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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 1-13107
AUTONATION, INC.
(Exact Name of Registrant as Specified in its Charter)
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DELAWARE 73-1105145
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
110 S.E. 6TH STREET,
FORT LAUDERDALE, FLORIDA 33301
(Address of Principal Executive Offices) (Zip Code)
(954) 769-6000
(Registrant's telephone number, including area code)
Securities Registered Pursuant to Section 12(b) of the Act:
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TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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Common Stock, Par Value $.01 Per Share New York Stock Exchange
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Securities Registered Pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of March 23, 2000, the registrant had 361,124,289 shares of common stock
outstanding and, at such date, the aggregate market value of the shares of
common stock held by non-affiliates of the registrant was approximately
$2,191,093,195.
DOCUMENTS INCORPORATED BY REFERENCE
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Part III Portions of the Registrant's Proxy Statement relating to the
2000 Annual Meeting of Stockholders.
Part IV Portions of previously filed reports and registration
statements.
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INDEX
TO FORM 10-K
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PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 13
Item 3. Legal Proceedings........................................... 13
Item 4. Submission of Matters to a Vote of Security Holders......... 13
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 14
Item 6. Selected Financial Data..................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 16
Item 8. Financial Statements and Supplementary Data................. 30
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 55
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 56
Item 11. Executive Compensation...................................... 56
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 56
Item 13. Certain Relationships and Related Transactions.............. 56
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 57
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PART I
ITEM 1. BUSINESS
INTRODUCTION
AutoNation, Inc. is the largest automotive retailer in the United States.
We own and operate more than 400 new vehicle franchises from dealership
locations in 26 major metropolitan markets in 19 states, predominantly in the
Sunbelt states. Our business consists primarily of the sale, financing and
servicing of new and used vehicles. We also provide other related services and
products, such as the sale of parts and accessories, extended service contracts,
aftermarket automotive products and collision repair services. The core brands
of vehicles that we sell, representing approximately 90% of the new vehicles
that we sold last year, are manufactured or distributed by General Motors
Corporation, Ford Motor Company, DaimlerChrysler Corporation, Toyota Motor
Sales, U.S.A., Inc., American Honda Motor Co., Inc. and Nissan North America,
Inc. We also sell several luxury vehicle brands, including Mercedes-Benz, BMW,
Lexus and Porsche. In total, we offer 39 different brands of vehicles.
We also have built a rapidly growing e-commerce business. On our primary
website, AutoNationDirect.com, consumers can research and arrange to purchase,
finance and insure a new or used vehicle. We offer an on-line inventory of over
100,000 vehicles, primarily from our franchised automotive dealerships. In 1999,
we sold approximately 46,000 vehicles to customers through the Internet sales
channel. Our Internet sales were generated from customer leads purchased from
third-party automotive websites and through our dealership websites and
AutoNationDirect.com.
We were incorporated in Oklahoma in 1980 and reincorporated in Delaware in
1991. Prior to 1995, we operated solely in the solid waste services business. In
late 1995 and 1996, we entered the electronic security services, automotive
retail and car rental industries through numerous acquisitions, and we changed
our corporate name to Republic Industries, Inc. In 1997, we sold the electronic
security services business to a third party. In 1998, our solid waste services
business, which we organized under the corporate name Republic Services, Inc.,
completed an initial public offering of approximately 36% of its common stock.
In 1999, we completed our separation of the solid waste services business by
selling substantially all of our remaining interest in Republic Services to the
public. We also changed our corporate name to AutoNation, Inc. in April 1999.
Upon completion of the proposed separation and distribution of our automotive
rental business, which we describe in more detail in the "Recent Developments"
section of this document, we will operate only in the automotive retail
business.
Our common stock, par value $.01 per share, is listed on New York Stock
Exchange under the symbol "AN." For information concerning our financial
condition, results of operations and related financial data, and business
combinations, you should review the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section in this document. We
describe risks relating to our business, operations, financial performance and
cash flows in the "Risk Factors" section in this document.
RECENT DEVELOPMENTS
Planned ANC Rental Spin-off. We currently own ANC Rental Corporation, an
automotive rental company that operates under the Alamo, National and CarTemps
USA brand names. ANC Rental operates in all three markets of the automotive
rental industry: leisure travel, business travel and vehicle replacement.
In 1999, we announced our intention to separate ANC Rental from our
automotive retail business and to distribute all of the shares of ANC Rental
common stock to our stockholders in the form of a tax-free dividend. We
determined that our automotive retail business and ANC Rental have distinct
financial and operating characteristics and that separating the businesses would
enable each company's management team to focus more exclusively on each
company's operations, thereby maximizing stockholder value over the long term
for each company. Additionally, we believe that the planned separation will
provide each company's management with direct incentives and accountability to
their respective public investors and will allow us to raise additional capital
through an increase in our borrowing capacity to pursue our strategic business
plan. We
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have received a ruling from the Internal Revenue Service to the effect that,
based on the conditions set forth in the ruling, the distribution of ANC Rental
stock to our stockholders would qualify as a tax-free dividend. Completion of
the proposed spin-off, however, is subject to ANC Rental securing the necessary
financing and other third-party approvals to operate as an independent
publicly-traded company, as well as certain other conditions. Upon completion of
the proposed spin-off, we intend for ANC Rental's common stock to trade on the
NYSE. We have reclassified and reported ANC Rental's business as a discontinued
operation. Accordingly, except as otherwise noted, the disclosure contained in
this document relates solely to our automotive retail business.
Closure of Our Used Vehicle Megastores. In December 1999, we made a
decision to exit the stand-alone used vehicle megastore category of our
automotive retail business by closing 23 company-owned AutoNation USA megastores
and converting our remaining stand-alone megastore facilities into new vehicle
franchises. We have completed the closure of the 23 megastores. We have also
completed the relocation of franchised new vehicle dealerships into 11 of our
former AutoNation USA megastore facilities, which we will continue to operate
exclusively as franchised new vehicle dealerships, and we are currently
converting our remaining three megastore facilities into franchised new vehicle
dealerships. We are in the process of selling the excess real property resulting
from the closure of our megastores. Eight additional AutoNation USA used vehicle
megastores are currently owned by third parties and continue to operate pursuant
to franchise agreements under which one of our wholly-owned subsidiaries acts as
the franchisor. Our exit from the used vehicle megastore category will permit us
to focus on our franchised automotive retail business.
As a result of our decision in the fourth quarter of 1999 to exit the used
vehicle megastore category, and in connection with other restructuring
activities, we incurred pre-tax restructuring and impairment charges of
approximately $443.7 million (approximately $297.9 million after tax). We
include additional details about these charges in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations" section in this
document, as well as in the Notes to our Consolidated Financial Statements.
