings set forth for such terms in the Loan
Agreement.
Section 2. Amendments to the Loan Agreement.
(a) Amendment to Section 1.1. Section 1.1 of the Loan
Agreement is hereby amended as follows:
(1) the fourth sentence of the definition of
"Affiliate" is deleted and not replaced;
(2) the definition of "Alamo" is hereby amended in
its entirety as follows:
<PAGE> 2
"Alamo" means Alamo Rent-a-Car, Inc., a Florida corporation,
and its permitted successors and assigns;
(3) the definition of "Controlled Group" is added
and shall have the meaning set forth in the Definitions List
dated as of June 20, 1994 and annexed to the Liquidity Loan
Agreement as Annex A, as such Definitions List may be further
amended, supplemented, restated or otherwise modified from
time to time (the "Definitions List");
(4) the definition of "Egan" is deleted in its
entirety and not replaced;
(5) the definition of "Incremental Change" is
deleted in its entirety and not replaced;
(6) the definition of "Lender's Carrying Cost
Rate" is amended to delete the reference at the end of such
definition to "[Commitment Fees]";
(7) the definition of "Multiemployer Plan" is
added and shall have the meaning set forth in the
Definitions List;
(8) the definition of "Multiple Employer Plan"
is added and shall have the meaning set forth in the
Definitions List; and
(9) the definition of "Pension Plan" is added
and shall have the meaning set forth in the Definitions
List.
(b) Amendment to Section 8.1. Section 8.1 of the Loan
Agreement is hereby amended by deleting the second sentence thereof
and not replacing it.
(c) Amendment to Section 8.3. Section 8.3 of the Loan
Agreement is hereby amended by deleting the phrase "As of the date
hereof," and replacing it with "As of the Loan Closing Date."
(d) Amendment to Section 8.6. Section 8.6 of the Loan
Agreement is hereby amended by the updated Schedule 8.6 attached
hereto.
(e) Amendment to Section 8.9. Section 8.9 of the Loan
Agreement is hereby amended to read in its entirety as follows:
"SECTION 8.9. Employee Benefit Plans. (a) During
the twelve consecutive month period prior to the date hereof and prior to each
applicable Borrowing Date: (i) no steps have been taken by any Borrower or any
member of the Controlled Group, or to the knowledge of any Borrower, by any
Person, to terminate any Pension Plan (other than the Ryder
-2-
<PAGE> 3
Waste Money Purchase Pension Plan terminated as of July 11, 1996); and (ii) no
contribution failure has occurred or exists with respect to any Pension Plan
maintained or previously maintained by any Borrower or any member of the
Controlled Group sufficient to give rise to a Lien under Section 302(f)(1) of
ERISA in connection with such Pension Plan; and (b) no condition exists or
event or transaction has occurred with respect to any Pension Plan which could
reasonably be expected to result in the incurrence by any Borrower or any
member of the Controlled Group of liabilities (including, without limitation,
Multiemployer Plan and Multiple Employer Plan withdrawal liabilities), fines or
penalties in an amount that will have a Material Adverse Effect."
(f) Amendment to Section 9.8. Section 9.8 of the Loan
Agreement is hereby amended by deleting in item (ii) Annual Financial
Statements and Information Certificate of No Default the phrase "(ii)
the amount of the Incremental Change for such year, and (iii)" and
replacing it with "and (ii)".
(g) Amendment to Section 9.11. Section 9.11 of the Loan
Agreement is hereby amended by deleting June 20, 1994" and replacing
it with "November 25, 1996".
(h) Amendment to Section 10.1. Section 10.1 of the Loan
Agreement is hereby amended to read in its entirety as follows:
"SECTION 10.1. Mergers, Consolidations. Except for
the merger of a wholly owned subsidiary of Republic Industries, Inc., a
Delaware corporation, with and into Alamo, Alamo will not be a party to any
merger or consolidation, other than a merger or consolidation of any Affiliate
of Alamo into or with Alamo (provided that Alamo is the surviving
corporation)."
(i) Amendment to Section 10.6. Section 10.6 of the Loan
Agreement is hereby amended by deleting the phrase "the purchase of"
on line 3 thereof and not replacing it.
Section 3. Conditions of Effectiveness. The following
constitute conditions precedent to the effectiveness of this Amendment:
(a) The Lender shall have received written confirmation from
the Rating Agencies that this Amendment will not result in the
downgrading or withdrawal of the then current ratings of the
Commercial Paper Notes by any Rating Agency;
(b) Each Liquidity Lender and the Credit Enhancer shall have
delivered written consent to this Amendment evidenced by their
execution of Annex A to the Second Amendment to the Liquidity Loan
Agreement, dated as of November 25, 1996 (the "Consent");
-3-
<PAGE> 4
(c) Execution and delivery of this Amendment by the
Lender and Alamo;
(d) The Lender and Alamo shall have delivered prior written
notice of this Amendment to the Rating Agencies, the Depositary, the
Agent, the Liquidity Agent and each Dealer;
(e) The Lender and Alamo shall have delivered fully executed
copies of this Amendment to the Rating Agencies, the Depositary, the
Agent, the Liquidity Agent and each Dealer;
(f) The Lender shall have received from Alamo (i) a copy of
the resolutions of its Board of Directors, certified as of the date
hereof by the Secretary thereof, authorizing the execution, delivery
and performance of this Amendment and (ii) an incumbency certificate
from the Secretary thereof with respect to its officers, agents or
other representatives authorized to execute this Amendment; and
(g) The Lender shall have received an Opinion of Counsel to
Alamo to the effect that this Amendment has been duly authorized,
executed and delivered and is the legal, valid and binding obligation
of Alamo, enforceable against it in accordance with its terms, subject
to the exceptions set forth therein.
Section 4. Continuation of Representations and Warranties.
Alamo represents and warrants to the Lender as to itself and as to each
Borrower, that the representations and warranties in Article VIII of the Loan
Agreement, as amended by this Amendment, are true and correct on and as of the
date hereof with the same effect as if made on and as of the date hereof
(except to the extent such representations and warranties expressly refer to an
earlier date, in which case they shall be true and correct as of such earlier
date).
Section 5. Reference to and Effect on the Related Documents;
Ratification.
(a) Upon the effectiveness hereof, on and after the date
hereof each reference in the Related Documents and any other document
to the "Loan Agreement" or words of like import referring to the Loan
Agreement shall mean and be a reference to the Loan Agreement as
amended hereby and each reference to any of the defined terms referred
to in this Amendment shall mean and refer to such defined terms as
amended hereby.
(b) Except as specifically amended above, the Loan Agreement
is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
Section 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of
-4-
<PAGE> 5
a signature page to this Amendment by facsimile transmission shall bel as
effective as delivery of a manually executed counterpart of this Amendment.
Section 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
ALAMO RENT-A-CAR, INC.
By: /s/
------------------------------------
Name: Edward A. Cespedes
Title: Authorized Signatory
ALAMO FUNDING, L.P.
By: AFL FLEET FUNDING, INC., its General
Partner
By: /s/
------------------------------------
Name: Richard L. Taiano
Title: Vice President
-5-
<PAGE> 1
EXHIBIT 4.12
EXECUTION COPY
SECOND AMENDMENT TO
LIQUIDITY LOAN AGREEMENT
THIS SECOND AMENDMENT TO LIQUIDITY LOAN AGREEMENT (this "Amendment") is
dated as of November 25, 1995 among ALAMO FUNDING, L.P., a limited partnership
organized under the laws of the State of New York ("AFL"), AFL FLEET FUNDING,
INC., a New York corporation (the "General Partner"), and CITIBANK, N.A., as the
Liquidity Agent for the Liquidity Lenders (the "Liquidity Agent").