Stock Repurchase Program. In 1998, our board of directors authorized the
repurchase of up to $500 million of common stock. In 1999, our board authorized
additional share repurchase programs totaling $1.25 billion, including $500
million authorized by our board in December 1999. Since the 1998 inception of
our share repurchase programs, we have repurchased 110.9 million shares of
common stock for a cumulative purchase price of approximately $1.38 billion
through February 29, 2000, leaving approximately $374.1 million remaining for
share repurchases under the program. We expect to continue repurchasing shares
under this program.
BUSINESS STRATEGY
Our business strategy consists of the following key elements:
- Build critical mass in each of our key markets.
- Leverage our significant scale to drive out costs and to become the
low-cost operator in our key markets.
- Provide a unique customer experience at our dealerships and brand the
experience under a single market brand in each local market.
- Continue growing our e-commerce business to extend our position as the
leading seller of vehicles via the Internet and develop a powerful
national brand on the Internet.
BUILD CRITICAL MASS IN EACH OF OUR KEY MARKETS
We conduct automotive retail operations in 26 major metropolitan markets in
19 states. We believe we have achieved critical mass in several of our key
markets. Our goal is to continue to build critical mass in our key markets so
that we can create economies of scale in these markets. We intend to build
critical mass in these key markets through strategic acquisitions.
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LEVERAGE OUR SIGNIFICANT SCALE TO BECOME THE LOW-COST OPERATOR
As we build critical mass in each of our key markets, we believe that we
can obtain significant cost savings through reduced marketing costs, improved
working capital management and improved fixed-cost absorption. We also are
managing the combined resources of our operations in each market in other ways
to reduce costs, become the low-cost provider and maximize the economies
resulting from our size. In this highly competitive business, we intend to
leverage our unique scale to become the low-cost operator in our core brands,
enabling us to deliver products and services to our customers at a competitive
price while increasing our return on investment.
PROVIDE A UNIQUE CUSTOMER EXPERIENCE AND ESTABLISH A POWERFUL MARKET BRAND IN
EACH OF OUR KEY MARKETS
We intend to provide a unique customer experience at our dealerships. As we
reach critical mass in each market, we intend to establish a strong market
brand. By aligning our dealerships under a single brand in each market, we
believe that we can maximize the impact of our advertising while yielding
significant efficiencies and cost savings compared to our competitors. As a
result, we believe that we can create a presence in our key markets that
convinces the automobile-buying public that an educated buying decision cannot
be made without considering our branded dealerships.
We are improving the customer experience at our dealerships in three
specific areas. First, our dealerships offer an open-book finance menu, where
the customer knows exactly what his or her base payment will be, what the
interest rate will be and what other products are available for purchase, such
as warranties. The second area is the Internet sales process, which we have
designed to provide up-front information to customers about vehicle pricing and
availability. The third area is our service business, where we have installed
advanced production systems that enable us to provide more convenient and
affordable service.
In December 1998, we launched the "Mile High Project" and converted our
franchised automotive dealerships in the Denver metropolitan market into a
single network that we branded under the "John Elway AutoNation USA" name. All
of our Denver dealerships feature common sales, service and operating practices,
including "low no-haggle pricing," and emphasize customer service and owner
retention. While we had many successes in Denver, including significant
increases in sales volume, the Mile High Project also presented many challenges.
The transition of 17 different dealerships from traditional, negotiated pricing
to "one-price/no-haggle" pricing required numerous changes to store operations
and a significant training program for our associates. Although we experienced
reduced margins and profitability after the launch of the Mile High Project, we
expect that in the first quarter of 2000, our margins and profitability in
Denver will exceed historical levels.
Using the results of our Mile High Project, we implemented a similar
project in the Tampa/ St. Petersburg, Florida market in December 1999,
consolidating most of our dealerships in that market under the "AutoWay" brand.
In implementing the most successful sales, service and operating practices from
our Denver operations, we are placing greater emphasis on maintaining margins
while operating with a one low, no haggle price and a customer friendly sales
process in Tampa/St. Petersburg. We will carefully assess our results in
Tampa/St. Petersburg and Denver in order to enhance the operating strategies
that we will adopt in our other key markets.
GROW OUR E-COMMERCE BUSINESS AND DEVELOP A NATIONAL INTERNET BRAND
We intend to continue to leverage our industry-leading fulfillment
capability via the Internet to create a national e-commerce brand emphasizing
low, one-price shopping. We believe that the combination of our automotive
retail operations, which are four times the size of our nearest competitor in
the United States today, with the on-line presence that we have built, uniquely
positions AutoNation to be the leading e-commerce company in automotive
retailing. Our e-commerce business includes our flagship AutoNationDirect.com
website, which we launched in July 1999. On AutoNationDirect.com, consumers can
research a vehicle and then browse our local dealership inventories or our
listing of over 100,000 new and used vehicles, select a vehicle and arrange
financing and insurance for the vehicle. Unlike other automotive
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websites which hand off the customer to a dealership or attempt to broker a
vehicle sale through a dealership, we have the capability to service the
customer from the moment he or she clicks onto one of our websites until the
moment the customer takes delivery of the vehicle from one of our franchised
dealerships or one of our licensed independent dealerships.
In order to capitalize on this e-commerce opportunity, we have established
an e-commerce sales force of specially-trained Internet Sales Guides based at
each of our dealerships. Our Internet Sales Guides use "Compass," a proprietary
software program, to track and service customers who come to us through the
Internet. Compass, which can alert an Internet Sales Guide as soon as an inquiry
is received from a prospective customer, can be accessed wherever Internet
service is available, 24 hours a day, seven days a week. This access allows
rapid response times to our e-commerce inquiries. Our average response time of
approximately two hours per inquiry is well below reported industry average
response times. We have also developed relationships with select third-party
automotive websites, resulting in additional sales opportunities for our
dealerships to gain market share among customers who shop through the Internet.
Our e-commerce strategy allowed us in 1999 to become the largest automotive
retailer via the Internet based on sales of vehicles by our dealerships through
Internet channels. We sold approximately 46,000 new and used vehicles via the
Internet sales channel in 1999. Our Internet sales were generated from customer
leads purchased from third-party automotive websites and through our dealership
websites and AutoNationDirect.com. Based on total revenue, our more than $1
billion in vehicle sales via the Internet sales channel in 1999 ranks us first
among all of our automotive retail competitors. In 2000, we intend to decrease
our dependence on third-party leads and increase our emphasis on generating
customers through AutoNationDirect.com and our dealership websites. In addition,
we are seeking to establish strategic partnerships and alliances to enhance our
opportunities to reach customers through the Internet. We may also make
strategic acquisitions to enhance our e-commerce business.
OPERATIONS
Our continuing operations consist of our automotive retail business. We
have classified our automotive rental business as a discontinued operation.
We own and operate more than 400 automotive franchises from dealership
locations in 19 states. We own and operate franchises granted by the
manufacturers of 39 different makes of vehicles. The core brands of vehicles
that we sell are manufactured or distributed by General Motors, Ford,
DaimlerChrysler, Toyota, Honda and Nissan. Our management structure is focused
on our local markets, where day-to-day decision-makers can be more responsive to
the needs of local customers. We have established ten districts to manage our
automotive retail business. The number of dealerships comprising each district
varies from district to district.