W I T N E S S E T H
WHEREAS, AFL, the General Partner, the Liquidity Agent and the
Liquidity Lenders are parties to that certain Liquidity Loan Agreement dated as
of June 20, 1994 (as amended, restated or modified from time to time, the
"Liquidity Loan Agreement");
WHEREAS, AFL, the General Partner, the Liquidity Agent and the
Liquidity Lenders are parties to that certain Amendment to the Liquidity Loan
Agreement, dated as of June 11, 1996;
WHEREAS, AFL, the General Partner, the Liquidity Agent and the
Liquidity Lenders desire to amend certain provisions of the Liquidity Loan
Agreement;
NOW, THEREFORE, the parties to this Amendment hereby agree as
follows:
Section 1. Defined Terms. All capitalized terms used herein
(including in the preamble and in the recitals) and not otherwise defined herein
shall have the meanings set forth for such terms in the Definitions List dated
as of June 20, 1994 and annexed to the Liquidity Loan Agreement as Annex A, as
such Definitions List may be further amended, supplemented, restated or
otherwise modified from time to time.
Section 2. Amendments to the Liquidity Loan Agreement.
(a) Amendment to Section 1.1. Annex A to the Liquidity Loan
Agreement as referenced in Section 1.1 thereto is hereby amended as follows:
(1) the definition of "Alamo" is hereby amended in
its entirety as follows:
""Alamo" means Alamo Rent-A-Car, Inc., a Florida corporation,
and its permitted successors and assigns"; and
1
<PAGE> 2
(2) the definition of "Multiple Employer Plan" is
hereby amended by inserting "4053" immediately following the
phrase "have liability under Section" on the seventh line
thereof.
(3) the definition of "Partnership Agreement" is
amended by adding at the end of such definition after "as
limited partner," the following phrase, "as such Agreement of
Limited Partnership may be amended or modified from time to
time in accordance with the provisions of the Related
Documents."
(4) the definition of "Pension Plan" is hereby
amended by deleting the parenthetical "(other than a
Multiemployer Plan or a Multiple Employer Plan)" and not
replacing it.
(5) the definition of "Required Enhancement Amount"
is hereby amended by deleting the reference to "9%" and
replacing it with "9.5%".
(b) Amendment to Section 8.1.1. Section 8.1.1(f) is hereby
amended by deleting the phrase "(ii) no Rating Agency has determined that the
face amount of the Letter of Credit must be increased," and replacing it with
"(ii) no Rating Agency has determined that the Required Enhancement Amount must
be increased."
(c) Amendment to Section 8.2.3. Section 8.2.3 of the Liquidity
Loan Agreement is hereby amended to read in its entirety as follows:
"SECTION 8.2.3. Consolidations and Mergers. Except for the
merger of a wholly owned subsidiary of Republic Industries, Inc., a Delaware
corporation, with and into the General Partner, each of the General Partner and
AFL will not, except as may be permitted by the express written approval of the
Required Liquidity Providers, merge with and into, enter into any joint venture
or other association with, or consolidate with, any other Person."
(d) Amendment to Section 8.2.12. Section 8.2.13 of the
Liquidity Loan Agreement is hereby amended by deleting "June 20, 1994" and
replacing it with "November 25, 1996."
Section 3. Increase of Aggregate Liquidity Loan Commitment.
Effective simultaneously with the effectiveness of this Amendment to the
Liquidity Loan Agreement and the Liquidity Loan Commitment Agreements annexed
hereto as Annex E, the Aggregate Liquidity Loan Commitment will increase to
$1,267,000,000 through the increase of the commitments of certain Liquidity
Lenders, each of whom through the execution of this Amendment and their
respective Liquidity Commitment Agreements have given their written consent to
such increase.
Section 4. Conditions of Effectiveness. The following
constitute conditions precedent to the effectiveness of this Amendment:
2
<PAGE> 3
(a) Execution and delivery of this Amendment by AFL, the
General Partner and the Liquidity Agent;
(b) The Liquidity Agent and AFL shall have received as of the
date hereof a copy of the written confirmation delivered to AFL
by each of S&P and Moody's to the effect that his Amendment will not
result in the downgrading or withdrawal of the then current ratings of
the Commercial Paper Notes;
(c) Each Liquidity Lender and the Credit Enhancer shall each
have delivered written consent to this Amendment evidenced by
their execution of Annex A hereto;
(d) AFL shall have delivered prior written notice of this
Amendment to the Rating Agencies, the Depository, the Agent, the
Liquidity Agent and each Dealer;
(e) AFL shall have delivered a fully executed copy of this
Amendment to the Rating Agencies, the Depository, the Agent, the
Liquidity Agent and each Dealer;
(f) Each Liquidity Lender or Eligible Liquidity Lender, as the
case may be, described in Section 3 of this Amendment, and AFL shall
have executed and delivered to the Liquidity Agent a Liquidity
Commitment Agreement as set forth in Annex B hereto;
(g) The Letter of Credit Amount shall be increased to the
Required Enhancement Amount simultaneously with giving effect to the
increase in the Aggregate Liquidity Loan Commitment as set forth in
Section 3 of this Amendment;
(h) The Liquidity Agent shall have received (i) from AFL
evidence that all necessary partnership action has been taken to
authorize the execution, delivery and performance of this Amendment
and (ii) from the General Partner (x) a copy of the resolutions of its
Board of Directors, certified as of the date hereof by the
Secretary thereof, authorizing the execution, delivery and performance
of this Amendment and (y) an incumbency certificate thereof with
respect to its officers, agents or other representatives authorized to
execute this Amendment; and
(i) The Liquidity Agent shall have received an Opinion of
Counsel to AFL to the effect that this Amendment has been duly
authorized, executed and delivered and is the legal, valid and
binding obligation of AFL, enforceable against it in accordance with
its terms, subject to the exceptions set forth therein.
Section 5. Continuation of Representations and Warranties. AFL
represents and warrants to the Liquidity Agent and each Liquidity Lender that
the representations and warranties in Article VII of the Liquidity Loan
Agreement, as amended by this Amendment, are true and correct on and as of the
date hereof with the same effect as if made on and as of the date hereof (except
to
3
<PAGE> 4
the extent such representatives and warranties expressly refer to an earlier
date, in which case they shall be true and correct as of such earlier date).
Section 6. Reference to and Effect on the Related Documents;
Ratification. (a) Upon the effectiveness hereof, on and after the date hereof
each reference in the Related Documents and any other document to the "Liquidity
Loan Agreement" or words of like import referring to the Liquidity Loan
Agreement shall mean and be a reference to the Liquidity Loan Agreement as
amended hereby and each reference to any of the defined terms referred to in
this Amendment shall mean and refer to such defined terms as amended hereby.
(b) Except as specifically amended above, the Liquidity Loan
Agreement is and shall continue to be in full force and effect and is hereby
ratified and confirmed in all respects.
Section 7. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Amendment by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Amendment.
Section 8. Governing Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed by their respective officers thereunto duly authorized,
as of the date first above written.
ALAMO FUNDING, L.P.
By: ALAMO FLEET FUNDING, INC.,
its General Partner
By: /s/
------------------------
Name: Richard L. Taiano
Title: Vice President
AFL FLEET FUNDING, INC.