Each of our automotive franchises offers brand name new and used vehicles.
Customers generally have a choice of purchasing or leasing any vehicle available
in the dealerships. Each of our dealerships also offers financing for vehicle
purchases, extended service contracts and other finance and insurance products,
as well as other aftermarket products such as vehicle accessories, upgraded
sound systems and theft deterrent systems. Almost all of our dealerships have
service facilities that provide a wide range of vehicle maintenance and repair
services.
We operate each of our new vehicle dealerships under a franchise agreement
with a vehicle manufacturer. The franchise agreements grant the franchised
automotive dealership a non-exclusive right to sell the manufacturer's brand of
vehicles and offer related parts and service within a specified market area. The
franchise agreements also grant the dealerships the right to use the
manufacturer's trademarks in connection with the sale of its vehicles. The
franchise agreements impose numerous operational requirements and restrictions
on the automotive dealerships relating to inventory levels, working capital
requirements, the sales process, marketing and branding, showroom, service
facilities and signage, personnel and monthly financial reporting, among other
things. The franchise agreements also provide for termination of the agreement
by the manufacturer or non-renewal for a variety of causes, subject to
applicable state franchise laws that limit a manufacturer's right to terminate a
franchise.
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We also have entered into framework agreements with most major vehicle
manufacturers. These agreements contain provisions relating to our acquisition,
ownership structure, management, operation, and advertising and marketing of
automotive dealerships franchised by such manufacturers. The agreements also set
limits on the number of dealerships that we may acquire of the particular
manufacturer, nationally and in local markets, and contain certain restrictions
on our ability to name and brand our dealerships. In addition, some of these
framework agreements give the manufacturer the right to acquire, at fair market
value, the automotive dealerships franchised by that manufacturer under
specified circumstances in the event of a change in control of our company, the
acquisition of 20% or more of the voting stock of our company by another
manufacturer or other extraordinary corporate transactions such as a merger or
sale of all of our assets.
We acquire new vehicles directly from the manufacturers. We generally
acquire used vehicles from customer trade-ins, off-lease programs and, to a
lesser extent, auctions and other sources. At the auctions, we purchase used
vehicles through competitive bidding. We recondition used vehicles acquired for
retail sale at our dealerships using the service facilities at our dealerships.
We provide financial products and services to our customers through third
parties, including the vehicle manufacturers' captive finance companies, as well
as our automotive finance arm, AutoNation Financial Services. AutoNation
Financial Services' products include retail financing, extended service
contracts, secondary customer referral programs, vehicle protection and
maintenance programs and insurance products.
SALES AND MARKETING
We believe in providing quality services that will enable us to maintain
high levels of satisfaction from our customers. We derive our business from a
broad customer base which we believe will enable us to experience stable growth.
Our marketing efforts focus on building our business with existing customers as
well as attracting new customers.
We engage in mass marketing and advertising in various media to attract a
broad retail customer base in the markets in which we operate. We advertise
primarily through newspapers, radio, outdoor billboards and television in our
local markets. We expect to continue to realize cost savings and efficiencies
with respect to advertising expenses, due to volume discounts and other
concessions as we increase our presence within our key markets.
CUSTOMERS
As of December 31, 1999, no one customer individually comprised more than
10% of our total revenue.
REGULATIONS
Automotive Laws and Regulations
We operate in a highly regulated industry. A number of state and federal
laws and regulations affect our business. In every state in which we operate, we
must obtain various licenses in order to operate our businesses, including
sales, finance and insurance related licenses issued by state regulatory
authorities. Numerous laws and regulations govern our conduct of business,
including those relating to our sales, operating, advertising and employment
practices. These laws and regulations include state franchise laws and
regulations and other extensive laws and regulations applicable to new and used
motor vehicle dealers, as well as a variety of other laws and regulations. These
laws also include federal and state wage-hour, anti-discrimination and other
employment practices laws.
The imported automobiles we purchase are subject to United States customs
duties and, in the ordinary course of our business we may, from time to time, be
subject to claims for duties, penalties, liquidated damages, or other charges.
Our financing activities with customers are subject to federal truth-in-lending,
consumer leasing and equal credit opportunity regulations as well as state and
local motor vehicle finance laws, installment finance laws, usury laws and other
installment sales laws. All states regulate finance fees and charges that may be
paid as a result of vehicle sales.
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Our operations are also subject to the National Traffic and Motor Vehicle
Safety Act, Federal Motor Vehicle Safety Standards promulgated by the United
States Department of Transportation and various state motor vehicle regulatory
agencies. Possible penalties for violation of any of these laws include
revocation of our licenses and fines. In addition, many laws may give customers
a private cause of action.
Environmental Regulations
Our business is subject to a variety of federal, state and local
requirements that regulate public health and safety, the environment, zoning and
land use. The states in which we operate have enacted their own laws and
regulations, or are authorized to administer federal programs, governing the
management of hazardous materials, water and air emissions, solid waste
disposal, and the release and cleanup of regulated substances. In addition,
permits may be required for certain activities such as wastewater discharges and
air emissions at our facilities, and these permits are subject to renewal,
modification, and revocation. Governmental authorities can enforce compliance
with these regulatory requirements, and may seek to obtain injunctions or impose
fines and other sanctions, including criminal penalties, for alleged violations.
The United States Environmental Protection Agency and various other federal,
state and local agencies and authorities administer these regulatory and
enforcement programs.
Our business involves the use, handling, storage, and/or contracting for
recycling or disposal of materials such as motor oil and filters, transmission
fluids, antifreeze, refrigerants, paints, thinners, batteries, cleaning
products, lubricants, degreasing agents and fuel.
Water quality protection programs under the federal Water Pollution Control
Act (commonly known as the Clean Water Act), the Safe Drinking Water Act and
comparable state and local programs apply to some of our operations. Similarly,
some of our operations are subject to the federal Clean Air Act, and related
state and local laws, regarding air emissions. Various health and safety
standards, which the Occupational Safety and Health Administration of the United
States Department of Labor has promulgated, apply to our operations.
A framework has been established under the Resource Conservation and
Recovery Act for regulating the handling, transportation, treatment and disposal
of hazardous and non-hazardous solid wastes, and the management of underground
storage tanks or USTs. A number of our businesses operate USTs, which are used
primarily to store petroleum-based products. USTs are subject to periodic
testing, upgrading, and removal, and remedial action in the event of leaks or
other discharges. If a discharge occurs from USTs that we own or operate, and
migrates onto the property of others, we could be subject to liability for
clean-up costs, and other damages to third parties.
The Comprehensive Environmental Response, Compensation, and Liability Act,
or CERCLA, provides for the clean-up of sites where a release of a hazardous
substance into the environment has occurred. Past and current owners and
operators of the site, as well as parties who transported or arranged for
disposal, collectively known as Potentially Responsible Parties or PRPs, may be
subject under CERCLA to strict, retroactive, joint and several liability for
response costs and for damages to natural resources. We could be liable under
CERCLA for the cost of cleaning up regulated substances deposited at certain
sites and for damages to nearby natural resources. Some of the entities we have
acquired were, or have been, designated as PRPs, typically as a result of
historical disposal or recycling activities. In many cases we have
indemnification rights with respect to compliance with CERCLA against the former
owners of the businesses that we have acquired, and some of the former owners
have been paying remedial costs for CERCLA cleanups. We do not expect the costs
of complying with any of the applicable environmental, health and safety laws
and regulations to have a material adverse effect on our business, results of
operations, cash flows or financial condition.
COMPETITION
We operate in a highly competitive industry. Each of our key markets
includes a large number of well-capitalized competitors that have extensive
automotive dealership managerial experience.
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According to the National Automotive Dealers Association, Automotive News
and reports of various financial analysts, the automotive retail industry is
served by approximately 22,000 franchised automotive dealerships, approximately
56,000 independent used vehicle dealers, and individual consumers who sell used
vehicles in casual private transactions primarily through classified ads and by
word of mouth. Several other public companies, as well as certain automotive
manufacturers, are attempting to establish national or regional automotive
retail chains. We believe that the principal competitive factors in the
automotive retail business are price, selection, service and location.
We believe that a growing number of consumers are utilizing the Internet,
to differing degrees, in connection with the purchase of vehicles. Accordingly,
we may face increasing competitive pressures from on-line automotive websites.
Consumers use the Internet to compare pricing for cars and related finance and
insurance services, which may create price convergence and reduce margins for
new and used vehicles and related finance and insurance services. In addition,
some Internet retailers have begun efforts to acquire dealership franchises in
an effort to sell vehicles direct to the customer without having to acquire them
from a dealership. Also, other franchised dealership groups have begun to align
themselves with Internet retailers and expend significant resources on Internet
compatibility, each of which could materially adversely affect our business.
INSURANCE AND BONDING
Our business exposes us to the risk of liabilities arising out of our
operations. Potential liabilities could involve, for example, claims of
employees, customers or third parties for personal injury or property damage
occurring in the course of our operations. We could also be subject to fines and
civil and criminal penalties in connection with alleged violations of regulatory
requirements.
The automotive retail business is also subject to substantial risk of
property loss due to the significant concentration of property values at
dealership locations. Accordingly, we have purchased liability and property
insurance subject to certain deductibles or loss retentions. We purchase
umbrella liability insurance to provide insurance in excess of our primary
insurance policies. The level of risk we retain may change in the future as
insurance market conditions or other factors affecting the economics of our
insurance purchasing change. Although we strive to operate safely and prudently
and have, subject to certain limitations and exclusions, substantial insurance,
we cannot assure you that we will not be exposed to uninsured or underinsured
losses which could have a material adverse effect on our financial condition,
results of operations or cash flows.
Provisions for retained losses and deductibles are made by charges to
expense based upon periodic evaluations of the estimated ultimate liabilities on
reported and unreported claims. The insurance companies that underwrite our
insurance require that we secure our obligation for deductible reimbursements
with collateral. Our collateral requirements are set by the insurance companies
and to date have been satisfied by posting surety bonds and letters of credit.
Our collateral requirements may change from time to time based on, among other
things, our claims experience.
EMPLOYEES
As of December 31, 1999, we employed approximately 33,000 full time
employees in our automotive retail business, approximately 650 of whom were
covered by collective bargaining agreements. We believe that we have good
relations with our employees.
SEASONALITY
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year due in part to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating results to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.
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TRADEMARKS
We own a number of registered service marks and trademarks and also have a
number of applications pending to register, among other marks, AutoNation(SM),
AutoNation USA(SM), AutoNationDirect(SM), AutoWay(SM) and It's about Lower
Prices, It's about Higher Standards, It's about Time(SM). Pursuant to agreements
with vehicle manufacturers, we have the right to use and display manufacturers'
trademarks, logos and designs at our dealerships and in our advertising and
promotional materials, subject to certain restrictions. The current
registrations of our service marks and 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.
EXECUTIVE OFFICERS OF AUTONATION
We provide below information regarding our executive officers who are not
also directors of our company. Biographical information regarding our executive
officers who are also directors of our company, namely, H. Wayne Huizenga,
Michael J. Jackson and Harris W. Hudson will be set forth in our Proxy Statement
relating to the 2000 Annual Meeting of Stockholders and is incorporated herein
by reference.
MICHAEL E. MAROONE, age 46, has served as our President and Chief Operating
Officer since August 1999. Following our acquisition of the Maroone Automotive
Group in January 1997, Mr. Maroone served as President of our New Vehicle Dealer
Division. In January 1998, Mr. Maroone was named President of our Automotive
Retail Group with responsibility for our new and used vehicle operations. Prior
to joining our company, Mr. Maroone was President and Chief Executive Officer of
the Maroone Automotive Group, one of the country's largest privately-held
automotive retail groups.
PATRICIA A. MCKAY, age 42, has served as our Senior Vice President -
Finance and Controller since November 1999. Since November 1999, Ms. McKay has
also served as our Acting Chief Financial Officer. Ms. McKay joined our company
in January 1997 as Vice President, Operations Controller. From February 1998
until November 1999, Ms. McKay served as Senior Vice President of Finance of our
Automotive Retail Group. Prior to joining our company, Ms. McKay served from
October 1988 until December 1996 in various positions with Dole Food Company,
Inc., a multinational packaged food company, most recently as Vice President of
Finance and Controller. From June 1983 through July 1988, Ms. McKay served as
Senior Audit Manager with Arthur Andersen LLP.
JONATHAN P. FERRANDO, age 34, has served as our Senior Vice President,
General Counsel and Secretary since January 2000. From March 1998 until January
2000, Mr. Ferrando served as our Senior Vice President and General Counsel of
our Automotive Retail Group. Mr. Ferrando joined our company in July 1996 as
Senior Counsel with responsibility for the legal affairs of our automotive
retail business. From January 1997 until May 1997, Mr. Ferrando served as our
Vice President and Senior Counsel. From May 1997 to February 1998, he served as
our Vice President and Associate General Counsel. Prior to joining our company,
Mr. Ferrando was a corporate attorney in Chicago, Illinois with Skadden, Arps,
Slate, Meagher & Flom, a global full service law firm, from 1991 until 1996. Mr.
Ferrando's practice at Skadden, Arps, Slate, Meagher & Flom was concentrated in
the areas of mergers and acquisitions and corporate finance.
JAMES J. DONAHUE, JR., age 43, has served as our Senior Vice
President - Corporate Communications since January 1999. Mr. Donahue served as
Vice President - Corporate Communications from February 1997 until January 1999.