By: /s/
---------------------------------
Name: Kevin Burns
Title: Secretary
CITIBANK, N.A., as Liquidity Agent
By: /s/
----------------------------------
Name: Jenny Cheng
Title: Assistant Vice President
5
<PAGE> 6
ANNEX A
CONSENT OF LIQUIDITY LENDERS AND CREDIT ENHANCER TO
SECOND AMENDMENT TO LIQUIDITY LOAN AGREEMENT,
SECOND AMENDMENT TO LETTER OF CREDIT REIMBURSEMENT
AGREEMENT, AND THIRD AMENDMENT TO LOAN AGREEMENT
The undersigned, as Liquidity Lenders under the Liquidity Loan
Agreement dated as of June 20, 1994 among Alamo Funding, L.P., AFL Fleet
Funding, Inc., certain financial institutions party thereto and Citibank, N.A.,
as Liquidity Agent, as amended from time to time prior to the date hereof (the
"Liquidity Agreement"), and as Credit Enhancer under the Letter of Credit
Reimbursement Agreement, dated as of June 20, 1994, among Alamo Rent-A-Car,
Inc., AFL Fleet Funding, Inc., Alamo Funding, L.P. and Credit Enhancer, as
amended from time to time prior to the date hereof (the "L/C Agreement"), hereby
consent to the execution and delivery by the parties thereto of (i) the Third
Amendment, dated November 25, 1996, to the Loan Agreement, dated as of June 20,
1994, between Alamo Rent-A-Car, Inc. and Alamo Funding, L.P., as such Loan
Agreement has been amended from time to time prior to the date hereof (the "Loan
Agreement"), (ii) the Second Amendment to the L/C Agreement, dated as of
November 25, 1996, (iii) the Second Amendment to the Liquidity Agreement, dated
as of November 25, 1996 (the "Liquidity Amendment") and (iv) the Liquidity
Commitment Agreements referenced in Section 3 to the Liquidity Amendment.
6
<PAGE> 7
IN WITNESS WHEREOF, the undersigned have caused this Consent
to be executed and delivered as of November 25, 1996 by their respective
officers thereunto duly authorized.
LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER
$50,000,000 BANK BRUSSELS LAMBERT,
NEW YORK BRANCH
By: /s/
---------------------------------------
Name: John Kippax
Title: Vice President
By: /s/
---------------------------------------
Name: Dominick H. J. Vangaever
Title: Senior Vice President Credit
$50,000,000 BANK OF MONTREAL
By: /s/
--------------------------------------
Name: Edward P. McGuire
Title: Director
$50,000,000 BANK OF NEW YORK
By: /s/
--------------------------------------
Name: David C. Siegel
Title: Assistant Vice President
$10,000,000 THE BANK OF TOKYO-MITSUBISHI, LTD., NEW
YORK BRANCH
By: /s/
--------------------------------------
Name: Joseph P. Devoe
Title: Attorney-in-Fact
$30,000,000 BAYERISCHE HYPOTHEREN-UND WECHSEL-
BANK AKTIENGESELLSCHAFT, NEW YORK
BRANCH
By: /s/
---------------------------------------------
Name: Ron Vogel R.G. Pankuch
Title: Banking Officer FVP
$25,000,000 BOATMEN'S NATIONAL BANK OF ST. LOUIS
By: /s/
-------------------------------------
Name: Craig A. Korte
Title: Corporate Banking Officer
$40,000,000 CITIBANK, N.A.
By: /s/
--------------------------------------
Name: Ken Wormser
Title: Vice President
7
<PAGE> 8
LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER
$50,000,000 COMMERZBANK AG, ATLANTA AGENCY
By: /s/ /s/
---------------------------------------------
Name: Harry P. Yergey Mary B. Smith
Title: Vice President Asst. VP
$30,000,000 COOPERATIVE CENTRALE RAIFFEISEN-
BOERENEENBANK B.A., "RABOBANK
NEDERLAND", NEW YORK BRANCH
By: /s/
------------------------------------
Name: Ian Reece
Title: Vice President & Manager
By: /s/
-------------------------------------
Name: Dana W. Hemenway
Title: Vice President
$50,000,000 DRESDNER BANK AG NEW YORK BRANCH
AND GRAND CAYMAN BRANCH
By: /s/
-------------------------------------
Name: Richard Conroy
Title: Vice President
By: /s/
-------------------------------------
Name: Andrew Mittag
Title: Vice President
$50,000,000 FIRST UNION NATIONAL BANK OF FLORIDA
By: /s/
-------------------------------------
Name: Bruce Roland
Title: Vice President
$10,000,000 KREDISTBANK N.V.
By: /s/
-------------------------------------
Name: Robert Snauffer
Title: Vice President
By: /s/
-------------------------------------
Name: Thomas R. Lalli
Title: Vice President
$50,000,000 INTERNATIONALE NEDERLANDER (U.S.)
CAPITAL CORPORATION
By: /s/
-------------------------------------
Name: Michael G. Plunkett
Title: Vice President
8
<PAGE> 9
LIQUIDITY LOAN COMMITMENT LIQUIDITY LENDER
$50,000,000 MORGAN GUARANTY TRUST COMPANY OF
NEW YORK
By: /s/
-------------------------------------
Name: Jeffrey Hwang
Title: Vice President
$15,000,000 SOCIETE GENERALE
By: /s/
-------------------------------------
Name: Ralph Saheb
Title: Vice President & Manager
CREDIT ENHANCER
CREDIT SUISSE NEW YORK BRANCH, as Credit
Enhancer
By: /s/
-------------------------------------
Name: Roger W. Saylor
Title: Associate
By: /s/
-------------------------------------
Name: Kristine Kristinsson
Title: Member of Senior Management
9
<PAGE> 1
EXHIBIT 4.15
EXECUTION COPY
SECOND AMENDMENT TO
LETTER OF CREDIT REIMBURSEMENT AGREEMENT
THIS SECOND AMENDMENT TO LETTER OF CREDIT REIMBURSEMENT AGREEMENT
(this "Amendment") is dated as of November 25, 1995 among ALAMO RENT-A-CAR,
INC., a Florida corporation ("Alamo"), ALAMO FUNDING, L.P., a New York limited
partnership ("AFL"), AFL FLEET FUNDING, INC., a New York corporation (the
"General Partner"), and CREDIT SUISSE, a Swiss banking corporation acting
through its New York Branch (the "Credit Enhancer").
W I T N E S S E T H
WHEREAS, Alamo, AFL, the General Partner and the Credit
Enhancer are parties to that certain Letter of Credit Reimbursement Agreement
dated as of June 20, 1994 (as amended, restated or modified from time to time,
the "Letter of Credit Reimbursement Agreement");
WHEREAS, Alamo, AFL, the General Partner and the Credit
Enhancer are parties to that certain Amendment to the Letter of Credit
Reimbursement Agreement, dated as of December 29, 1994;
WHEREAS, Alamo, AFL, the General Partner and the Credit
Enhancer desire to amend certain provisions of the Letter of Credit
Reimbursement Agreement;
NOW, THEREFORE, the parties to this Amendment hereby agree as
follows:
Section 1. Defined Terms. As used in this Amendment and
unless the context requires a different meaning, capitalized terms used but not
defined herein shall have the meanings assigned to such terms in (i) the
Definitions List, dated as of June 20, 1994, attached as Annex A to the
Liquidity Loan Agreement dated as of June 20, 1994, as such Annex A may be
amended or modified and (ii) the Letter of Credit Reimbursement Agreement.
Section 2. Amendments to the Letter of Credit Reimbursement
Agreement.
(a) Amendment to Section 2.1. Section 2.1 of the Letter of
Credit Reimbursement Agreement is hereby amended by deleting the reference to
the amount of "$55,200,000" and replacing it with "$133,000,000" and by
deleting in clause (i) thereof the phrase "the date three years following the
Closing Date," and replacing it with "November 25, 1999."
<PAGE> 2
(b) Amendment to Section 3.1(a). Section 3.1(a) of the
Letter of Credit Reimbursement Agreement is hereby amended by deleting the
second sentence thereof and not replacing it.
(c) Amendment to Section 3.1(c). Section 3.1(c) of the
Letter of Credit Reimbursement Agreement is hereby amended by deleting the
phrase "As of the date hereof," and replacing it with "As of the Loan Closing
Date."
(d) Amendment to Section 3.1(f). Section 3.1(f) of the
Letter of Credit Reimbursement Agreement is hereby amended by the updated
Schedule 3.1(f) attached hereto.