Prior to joining our company, Mr. Donahue was Vice President - Corporate
Communications of Duracell International, Inc., a multinational manufacturer of
batteries from 1993 until 1997.
RISK FACTORS
Our business, financial condition, results of operations, cash flows and
prospects, and the prevailing market price and performance of our common stock,
may be adversely affected by a number of factors, including the matters
discussed below. Some of the statements and information contained throughout
this Annual Report on Form 10-K constitute "forward-looking statements" within
the meaning of the Federal
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<PAGE> 11
Private Securities Litigation Reform Act of 1995. The forward-looking statements
describe our expectations, plans and intentions about our business, financial
condition, results of operations, cash flows and prospects, and involve known
and unknown risks, uncertainties and other factors that may cause our actual
results, performance, or achievements to be materially different from any future
results, performance, or achievements, expressed or implied, by the
forward-looking statements. These risks, uncertainties and other factors include
the following:
We Face Significant Competition in the Automotive Retail Industry. We
operate in a highly competitive environment. Our competition includes publicly
and privately-owned dealerships, some of which operate large groups, any of
which may sell the same or similar makes of new and used vehicles in our markets
at competitive prices. Other competitors include franchised automotive
dealerships selling other brands of vehicles, private market buyers and sellers
of used vehicles, used vehicle dealers, service center chains, independent
service and repair shops and private and publicly-owned finance companies,
including those of automobile manufacturers, and, as we describe below, on-line
automotive retailers. Our franchise agreements generally do not give us the
exclusive right to sell a manufacturer's product within a given geographic area,
although state franchise laws do provide certain protections. These and other
competitive pressures could materially adversely affect our business, financial
condition, results of operations, cash flows and prospects.
We also face increasing competition from the rapidly growing automotive
retail e-commerce business. A number of e-commerce companies have established
automotive-related websites in the past year, and many of these companies have
access to substantial capital. One of the effects of the Internet on the
automotive retail industry has been that customers have gained increased access
to information on prices for vehicles and related finance and insurance
services, which we believe will result in price convergence as vehicle pricing
and dealer cost becomes more transparent to consumers. This may result in
reduced margins for new and used vehicle sales and related finance and insurance
services.
Our success in gaining on-line customers will depend on our ability to
obtain high visibility on the Internet, either through our own websites or
through strategic partnerships and alliances with Internet companies. However,
many Internet automotive retailers have access to substantial capital through
the public markets and venture capital financing and may be able to make a
substantial investment in Internet advertising and website technology, which may
have a material adverse effect on the success of both our e-commerce and
traditional dealership businesses.
We Will Need Substantial Additional Capital and We Have Significant
Indebtedness Outstanding. We will need substantial additional capital to
continue expanding in our key markets and to execute our strategy effectively.
We have two unsecured revolving credit facilities in place in the aggregate
principal amount of $1.5 billion. As of February 29, 2000, we have drawn
approximately $1.1 billion on these facilities and we have approximately $362.0
million available for future use, which will include, among other things,
dealership acquisitions, capital expenditures, the development of our e-commerce
business and continuing our stock repurchase program. One of our credit
facilities, in the principal amount of $500 million, will expire in March 2001,
and we cannot assure you that we will be able to renew this facility or our
other facility on terms acceptable to us.
Additionally, as of December 31, 1999, we had approximately $2.2 billion of
floor plan indebtedness outstanding under credit facilities with various
financing sources. A substantial portion of our outstanding indebtedness is at
floating interest rates. At times, we use interest rate swaps to manage the risk
of interest rate fluctuations, but a substantial increase in interest rates
could adversely affect our cost of indebtedness for borrowed money. Our floor
plan indebtedness, which we use to finance our vehicle inventory, is secured by
our vehicle inventory. This may limit our ability to borrow from other sources
or for other uses. In light of the recent declines in the price of our common
stock, we may not be able to issue shares of common stock to complete dealership
acquisitions or to raise additional capital in the future. We cannot assure you
that sufficient financing for our business and operations, and to execute our
strategic business plan, will be available on a timely basis, if at all, or on
terms acceptable to us. In the event that financing is not available or is not
available in the amounts or on terms acceptable to us, it could impede the
implementation of our business strategy and limit our ability to grow our
business or to react to changes in the automotive retail industry. This
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<PAGE> 12
could have a material adverse effect on our business, financial condition,
results of operations, cash flows and prospects.
The Automotive Retail Industry Is Cyclical and Is Sensitive to Changing
Economic Conditions. Sales of motor vehicles, particularly new vehicles,
historically have been subject to substantial cyclical variation characterized
by oversupply and weak demand. We believe that many factors affect the industry,
including consumer confidence, the level of personal discretionary spending,
interest rates, fuel prices and credit availability. We note that 1999 was a
record year for the automotive industry in general and our company specifically
in terms of volume of new vehicles sold and we cannot assure you that the
industry or our company will not experience sustained periods of decline in
vehicle sales in the future as a result of the occurrence of any of the factors
described above, particularly in the event of further increases in interest
rates or fuel prices or in the event of an economic downturn.
We May Not Be Able to Successfully Roll Out Our Strategy to Other Markets
Where We Currently Operate. The success of our business model depends in large
part on our ability to brand our franchised dealerships in any given market
under a common name that is identified with a superior consumer experience. Our
ability to deliver a superior consumer experience will depend upon our access to
a wide variety of desirable new and used vehicle inventory, consumer acceptance
of the pricing philosophy we adopt in the market and our ability to consistently
deliver on a brand promise at each of our dealerships within a given market.
Since the dealerships within each of our key markets were acquired from
independent organizations and historically have operated independently, we may
have difficulty adapting common business practices across our dealerships in a
given market. Moreover, our franchise agreements and framework agreements with
automotive manufacturers contain restrictions on dealership names and,
therefore, we cannot assure you that we will be able to choose brand names in
all of our markets that are uniform and appealing to consumers.
We May Have Difficulty Expanding Through Acquisitions of Franchised
Automotive Dealerships in Our Key Markets. The growth of our automotive retail
business since our inception has been primarily attributable to acquisitions of
franchised automotive dealership groups. Although we do not expect to complete
dealership acquisitions at the same pace as we have in the past, we anticipate
that we will continue to expand our operations in our key markets through
additional acquisitions of franchised automotive dealerships. However, we face a
competitive environment in acquiring additional dealership groups, and the
significant consolidation in the industry in our key markets over the last
several years has resulted in fewer dealership groups being available for
purchase. Accordingly, we cannot assure you that we will be able to acquire
dealerships selling desirable automotive brands at desirable locations in our
key markets, or that any such acquisitions can be completed on favorable terms.
Furthermore, we cannot assure you that we will have sufficient capital to
finance proposed acquisitions.