(e) Amendment to Section 3.1(i). Section 3.1(i) of the
Letter of Credit Reimbursement Agreement is hereby amended in its entirety as
follows:
"(i) Employee Benefit Plans. (a) During the twelve
consecutive month period prior to the date hereof and prior to each applicable
Borrowing Date: (i) no steps have been taken by Alamo or any member of the
Controlled Group, or to the knowledge of Alamo, by any Person, to terminate any
Pension Plan (other than the Hyder Waste Money Purchase Pension Plan terminated
as of July 11, 1996); and (ii) no contribution failure has occurred or exists
with respect to any Pension Plan maintained or previously maintained by Alamo
or any member of the Controlled Group sufficient to give rise to a Lien under
Section 302(f)(1) of ERISA in connection with such Pension Plan; and (b) no
condition exists or event or transaction has occurred with respect to any
Pension Plan which could reasonably be expected to result in the incurrence by
Alamo or any member of the Controlled Group of liabilities (including, without
limitation, Multiemployer Plan or Multiple Employer Plan withdrawal
liabilities), fines or penalties in an amount that will have a Material Adverse
Effect."
(f) Amendment to Section 3.2(b)(ii). Section 3.2(b)(ii)
of the Letter of Credit Reimbursement Agreement is hereby amended by deleting
"(B) the amount of Incremental Change (as defined in the Loan Agreement) for
such year, and (C)" and replacing it with "and (B)."
(g) Amendment to Section 3.2(j). Section 3.2(j) of the
Letter of Credit Reimbursement Agreement is hereby amended by deleting the
first sentence thereof and replacing the same in its entirety with the
following sentence: "Alamo acknowledges its receipt of a copy of that certain
opinion letter issued by Mayer, Brown & Platt dated November 25, 1996
addressing the issue of substantive consolidation as it may relate to Alamo and
AFL."
(h) Amendment to Section 3.3(a). Section 3.3(a) of the
Letter of Credit Reimbursement Agreement is hereby amended to read in its
entirety as follows:
"(a) Mergers, Consolidations. Except for the
merger of a wholly owned subsidiary of Republic Industries, Inc., a Delaware
corporation with and into Alamo, Alamo will not be a party to any merger or
consolidation, other than a merger or consolidation of any Affiliate of Alamo
into or with Alamo (provided that Alamo is the surviving corporation)."
2
<PAGE> 3
(i) Amendment to Section 3.6(c). Section 3.6(c) of the
Letter of Credit Reimbursement Agreement is hereby amended to read in its
entirety as follows:
"(c) Consolidations and Mergers. Other than the
merger of a wholly owned subsidiary of Republic Industries, Inc., a Delaware
corporation, with and into the General Partner, neither AFL nor the General
Partner will, except as may be permitted by the express written approval of the
Credit Enhancer, merge with and into, enter into any joint venture or other
association with, or consolidate with, any other Person."
Section 3. Conditions of Effectiveness. The following
constitute conditions precedent to the effectiveness of this Amendment:
(a) Execution and delivery of this Amendment by Alamo,
AFL, the General Partner and the Credit Enhancer;
(b) The execution and delivery by the Credit Enhancer to the
Agent of a Letter of Credit in the amount of $133,000,000 upon receipt
by the Credit Enhancer of the Letter of Credit previously issued to
the Agent under the Letter of Credit Reimbursement Agreement;
(c) AFL shall have received as of the date hereof a copy of
the written confirmation delivered to AFL by each of S&P and Moody's
to the effect that this Amendment and the issuance of the new Letter
of Credit will not result in the downgrading or withdrawal of the then
current ratings of the Commercial Paper Notes;
(d) Each Liquidity Lender shall have delivered written
consent to this Amendment evidenced by their execution of Annex A to
the Second Amendment to the Liquidity Loan Agreement, dated November
25, 1996;
(e) AFL shall have delivered prior written notice of this
Amendment to the Rating Agencies, the Depository, the Agent, the
Liquidity Agent and each Dealer;
(f) AFL shall have delivered a fully executed copy of this
Amendment to the Rating Agencies, the Depository, the Agent, the
Liquidity Agent and each Dealer and shall have delivered to each
Dealer a revised Private Placement Memorandum (as such term is defined
in the Dealer Agreement) which reflects this Amendment;
(g) AFL shall have received from Alamo (i) a copy of the
resolutions of its Board of Directors, certified as of the date hereof
by the Secretary thereof, authorizing the execution, delivery and
performance of this Amendment and (ii) an incumbency certificate
from the Secretary thereof with respect to its officers, agents or
other representatives authorized to execute this Amendment;
3
<PAGE> 4
(h) AFL shall have received an Opinion of Counsel to Alamo to
the effect that this Amendment has been duly authorized, executed and
delivered and is the legal, valid and binding obligation of Alamo,
enforceable against it in accordance with its terms, subject to the
exceptions set forth therein; and
(i) Alamo, AFL, the Agent and the Liquidity Agent shall have
received a certificate from the Credit Enhancer as to due
authorization, execution and delivery of the Letter of Credit and the
enforceability thereof against the Credit Enhancer.
Section 4. Continuation of Representations and Warranties.
Alamo represents and warrants to the Credit Enhancer that the representations
and warranties in Article III of the Letter of Credit Reimbursement Agreement,
as amended by this Amendment, are true and correct on and as of the date hereof
with the same effect as if made on and as of the date hereof (except to the
extent such representatives and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier date).
Section 5. Reference to and Effect on the Related Documents;
Ratification. (a) Upon the effectiveness hereof, on and after the date hereof
each reference in the Related Documents and any other document to the "Letter
of Credit Reimbursement Agreement" or words of like import referring to the
Letter of Credit Reimbursement Agreement shall mean and be a reference to the
Letter of Credit Reimbursement Agreement as amended hereby and each reference
to any of the defined terms referred to in this Amendment shall mean and refer
to such defined terms as amended hereby.
(b) Except as specifically amended above, the Letter of
Credit Reimbursement Agreement is and shall continue to be in full force and
effect and is hereby ratified and confirmed in all respects.
Section 6. Execution in Counterparts. This Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a signature
page to this Amendment by facsimile transmission shall be as effective as
delivery of a manually executed counterpart of this Amendment.
Section 7. Governing Law. THIS AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES.
4
<PAGE> 5
IN WITNESS WHEREOF, Alamo, AFL, the General Partner and the
Credit Enhancer have caused this Amendment to be duly executed by their duly
authorized officers, as of the day and year first above written.
ALAMO RENT-A CAR, INC.
By: /s/
-------------------------------------
Name: Edward A. Cespedes
Title: Authorized Signatory
ALAMO FUNDING, L.P.
By: AFL FLEET FUNDING, INC., its General
Partner
By: /s/
---------------------------------
Name: Richard L. Taiano
Title: Vice President
AFL FLEET FUNDING, INC.
By: /s/
-------------------------------------
Name: Kevin Burns
Title: Secretary
CREDIT SUISSE
NEW YORK BRANCH
the Credit Enhancer
By: /s/
-------------------------------------
Name: Roger W. Saylor
Title: Associate
5
<PAGE> 1
EXHIBIT 4.16
GUARANTY
THIS GUARANTY ("Guaranty") is made as of this 25th day of November,
1996, by REPUBLIC INDUSTRIES, INC., a Delaware corporation ("Guarantor"), in
favor of CREDIT SUISSE as credit enhancer under the Letter of Credit
Reimbursement Agreement referred to below, and all participants under such
Letter of Credit Reimbursement Agreement (collectively, the "Lenders").
R E C I T A L S:
A. Lender and ALAMO RENT-A-CAR, INC., a Florida corporation
("Borrower"), have entered into a Letter of Credit Reimbursement Agreement dated
as of June 20, 1994, among the Borrower, Alamo Funding, L.P., AFL Fleet Funding,
Inc. and Credit Suisse, as credit enhancer, as amended and modified from time to
time (the "Credit Agreement"), pursuant to which Lender has agreed to issue
letters of credit for the benefit of Borrower in the aggregate amount of
$133,000,000.
B. The Credit Agreement, the Loan Agreement dated as of June 20, 1994,
between the Borrower and Alamo Funding, L.P., as amended or modified from time
to time (the "Loan Agreement"), and each of the other documents executed by
Borrower in connection with Credit Agreement and the Loan Agreement, as the same
may be hereafter amended, are sometimes collectively referred to herein as the
"Loan Documents".
C. Guarantor has a financial and ownership interest in Borrower and
will benefit from the transactions under the Loan Documents.
D. Lenders will require, as security for Borrower's obligations under
the Credit Agreement, an unconditional and irrevocable guaranty of payment and
performance from Guarantor respecting any obligations of Borrower under the
Credit Agreement.
NOW THEREFORE, in consideration of the premises, the sum of $10.00 and
other good and valuable consideration, the receipt of which is hereby
acknowledged, and in order to be of material benefit and assistance to Borrower
and in order to induce Lenders to extend credit to Borrower, Guarantor
guarantees and agrees as follows:
1. Recitations. Each and all of the foregoing recitals are true and
correct and are incorporated herein by reference.
2. Guaranteed Obligations. Guarantor hereby absolutely, irrevocably and
unconditionally guarantees (as primary obligor and not merely as surety) to
Lenders, their successors and assigns, the full and prompt payment (whether at
stated maturity, by acceleration, or otherwise) and performance of the
"Guaranteed Obligations" (as hereinafter defined). "Guaranteed Obligations shall
mean:
<PAGE> 2
(a) Any and all indebtedness of Borrower to Lenders, whether
now existing or hereafter incurred, including, but not limited to all principal,
interest, fees, attorneys' fees, liabilities for costs and expenses and other
indebtedness, obligations and liabilities of Borrower to Lender at any time
created or arising solely in connection with the Credit Agreement or any
amendment, extension, renewal, or modification thereto or substitution therefor;
(b) All agreements, covenants, indemnities, terms,
conditions, and other obligations to be performed by, or on behalf of Borrower
under the Credit Agreement; and
(c) All costs, expenses and fees, including but not limited
to court costs and reasonable attorneys' fees and paralegal fees, arising in
connection with, or as a consequence of the non-payment, non-performance or
non-observance of all amounts, indebtedness, obligations and liabilities of
Borrower to Lenders described in this Section 2.
3. Guaranty of Payment; Right to Proceed Directly Against Guarantor.
This is an irrevocable, absolute, continuing guaranty of payment (inter alia)
and not a guaranty of collection; and the Guarantor waives any right to require
that any action be brought against Borrower, any other guarantor of the Credit
Agreement obligations, or any other person or to require that resort be had to
any security. Lenders may, at their option, proceed against the Guarantor
individually, in the first instance to collect any monies the payment of which
is guaranteed hereby, without first proceeding against Borrower or any other
person or guarantor of the Credit Agreement obligations, and without first
resorting to any security held by its as collateral or to any other remedies, at
the same or different times, as it may deem advisable; and the liability of the
Guarantor hereunder shall be in no way affected or impaired by an acceptance by
Lenders of any security for, or other guarantors upon, any indebtedness,
liability or obligation of Borrower to the Lenders, or by any failure, delay,
neglect or omission by Lenders to realize upon or protect any such indebtedness,
liability or obligation or any notes or other instruments evidencing same or any
collateral or security therefor.
4. Waivers by Guarantor. Guarantor hereby waives: (a) notice of
acceptance of this Guaranty by Lenders, or of the creation, renewal or accrual
of any liability of Borrower, present or future, or of the reliance of Lenders
upon this Guaranty (it being understood that every indebtedness, liability and
obligation of Borrower to Lenders forming a part of the Guaranteed Obligations
shall conclusively be presumed to have been created, contracted or incurred in
reliance upon this Guaranty); (b) demand of payment from any person indebted in
any manner or for any of the liabilities or obligations hereby guaranteed; (c)
presentation for payment of any instrument of Borrower or any other person,
protest thereof and notice of its dishonor to any party thereto and to
Guarantor; (d) any duty on the part of Lenders to disclose to Guarantor any
facts which Lenders may now or hereafter know about Borrower, regardless of
whether lender has reason to believe that any such facts materially increase the
risk beyond that which Guarantor intends to assume or has reason to believe that
such facts are unknown to Guarantor or have a reasonable opportunity to
communicate such facts to Guarantor, it being understood and agreed that
Guarantor is fully responsible for being and keeping informed of the financial
condition of Borrower and of all circumstances bearing on the risk of
non-payment of all obligations hereby guaranteed.
2
<PAGE> 3
5. Effect of Bankruptcy. In the event that, pursuant to any insolvency,
bankruptcy, reorganization, receivership or other debtor relief law, or any
judgment, order or decision thereunder, Lenders must rescind or restore any
payment, or any part thereof, received by Lenders in satisfaction of the
Guaranteed Obligations, as set forth therein, any prior release or discharge
from the terms of this Guaranty given to Guarantor by Lenders shall be without
effect, and this Guaranty shall remain in full force and effect. It is the
intention of Lenders that the Guaranteed Obligations hereunder shall not be
discharged except by Guarantor's performance of all such obligations and then
only to the extent of such performance.
6. Notification of Default. The Guarantor shall immediately notify the
Lenders of any event of default, whether or not declared, under the Guarantor's
revolving Credit Facilities and Reimbursement Agreement, dated as of December
15, 1995, among the Guarantor, as borrower, NationsBank National Association
(South), successor by merger to NationsBank of Florida National Association, as
agent for the lenders named therein, and the lenders named therein, as such
revolving credit facility may be amended or modified from time to time.
7. Remedies. In the event that Guarantor shall fail to perform promptly
as herein provided, Lenders shall have the right (from time to time, without
first requiring performance on the part of the Borrower) to require performance
by the Guarantor of any Guaranteed Obligations, by action at law or in equity or
both, and further to collect in any such action reasonable compensation for all
loss, costs, damage, injury and expense sustained or incurred by Lenders as a
consequence of such breach.
8. Interest and Expenses of Enforcement. Any sum required to be paid by
Guarantor to Lenders pursuant to the terms hereof shall bear interest at the
maximum rate permitted by applicable law, until paid. Guarantor agrees to pay
any and all costs and expenses incurred by Lenders in enforcing any rights or
remedies under this Guaranty, including, without limitation, all reasonable fees
and expenses of the Lenders' attorneys, including reasonable fees and expenses
of any appeals and in any bankruptcy proceedings, regardless of whether any
specific legal proceedings should be commenced or initiated.
9. No Waiver. No failure on the part of Lenders to pursue any remedy
hereunder or under any of the Loan Documents, shall constitute a waiver on its
part of the right to pursue said remedy on the basis of the same or a subsequent
breach, nor shall failure give rise to an estoppel against Lenders, nor excuse
the Guarantor from its obligations hereunder. No extension, substitution,
modification, amendment or renewal of any of the Loan Documents or the
provisions hereof shall operate to discharge the Guarantor from any obligation
herein contained in whole or in part, except to the extent expressly provided by
Lenders in writing.
10. Guaranty Independent. Guarantor agrees that the obligations
hereunder are independent of and in addition to the undertakings of the Borrower
pursuant to the Loan Documents and any other obligations of Guarantor to
Lenders. A separate action may be brought to enforce the
3
<PAGE> 4
provisions hereof against Guarantor, whether or not Borrower, or any other
guarantor, is a party in any such action. Borrower and/or Guarantor and/or any
other guarantor may be sued together, or any of them may be sued separately
without first or contemporaneously suing the other.
11. Amendments, Etc.. No amendment or waiver of any provision of this
Guaranty nor consent to any departure by Guarantor therefrom shall in any event
be effective unless the same shall be in writing and signed by Credit Suisse,
and then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which such waiver or consent has been given.