Automotive Manufacturers May Impede Our Acquisition Strategy. Approval of
the applicable automotive manufacturer is required prior to completing any
dealership acquisition. Although we have established framework agreements with
most major manufacturers to facilitate our acquisition of dealerships operating
their franchises, we cannot assure you that these manufacturers or any other
manufacturers will approve any particular dealership acquisition or will not
otherwise seek to impose restrictions on future acquisitions, operations or
capital structure as a condition to granting their approval. Many vehicle
manufacturers also retain the right of first refusal with respect to any
proposed sale of a dealership that they franchise, meaning that the manufacturer
or its designee could complete a proposed acquisition by us on the agreed-upon
terms. In addition, we have negotiated with the major manufacturers limits on
the number of dealerships that we may acquire either nationally or in any given
market or both. We have approached these limits in some markets and may approach
them in other markets in the future as we continue to expand. We cannot assure
you that our growth strategy will be unaffected by these limits. Our ability to
complete additional acquisitions under these agreements is also limited by our
success in meeting certain sales and customer satisfaction targets set by the
manufacturers. We cannot assure you that we will be able to satisfy the
applicable operating performance requirements so that we can continue to make
acquisitions.
We May Have Difficulty Integrating Acquired Dealerships into Our
Operations. We have built a significant retail business through rapid
acquisitions of franchised automotive dealership groups in a short
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<PAGE> 13
period of time. As a result of our prior acquisitions of certain large
dealership groups, we have acquired dealerships that are located in markets in
which we do not intend to focus or that sell automotive brands other than our
core brands and certain luxury brands. The successful implementation of our
business strategy will depend in part on our ability to integrate recently
acquired dealership groups into our existing dealership operations and to
dispose of non-core dealerships. The successful integration of such
recently-acquired dealership groups will depend on management's ability to
consolidate operations, integrate departments, systems and procedures and
thereby obtain business efficiencies, economies of scale and related cost
savings, while maintaining or improving operating performance. The integration
of dealership groups requires significant managerial focus and time, and we
cannot assure you that such integration will result in improved operating
performance or increased cost savings in a timely manner or at all.
We Depend on Vehicle Manufacturers for Our New Vehicle Inventory
Supply. The success of our dealerships is dependent on maintaining an adequate
inventory of desirable products at the right locations and at the right times.
We rely exclusively on the various automotive manufacturers for our new vehicle
inventory, and we cannot assure you that the manufacturers will be able to
produce vehicles that consumers desire, or to supply us with such vehicles at
the appropriate locations and at acceptable quantities and prices. Our success
is dependent, to a large extent, on the success of the applicable vehicle
manufacturer, the financing or incentive programs the manufacturer offers to
consumers and consumer demand for its products. Any event that may have a
material adverse effect on the financial condition, management, marketing,
production and distribution capabilities of the vehicle manufacturers with whom
we hold franchises, such as labor strikes, supply shortages, adverse publicity,
product defects or general economic downturns, may have a material adverse
effect on our business, results of operations, financial condition, cash flows
and prospects.
We Are Subject to Operating Restrictions Imposed by Vehicle
Manufacturers. The franchise agreements to which our dealerships are subject
and the framework agreements that we have with many major automotive
manufacturers impose significant restrictions on our ability to operate our
dealerships. These agreements provide the manufacturers with considerable
influence over the operations of our dealerships, including the level at which
we capitalize our dealerships, the condition of our dealership facilities, our
performance standards with respect to sales volume and customer satisfaction,
our selection of dealership management and other factors. They also grant the
manufacturer the right to terminate our franchise for a variety of causes,
subject to state laws. Additionally, manufacturers can restrict our ability to
relocate our franchised dealerships to more desirable locations within our key
markets. Manufacturers may attempt to impose restrictions that could limit our
ability to implement some of our strategic initiatives relating to the
operation, location, naming and marketing of our franchised dealerships, or our
e-commerce business.
The Loss of Key Personnel Could Affect Our Operations. Our success depends
to a significant degree upon the continued contributions of the dealership
management in our local markets. As we expand we will need to hire additional
qualified managers. The market for qualified employees in the industry and in
the markets in which we operate, particularly for qualified general managers and
sales and service personnel, is highly competitive and may subject us to
increased labor costs during periods of low unemployment. We also believe that
many of our sales and service personnel, particularly in the area of Internet
operations, are pursued from time to time by our competitors. The loss of a
group of key employees in any of our markets could have a material adverse
effect on our business and results of operations in that market.
We Are Subject to Extensive Governmental Regulation. The automotive retail
industry is subject to a wide range of federal, state and local laws and
regulations, such as local licensing requirements and consumer protection laws.
The violation of these laws and regulations can result in administrative, civil
or criminal sanctions against us, which may include a cease and desist order
against the subject operations or even revocation of our license to operate the
subject business. Our future acquisitions may also be subject to regulation,
including antitrust review. Certain state laws impose significant restrictions
on our ability to operate our businesses, such as our ability to relocate our
dealerships to more desirable sites. Future regulations may be more stringent
and require us to incur significant additional compliance costs. We also may be
subject to increased regulatory scrutiny as we build our presence and increase
our visibility in our target markets. In addition, as the on-line automotive
business expands, there may be new laws and regulations
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<PAGE> 14
adopted, or increased regulatory scrutiny and enforcement of existing laws and
regulations, that could have a material adverse effect on our e-commerce
business.
We may need to spend considerable time, effort and money to keep our
existing or acquired facilities in compliance with applicable federal, state and
local regulation of health, safety, environment, zoning and land use. If
environmental laws become more stringent, our environmental capital expenditures
and costs for environmental compliance may increase in the future. In addition,
due to the possibility of unanticipated occurrences or regulatory developments,
the amounts and timing of future environmental expenditures could vary
substantially from those currently anticipated.
We Are Subject to Various Legal and Administrative Proceedings. We are
involved, and will continue to be involved, in legal proceedings in the ordinary
course of business, including litigation with customers and employment related
lawsuits. A significant judgment against us or the imposition of a significant
fine could have a material adverse effect on our business and financial
condition. We cannot assure you with respect to the outcome of these
administrative and legal proceedings and the effect such outcomes may have on
us.
Matters Relating to Imported Products May Affect Our Operations. A
significant portion of our business involves the sale of vehicles, parts or
vehicles composed of parts that are manufactured outside the United States. As a
result, our operations are subject to customary risks of importing merchandise,
including fluctuations in the value of currencies, import duties, exchange
controls, trade restrictions, work stoppages and general political and economic
conditions in foreign countries. The United States or the countries from which
our products are imported may, from time to time, impose new quotas, duties,
tariffs or other restrictions, or adjust presently prevailing quotas, duties or
tariffs, which could affect our operations and our ability to purchase imported
vehicles or parts.
We May Not Be Able to Complete the Spin-off of ANC Rental. We currently
report ANC Rental's business as a discontinued operation. We intend to separate
ANC Rental from our automotive retail business and distribute all of the shares
of ANC Rental stock to our stockholders in the form of a tax-free dividend.