12. Subordination. Any unsecured indebtedness of the Borrower now or
hereafter directly held by Guarantor ("Subordinated Indebtedness") is hereby
subordinated to the indebtedness of Borrower to Lenders under the Loan
Documents, and such indebtedness of Borrower to Guarantor shall, after an Event
of Default, if Lenders so request, be received by Guarantor as trustee for
Lenders and be paid over to Lenders on account of the indebtedness of Borrower
to Lenders under the Loan Documents, but without reducing or limiting in any
manner the liability of Guarantor under the other provisions of this Guaranty.
Guarantor shall not collect and will take no action to collect any such
Subordinated Indebtedness from Borrower until such time as the Guaranteed
Obligations have been paid in full.
13. Notices, Demands and Other Instruments. All notices, offers,
acceptances, rejections, consents, requests and other communications hereunder
shall be in writing and shall be deemed to have been giving (i) when delivered
in person, or (ii) when sent by telecopier, telex or other telegraphic means
(with receipt confirmed), or (iii) on receipt after being sent by express mail
or delivery service guaranteeing overnight delivery, provided that in each of
(i), (ii) and (iii) a copy is mailed by first class registered or certified
mail, postage prepaid, return receipt requested, in each case addressed as
follows:
If to Guarantor: Republic Industries, Inc.
200 Las Olas Boulevard, Suite 1400
Ft. Lauderdale, Florida 33301
Attn: Richard L. Handley, Esq.
If to Lender: Credit Suisse
12 East 49th Street
New York, NY 10017
Attn: Roger ("Rusty") Saylor
or to such other person or address as any such party shall furnish by notice to
the other parties in writing. Notices need not be given or made by an officer of
either party but shall be deemed sufficiently given if made by the counsel of
such party, and all of such notices shall be deemed in compliance hereof
provided only that they be given in the manner specified herein.
4
<PAGE> 5
14. Miscellaneous.
(a) This Guaranty shall be governed by and construed in
accordance with the laws of the State of Florida, without regard to principles
of conflicts of law.
(b) The obligations and promises set forth herein shall be
joint and several undertakings of each party now or hereafter executing and/or
joining in this Guaranty, or any other guarantor of the Credit Agreement
obligations, and Lenders may proceed hereunder against any one or more of said
parties without waiving its right to proceed against any or all of the other
parties hereto.
(c) If any term, provision, covenant or condition hereof or
any application thereof should be held by a court of competent jurisdiction to
be invalid, void or unenforceable, all terms, provisions, covenants and
conditions hereof, and all applications thereof not held invalid, void or
unenforceable shall continue in full force and effect and shall in no way be
affected, impaired or invalidated thereby.
(d) The use of the words "herein", "hereof", "hereunder" and
any other words of similar import refer to this Guaranty as a whole and not to
any particular paragraph, subparagraph or other subdivision of this Guaranty
unless specifically noted otherwise in this Guaranty.
(e) The title of this Guaranty and the headings of the
paragraphs of this Guaranty are for convenience of reference only, and are not
to be considered a part of the substance of this Guaranty, and shall not limit
or expand or otherwise affect any of the terms hereof.
(f) In this Guaranty, wherever the context so requires, the
neuter gender includes the masculine and/or feminine gender, the singular
numbers include the plural, and the plural numbers include the singular.
(g) This Guaranty creates a continuing obligation and the
obligation of Guarantor hereunder shall be binding upon Guarantor and its
successors, heirs, representatives and assigns, and shall inure to the benefit
of and be enforceable by Lenders and their successors and assigns.
(h) GUARANTOR AND LENDERS DO HEREBY KNOWINGLY VOLUNTARILY,
INTENTIONALLY, UNCONDITIONALLY AND IRREVOCABLY WAIVE THE RIGHT TO TRIAL BY JURY
IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER OR IN
CONNECTION WITH THIS GUARANTY OR ANY OTHER LOAN DOCUMENTS EXECUTED IN
CONJUNCTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS
(WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PERSON OR PARTY AND RELATED TO
THIS TRANSACTION; THIS IRREVOCABLE WAIVER OF THE RIGHT TO A JURY TRIAL BEING A
MATERIAL INDUCEMENT FOR LENDERS TO ISSUE THE LETTERS OF CREDIT AND TO ACCEPT
THIS GUARANTY.
5
<PAGE> 6
IN WITNESS WHEREOF, Guarantor has duly executed this Guaranty as of the
day and year first above written.
REPUBLIC INDUSTRIES, INC.
By: /s/ Courtland D. Peddy
------------------------------
Name: Courtland D. Peddy
Title: Vice President
6
<PAGE> 1
EXHIBIT 5.1
AKERMAN, SENTERFITT & EIDSON, P.A.
ATTORNEYS AT LAW
One SE Third Avenue
28th Floor
Miami, Florida 33131
(305) 374-5600
Telecopy (305) 374-5095
December 13, 1996
Republic Industries, Inc.
200 East Las Olas Boulevard
Fort Lauderdale, Florida 33301
RE: REPUBLIC INDUSTRIES, INC.
REGISTRATION STATEMENT ON FORM S-4
INCLUDING SOLICITATION STATEMENT/PROSPECTUS
DATED DECEMBER 13, 1996 (THE "REGISTRATION
STATEMENT")
Ladies and Gentlemen:
We have acted as counsel to Republic Industries, Inc., a Delaware
corporation (the "Company"), in connection with the preparation and filing by
the Company with the Securities and Exchange Commission of the Registration
Statement under the Securities Act of 1933, as amended. The Registration
Statement relates to an aggregate of up to 14,014,651 shares (the "Shares") of
the Company's common stock, par value $0.01 per share ("Common Stock"), which
may be issued by the Company upon the closing of the transactions contemplated
by the Agreement and Plan of Merger, dated as of June 25, 1996 (the "Merger
Agreement"), among Addington Resources, Inc. ("Addington"), the Company and
RI/AR Merger Corp., pursuant to which Mergersub will be merged with and into
Addington (the "Merger") and all of the issued and outstanding shares of
Addington common stock will be converted into the Shares.
We have examined such corporate records, documents, instruments and
certificates of the Company and have received such representations from the
officers and directors of the Company and have reviewed such questions of law
as we have deemed necessary, relevant or appropriate to enable us to render the
opinion expressed herein. In such examination, we have assumed the genuineness
of all signatures and authenticity of all documents, instruments, records and
certificates submitted to us as originals.
Based upon such examination and review and upon the representations
made to us by the officers and directors of the Company, we are of the opinion
that when the Registration Statement becomes effective under the Securities Act
of 1933, as amended, and the Shares are issued in connection with the Merger as
contemplated by the Merger Agreement, the Shares will constitute legally
issued, fully paid and non-assessable securities of the Company.
The opinions expressed herein are limited to the corporate laws of the
State of Delaware and we express no opinion as to the effect on the matters
covered by any other jurisdiction.
This firm consents to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to the firm under the caption
"Legal Matters" in the Solicitation Statement/Prospectus which is part of the
Registration Statement.
Very truly yours,
AKERMAN, SENTERFITT & EIDSON, P.A.
<PAGE> 1
EXHIBIT 8.1
December 13, 1996
Board of Directors
Addington Resources, Inc.
2343 Alexandria Drive, Suite 400
Lexington, Kentucky 40504
Ladies and Gentlemen:
You have requested our opinion concerning certain federal income tax
issues relating to the Agreement and Plan of Merger, dated as of June 25, 1996
(the "Merger Agreement") by and among Republic Industries, Inc., a Delaware
corporation ("Republic"), RI/AR Merger Corp., a Delaware corporation
("Mergersub"), and Addington Resources, Inc., a Delaware corporation (the
"Company"). The Merger Agreement provides for the merger of Mergersub, a
wholly-owned subsidiary of Republic which has been formed by Republic for
this purpose, with and into the Company (the "Merger"). Capitalized terms
not otherwise defined in this letter shall have the same meanings as those
terms in the Merger Agreement. In rendering the opinion we have examined
(i) the Merger Agreement; (ii) the representation letters from Republic and
Company; and (iii) such other documents as we have deemed necessary or
appropriate in order to render the requested opinion.
In connection with such examination we have assumed (1) the authenticity
of all documents, agreements and instruments which we have reviewed; (2) that
the documents reviewed in connection with rendering the opinion are complete
and accurate and will be complete and accurate as of the effective date of the
Merger; (3) that the Merger will be effective under applicable state laws; and
(4) the Merger Agreement accurately describes the terms of the Merger. In
rendering our opinion, we have not undertaken independent investigation of the
accuracy of any assumptions stated herein, the veracity of written statements
as to factual matters upon which we have relied or the authenticity of
documents.
Our opinion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations promulgated under the Code, published
Revenue Rulings, published Revenue Procedures and existing judicial and
administrative decisions, all as of the
<PAGE> 2
Addington Resources, Inc.
Page 2
date of this letter. All of the foregoing is subject to change and any such
change (which could be retroactive) could affect the opinion contained in this
letter.
The opinion is our legal judgment as to certain of the federal income
tax consequences of the proposed Merger. Our opinion is not binding on the
Internal Revenue Service and the Internal Revenue Service may reach a different
conclusion, which conclusion could be sustained by a court if litigated. The
opinion is limited to the specific conclusions reached in the opinion and does
not purport to reach any other conclusions, such as the future use of tax
attributes of the parties, tax consequences to holders of the Company common
shares who hold such shares as other than capital assets, foreign holders who
own (or have owned in the last five years) more than 5% of the Company common
stock, and similar issues. The opinion does not address foreign, state, local,
estate or other potential tax consequences of the Merger.
On the basis of the foregoing, we are of the opinion that:
1. The Merger will constitute a tax-free reorganization under
Section 368(a) of the Code and Republic, the Company and Mergersub will
each be a party to the reorganization within the meaning of Section
368(b) of the Code.
2. None of Republic, Mergersub or the Company will recognize
gain or loss in connection with the Merger.
3. No gain or loss will be recognized by Company
stockholders upon their receipt of Republic common stock (except to
the extent of cash received in lieu of a fractional share of Republic
common stock).
4. The tax basis of Republic common stock received in the
Merger will be the same as the tax basis of Company common stock
surrendered and exchanged therefor reduced by any amount of bases
allocable to fractional share interest for which cash is received.
5. The holding period for the shares of Republic common stock
received by Company stockholders in the Merger will include the holding
period during which the Company stockholders held their Company common
stock, provided that such shares are held as a capital asset at the
effective date of the Merger.
6. Stockholders who receive cash in lieu of fractional shares
of Republic common stock will recognize gain or loss equal to the
difference between the cash payment received and the stockholder's tax
basis in the portion of the share of the Company common stock exchanged
therefore. Such gain or loss will be capital gain or loss provided that
such share of the Company common stock was held as a capital asset at
the time of the Merger, and will be long term capital gain or loss if
such share was held for more than one year at such time.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, state, local or foreign, or of any
transaction related to the Merger contemplated by the Merger Agreement.
We hereby consent to the filing of this opinion as an Exhibit to
Republic's Registration Statement on Form S-4, which includes the Solicitation
Statement/Prospectus dated December 13, 1996 describing the Merger, and
to the reference to the firm under the caption "THE MERGER--Certain Federal
Income Tax Consequences" and under the caption "Legal Matters" in the
Solicitation Statement/Prospectus which is part of the Registration Statement.
Sincerely yours,
Schulte Roth & Zabel LLP
<PAGE> 1
EXHIBIT 8.2
December 13, 1996
Republic Industries, Inc.
RI/AR Merger Corp.
200 East Las Olas Boulevard, Suite 1400
Fort Lauderdale, Florida 33301
Re: Agreement and Plan of Merger By and Among Republic
Industries, Inc., RI/AR Merger Corp. and
Addington Resources, Inc.
Dear Sirs:
You have requested our opinion concerning certain federal income tax
issues relating to the Agreement and Plan of Merger, dated as of June 25, 1996
(the "Merger Agreement"), by and among Republic Industries, Inc., a Delaware
corporation ("Republic"), RI/AR Merger Corp., a Delaware corporation and wholly
owned subsidiary of Republic ("Mergersub"), and Addington Resources, Inc., a
Delaware corporation (the "Company"). Capitalized terms not otherwise defined
in this letter shall have the same meanings as those terms in the Merger
Agreement. In rendering the opinion we have examined (i) the Merger Agreement;
(ii) the representation letters from Republic and Company, forms of which are
attached; and (iii) such other documents as we have deemed necessary or
appropriate in order to render the requested opinion.
In connection with such examination we have assumed (1) the
authenticity of all documents, agreements and instruments which we have
reviewed; (2) that the documents reviewed in connection with rendering the
opinion are complete and accurate and will be complete and accurate as of the
effective date of the Merger; (3) that the Merger will be effective under
applicable state laws; and (4) the Merger Agreement accurately completely
describes the terms of the Merger. In rendering our opinion, we have not
undertaken independent investigation of the accuracy of any assumptions stated
herein, the veracity of written statements as to factual matters upon which we
have relied or the authenticity of documents.
Our opinion is based on the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations promulgated under the Code, published
Revenue Rulings, published Revenue Procedures and existing judicial and
administrative decisions, all as of the date of this letter. All of the
foregoing is subject to change and any such change (which could be retroactive)
could affect the opinion contained in this letter.
<PAGE> 2
Republic Industries, Inc.
Page 2
The opinion is our legal judgment as to certain of the federal income
tax consequences of the proposed Merger. Our opinion is not binding on the
Internal Revenue Service and the Internal Revenue Service may reach a different
conclusion, which conclusion could be sustained by a court if litigated. The
opinion is limited to the specific conclusions reached in the opinion and does
not purport to reach any other conclusions, such as the future use of tax
attributes of the parties, tax consequences to holders of Company common shares
who hold such shares as other than capital assets, and similar issues. The
opinion does not address foreign, state, local, estate or other potential tax
consequences of the Merger.
On the basis of the foregoing, we are of the opinion that for federal
income tax purposes the Merger will constitute a tax-free reorganization under
Section 368(a) of the Code and Republic, the Company and Mergersub will each be
a party to the reorganization within the meaning of Section 368(b) of the Code.
Except as set forth above, we express no opinion as to the tax
consequences to any party, whether federal, state, local or foreign, or of any
transaction related to the Merger contemplated by the Merger Agreement.
We hereby consent to the filing of this opinion as an Exhibit to
Republic's Registration Statement on Form S-4, which includes the Solicitation
Statement/Prospectus dated December 13, 1996 describing the Merger, and
to the reference to the firm under the caption "THE MERGER--Certain Federal
Income Tax Consequences" and under the caption "Legal Matters" in the
Solicitation Statement/Prospectus which is part of the Registration Statement.
Yours very truly,
Akerman, Senterfitt & Eidson, P.A.
<PAGE> 1
EXHIBIT 10.34
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of May 8,
1996 by and among Republic Industries Inc., a Delaware corporation, and its
assigns (the "Company"), and Steven R. Berrard ("Employee").
RECITALS
On the date hereof, the Company entered into a Merger Agreement with
AutoNation Incorporated, a Florida corporation ("AutoNation") and certain other
parties pursuant to which AutoNation will become a wholly-owned subsidiary of
the Company, and the Company also entered into a Loan Agreement with AutoNation
pursuant to which the Company has committed to loan to AutoNation all of
AutoNation's cash requirements for a period of several months pending closing
of the transactions contemplated by the Merger Agreement. The Employee
currently is employed by AutoNation as its President and Chief Executive
Officer. AutoNation is developing a vehicle retailing business and related
businesses. Pending the closing of the Company's acquisition of AutoNation, the
Company (a) may acquire other businesses which are engaged in used vehicle
retailing or related lines of business, (b) will need to consult with financial
analysts, investors, the media, and other interested persons about AutoNation
and the vehicle retailing industry, and (c) will be loaning substantial sums to
AutoNation pursuant to the Loan Agreement. Accordingly, the Company desires to
have the Employee available to perform services relating to the foregoing from
time to time, and is willing to compensate Employee for such services pending
the closing of the Company's acquisition of AutoNation.