Completion of the proposed spin-off, however, is subject to ANC Rental securing
the necessary financing and other third-party approvals to operate as an
independent publicly-traded company as well as certain other conditions. If we
are unable to separate ANC Rental through a spin-off or otherwise, we would need
to continue to operate and finance ANC Rental's business and, consequently, our
borrowing capacity would be more limited, our management's focus would be
diverted from our automotive retail operations and we would be subject to the
risks associated with the automotive rental business, including those described
below.
The operations of ANC Rental are subject to a number of risks which may
affect its business or results of operations, including the following: ANC
Rental has substantial debt; competition in the automotive rental industry may
impact ANC Rental's prices or market share; ANC Rental may have difficulty
obtaining financing necessary to operate its business; ANC Rental has
experienced difficulty with its computer operating system; ANC Rental's business
strategy, focusing on high levels of service emphasizing speed and choice, may
cause a decline in its business volume; ANC Rental's fleet is subject to
manufacturer repurchase programs and residual value risk which may impact its
ability to purchase or dispose of its fleet; the automotive rental business is
seasonal and highly sensitive to economic conditions, particularly fuel costs
and fuel supplies, and ANC Rental may need to add administrative and executive
personnel.
ANC Rental experienced a loss from operations of $76.3 million, and a net
loss after interest and taxes of $71.0 million, during the year ended December
31, 1999. Contributing to the loss for fiscal 1999 were several events,
including but not limited to, (1) provisions for plans to restructure ANC
Rental's operations through the consolidation of its North American
headquarters, the reduction of 250 non-field personnel, the rationalization of
fleet inventory and the consolidation of some of ANC Rental's unprofitable
locations; (2) allowances for doubtful accounts on certain past due receivables;
and (3) operational matters such as renegotiation of some of ANC Rental's
international supply agreements and higher fleet and administrative costs. These
events contributed to a fourth-quarter loss from operations of $123.3 million.
We expect ANC Rental to incur a loss from operations in the first quarter of
2000, which will significantly exceed its first-quarter operating loss of $9.0
million in 1999.
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ITEM 2. PROPERTIES
We own our corporate headquarters building, which is located in Fort
Lauderdale, Florida. We also own or lease numerous facilities relating to our
operations in 19 states. These facilities consist primarily of automobile
showrooms, display lots, service facilities, collision repair shops, supply
facilities, automobile storage lots, parking lots and offices. We believe that
our facilities are sufficient for our needs and are in good repair.
In December 1999, we closed 23 of our used vehicle megastores. We are
actively marketing these properties for sale along with other excess real estate
of which we intend to dispose.
ITEM 3. LEGAL PROCEEDINGS
By letter in January 1996, Acme Commercial Corp. d/b/a CarMax, The Auto
Superstore, accused our wholly-owned subsidiary, AutoNation USA Corporation, of
infringing CarMax's trademark rights by using the marks "AutoNation USA" and
"The Better Way to Buy a Car." AutoNation denied these allegations and in
February 1996, filed suit in the U.S. District Court for the Southern District
of Florida seeking a declaratory judgment that its use and registration of these
marks does not violate any of the rights of CarMax. In October 1996, CarMax
filed a counterclaim against AutoNation seeking damages and an order enjoining
AutoNation from using certain marks, including the marks "AutoNation USA" and
"The Better Way to Buy a Car." In November 1998, following a jury trial, the
court entered a judgment in favor of AutoNation USA and against CarMax with
respect to the marks in question. In December 1998, CarMax filed a notice of
appeal of the trial court's decision with the U.S. Court of Appeals for the
Eleventh Circuit. In December 1999, the Eleventh Circuit ruled in our favor by
affirming per curiam the lower court's dismissal of this matter. To our
knowledge, no further appeals have been filed in this matter.
A patent infringement suit naming us as a defendant was filed in January
2000 in the U.S. District Court for the Eastern District of Texas by an
individual, Allan Konrad, who holds three patents allegedly covering
intranet/internet use. Mr. Konrad also owns a fourth patent application
allegedly covering e-commerce. Thirty-eight other companies, including General
Motors, Ford and DaimlerChrysler are codefendants in this litigation. We procure
all products and services related to this infringement allegation from suppliers
and we believe that we are entitled to be indemnified by these suppliers for any
loss that may result from this litigation. The technology covered in the Konrad
patents relates to computer system configuration and a method of using that
configuration. More specifically, a local host (personal workstation), remote
host (server), a network connecting the local host to the remote host, and
various computer service functionalities are claimed to be covered by these
patents. Technology of this type is widely used by us and its continued use is
required.
We are a party to numerous other legal proceedings which arose in the
ordinary course of business. We do not believe that the ultimate resolution of
these matters, as well as the matters described above, will have a material
adverse effect on our business, results of operations, financial condition or
cash flows. However, the results of any of these matters cannot be predicted
with certainty, and an unfavorable resolution of one or more of these matters
could have a material adverse effect on our consolidated results of operations
or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the stockholders of the Company
during the fourth quarter of the fiscal year ended December 31, 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
MARKET INFORMATION, HOLDERS AND DIVIDENDS
Since April 6, 1999, our common stock has traded on the NYSE under the
symbol "AN." From June 20, 1997 until April 5, 1999 our common stock traded on
the NYSE under the symbol "RII." The following table sets forth, for the periods
indicated, the high and low prices per share of the common stock as reported by
the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
First Quarter............................................... $16 15/16 $12 1/8
Second Quarter.............................................. 18 3/8 11 5/8
Third Quarter............................................... 17 7/8 11 1/2
Fourth Quarter.............................................. 12 11/16 7 1/2
1998
First Quarter............................................... $29 $19 3/16
Second Quarter.............................................. 30 22 15/16
Third Quarter............................................... 27 13 3/4
Fourth Quarter.............................................. 18 3/8 10
</TABLE>
On March 23, 2000, the closing price of our common stock was $8 1/16 per
share as reported by the NYSE. On March 23, 2000, there were approximately 4,400
holders of record of our common stock.