TERMS OF AGREEMENT
In consideration of the premises, the parties hereto agree as follows:
1. Employment. The Company agrees to employ Employee as a Vice
President and Employee agrees to be so employed. Until the closing of the
Company's acquisition of AutoNation, the Employee also shall continue to be
employed by AutoNation. In consideration of Employee's services hereunder, the
Company shall assume from AutoNation the obligation to pay to the Employee the
annual bonus due to such Employee pursuant to the terms of Employee's
employment with AutoNation in an amount not to exceed 25% of the Employee's
base salary with AutoNation (which base salary currently is $750,000), to be
paid at such time as AutoNation normally pays its bonuses. Employee also shall
be entitled to such benefits as may be offered to comparable employees of the
Company from time to time, except for benefits (such as group health insurance)
which are duplicative of or substantially similar to benefits provided to
Employee by AutoNation. In
<PAGE> 2
addition, the Company hereby grants to the Employee options to purchase 214,286
shares of common stock, $0.01 par value, of the Company pursuant to the
Company's 1995 Employee Stock Option Plan (the "Plan") at an exercise price of
$35.00 per share (being the closing price per share of the Company's common
stock on May 7, 1996), subject to adjustment for any stock splits or dividends
set forth in the Plan. Such options shall vest over a four period, and so long
as the Employee remains an employee of the Company, 25% of such options shall
be exercisable on May 8 of each of 1997, 1998, 1999 and 2000, and all options
shall otherwise be subject to all terms and conditions of the Plan.
In the event that the Merger Agreement is terminated, then, effective
as of the date the Merger Agreement is terminated, at the Company's option, (i)
the Employee's employment and obligations hereunder shall be terminated, (ii)
the Company's obligation to pay the Employee's bonus shall be assigned back to
AutoNation, and (iii) all stock options granted to Employee to purchase shares
of the Company's common stock shall be terminated. Upon termination of the
Merger Agreement, the Company shall indemnify and hold Employee harmless from
and against any and all claims, losses, liabilities and damages of any kind
whatsoever incurred or suffered as a result of or arising out of Employee's
status as an Employee of the Company.
2. Termination.
(a) For Cause. At any time the Company shall have the right to
terminate the employment of the Employee hereunder, and to discharge the
Employee for "cause" as hereinafter defined. Upon any such termination by the
Company, the Employee or his legal representatives shall not be entitled to
receive any additional compensation hereunder. Termination for "cause" shall
mean termination because of (i) termination of Employee's employment with
AutoNation (or any subsidiary thereof) for any reason, (ii) the Employee's
material breach of his covenants contained in this Agreement, (iii) the
Employee's repeated failure or refusal to perform the duties and
responsibilities required to be performed by the Employee hereunder, after
having received written notice thereof, (iv) the commission by the Employee of
an act of dishonesty affecting the Company or an act constituting common law
fraud or a felony, the result of which the Company shall have been materially
adversely affected, (v) the commission by the Employee of an act (other than
good faith exercise of business judgment in the exercise of his managerial
responsibilities) resulting in material damage to the Company, (vi) the
Employee's death, or (vii) the Employee's inability to perform his duties and
responsibilities as provided herein due to his physical or mental disability or
sickness extending for, or reasonably expected to extend for, greater than
three months. Any resignation or other termination of this Agreement by the
Employee shall be deemed a termination for "cause."
(b) Without Cause. At any time, the Company shall have the right
to terminate the Employee, and to discharge the Employee without cause,
effective upon 30 days' prior written notice to the Employee. Upon the
termination of this Agreement without cause, the Employee shall continue to be
entitled to be eligible to receive his bonus for the year in which such
termination occurs, when and as the same would have been payable hereunder
2
<PAGE> 3
but for such termination, provided that the Employee shall only be entitled to
such payment as long as he is in compliance with the provisions of Paragraph 3
hereof. Stock options which have vested at the time of termination without
cause, if any, shall be exercisable as provided for in the Plan and unvested
options, if any, shall continue to vest until fully vested.
(c) Termination Upon Merger. Unless otherwise earlier terminated
pursuant to the terms of this Agreement, effective upon consummation of the
Merger contemplated by the Merger Agreement, this Agreement shall automatically
terminate. Notwithstanding such termination of this Agreement, the stock
options granted to Employee shall remain outstanding and shall continue to be
governed by the Plan.
3. Restrictive Covenants. In consideration of the foregoing, upon the
Company's request, Employee agrees to execute a confidentiality agreement and a
covenant not to compete agreement with the Company, in form and substance
substantially the same as is executed by all other executive employees of the
Company from time to time.
4. Notice. Any notice hereunder shall be deemed given upon hand
delivery or two days after it has been mailed by certified mail, postage
prepaid, as follows:
To the Company:
Republic Industries, Inc.
200 East Las Olas Boulevard
Ft. Lauderdale, FL 33301
Attn: Richard L. Handley, General Counsel
and Senior Vice President
To Employee:
Steven R. Berrard
AutoNation Incorporated
One Financial Plaza, Suite 1700
Ft. Lauderdale, FL 33394
Either party may from time to time by written notice to the other as
provided above designate another address which shall be the new address for
such notices
5. Miscellaneous. All modifications and changes to this Agreement
shall be in writing and signed by both parties. This Agreement shall be
construed and enforced in accordance with the laws of the State of Florida.
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior written and oral
agreements and understandings.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
REPUBLIC INDUSTRIES, INC.
By: /s/ Richard L. Handley
-------------------------------------
Richard L. Handley
Senior Vice President
EMPLOYEE
/s/ Steven R. Berrard
- - ----------------------------
Steven R. Berrard
Agreed and Acknowledged:
AUTONATION INCORPORATED
By: /s/ Steven Morse
------------------------
Steven Morse
Senior Vice President
4
<PAGE> 1
EXHIBIT 21.1
REPUBLIC INDUSTRIES, INC.
SUBSIDIARIES AS OF DECEMBER 13, 1996
Subsidiary(1) State of Incorporation Additional Business Names
Alamo Rent-A-Car, Inc.(2) Florida None
- - ----------
(1) Omits the following number of direct subsidiaries operating in the United
States in the indicated industries: (a) 102 in solid waste, (b) 28 in
electronic security services, (c) 3 in automotive retail and (d) 12 in vehicle
rental.
(2) Omits 5 and 11 direct subsidiaries operating in the United States and
foreign countries, respectively, in the vehicle rental industry.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
use of our reports (and to all references to our Firm) included in or made a
part of this Registration Statement on Form S-4.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
December 11, 1996.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use of our reports included herein (or incorporated herein by
reference) and to the reference to our firm under the heading "Experts" in this
Registration Statement on Form S-4.
KPMG PEAT MARWICK LLP
December 11, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
use of our report (and to all references to our firm) included in or made a
part of this Registration Statement on Form S-4.
MUNSON, CRONICK & ASSOCIATES
Fullerton, California,
December 10, 1996.
<PAGE> 1
EXHIBIT 23.6
Consent of Person About to Become a Director
--------------------------------------------
Pursuant to Rule 438 promulgated under the Securities Act of 1933, as amended,
I, Lawrence S. Rich, hereby consent to be named as a person about to become a
director of Republic Industries, Inc. in this Registration Statement on
Form S-4.
/s/ Lawrence S. Rich
--------------------
Lawrence S. Rich
December 5, 1996
<PAGE> 1
EXHIBIT 23.7
CONSENT OF OPPENHEIMER & CO., INC.
As financial advisor to Addington Resources, Inc., we hereby consent to the use
of our fairness opinion (and to all references to our firm) included in or made
a part of this Registration Statement on Form S-4 for Addington Resources, Inc.
OPPENHEIMER & CO., INC.
New York, New York
December 11, 1996