We have not declared or paid any cash dividends on our common stock during
our two most recent fiscal years. We currently intend to retain our earnings for
future growth and, therefore, we do not anticipate paying cash dividends in the
foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
You should read the following Selected Financial Data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," our Consolidated Financial Statements and Notes thereto and other
financial information included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue...................................... $20,111.8 $12,664.6 $6,122.8 $2,933.7 $2,361.7
Income (loss) from continuing operations..... (31.5) 225.8 13.4 (1.1) 17.1
Net income (loss)............................ 282.9 499.5 439.7 (6.7) 34.6
Basic earnings (loss) per share:
Continuing operations...................... $ (.07) $ .50 $ .03 $ -- $ .07
Discontinued operations.................... .73 .60 1.06 .08 .06
Extraordinary charge....................... -- -- -- (.10) --
--------- --------- -------- -------- --------
Net income (loss).......................... $ .66 $ 1.10 $ 1.09 $ (.02) $ .13
========= ========= ======== ======== ========
Diluted earnings (loss) per share:
Continuing operations...................... $ (.07) $ .48 $ .03 $ -- $ .06
Discontinued operations.................... .73 .58 .99 .08 .07
Extraordinary charge....................... -- -- -- (.10) --
--------- --------- -------- -------- --------
Net income (loss).......................... $ .66 $ 1.06 $ 1.02 $ (.02) $ .13
========= ========= ======== ======== ========
Total assets................................. $ 9,613.4 $ 8,412.2 $4,852.1 $2,229.1 $1,378.0
Long-term debt............................... 836.1 520.9 261.1 269.3 69.7
Shareholders' equity......................... 4,601.2 5,424.2 3,484.3 1,419.9 789.0
</TABLE>
See Notes 2, 6, 10 and 11 of Notes to Consolidated Financial Statements for
discussion of business combinations, shareholders' equity, restructuring and
impairment charges and discontinued operations, respectively, and their effect
on comparability of year-to-year data. See "Item 5. Market for the Registrant's
Common Equity and Related Stockholder Matters" for a discussion of our dividend
policy.
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<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
You should read the following discussion in conjunction with the
"Introduction", "Recent Developments", "Business Strategy" and "Risk Factors"
sections of this Form 10-K and our Consolidated Financial Statements and Notes
thereto included elsewhere in this Form 10-K.
DISCONTINUED BUSINESS SEGMENTS
In August 1999, we announced our intention to separate our automotive
rental businesses, which have been organized under ANC Rental Corporation, from
our automotive retail businesses. We intend to distribute our entire interest in
ANC Rental to our stockholders on a tax-free basis, subject to, among other
things, ANC Rental securing the necessary financing and third party approvals to
operate as an independent public company, as well as certain other conditions.
We have obtained a private letter ruling from the Internal Revenue Service that,
subject to the conditions set forth in the letter, the distribution of ANC
Rental will qualify as a tax-free distribution for federal income tax purposes
under Section 355 of the Internal Revenue Code of 1986, as amended. As discussed
in Note 11, Discontinued Operations, of Notes to Consolidated Financial
Statements, our automotive rental segment has been accounted for as discontinued
operations and the accompanying Consolidated Financial Statements presented
herein have been restated to report separately the net assets and operating
results of these discontinued operations. Upon completion of the planned ANC
Rental distribution, our consolidated shareholders' equity will be reduced by
the net assets of ANC Rental as of the distribution date.
In July 1998, we completed an initial public offering of 36.1% of the
common stock of our former solid waste subsidiary, Republic Services, Inc. In
May 1999, we sold substantially all of our remaining interest in Republic
Services in a public offering. As discussed in Note 11, Discontinued Operations,
of Notes to Consolidated Financial Statements, our former solid waste services
segment has been accounted for as discontinued operations and accordingly, the
gain on disposition, operating results and net assets at December 31, 1998 have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements.
In October 1997, we sold our former electronic security services division.
As discussed in Note 11, Discontinued Operations, of Notes to Consolidated
Financial Statements, the operating results and gain on disposition of our
former electronic security services segment have been classified as discontinued
operations in the accompanying Consolidated Financial Statements.
BUSINESS COMBINATIONS
We have established framework agreements with various manufacturers that
allow us to acquire franchised automotive dealerships subject to various limits
and conditions. Since 1996, we have aggressively expanded our automotive retail
operations through the acquisition of franchised automotive dealerships. We
currently expect that we will continue to complete acquisitions of franchised
automotive dealerships during 2000. However, we do not expect to complete
acquisitions at the same pace we have in the past. Acquisitions to be completed
in 2000 will tend to be single dealerships or small dealership groups focused in
key markets in which we already conduct operations, or strategic acquisitions to
enhance our e-commerce business.
Businesses acquired through December 31, 1999 and accounted for under the
purchase method of accounting are included in our Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in our Consolidated Financial Statements as if the companies had
operated as one entity since inception.
During the year ended December 31, 1999, we acquired various automotive
retail businesses. We paid approximately $879.1 million in cash for these
acquisitions, all of which were accounted for under the purchase method of
accounting.
During the year ended December 31, 1998, we acquired various businesses in
the automotive retail, automotive rental and solid waste services industries.
With respect to continuing operations, we issued approximately 21.9 million
shares of our common stock, par value $.01 per share, valued at $473.2 million
and
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paid approximately $727.0 million in cash for acquisitions accounted for under
the purchase method of accounting. With respect to discontinued operations, we
issued approximately 3.4 million shares of common stock valued at $68.0 million
and paid approximately $494.4 million in cash and certain properties for
acquisitions accounted for under the purchase method of accounting.
During the year ended December 31, 1997, we acquired various businesses in
the automotive retail, automotive rental, solid waste services and electronic
security services industries. With respect to continuing operations, we issued
approximately 43.6 million shares of common stock valued at $739.1 million and
paid approximately $84.6 million in cash for acquisitions accounted for under
the purchase method of accounting and issued approximately 23.6 million shares
of common stock for acquisitions accounted for under the pooling of interests
method of accounting. With respect to discontinued operations, we issued
approximately 10.1 million shares of common stock valued at $224.3 million and
paid approximately $163.9 million in cash and notes for acquisitions accounted
for under the purchase method of accounting and issued approximately 59.9
million shares of common stock for acquisitions accounted for under the pooling
of interests method of accounting.
See Note 2, Business Combinations, of Notes to Consolidated Financial
Statements, for further discussion of business combinations.
SHARE REPURCHASES
In 1998, our board of directors authorized the repurchase of up to $500.0
million of our common stock. In 1999, our board authorized additional share
repurchase programs totaling $1.25 billion, including $500.0 million authorized
in December 1999. Since the 1998 inception of our share repurchase programs, we
have repurchased 110.9 million shares of common stock for a cumulative purchase
price of $1.38 billion through February 29, 2000 leaving approximately $374.1
million remaining for share repurchases under the program. We expect to continue
repurchasing shares under this program. Repurchases are made pursuant to Rule
10b-18 of the Securities Exchange Act of 1934, as amended.
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of our consolidated results of operations both
in gross dollars and on a diluted per share basis for the periods indicated (in
millions, except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
---------------- ---------------- ----------------
DILUTED DILUTED DILUTED
PER PER PER
GROSS SHARE GROSS SHARE GROSS SHARE
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) from continuing operations....... $(31.5) $(.07) $225.8 $ .48 $ 13.4 $ .03
------ ----- ------ ------ ------ -----
Income (loss) from discontinued operations, net
of income taxes:
Automotive rental......................... (71.0) (.17) 108.8 .23 51.2 .12
Solid waste services...................... 40.4 .10 153.3 .33 135.6 .31
Electronic security services.............. -- -- -- -- 9.5 .02
Gain on disposal of segments.............. 345.0 .80 11.6 .02 230.0 .54
------ ----- ------ ------ ------ -----
314.4 .73 273.7 .58 426.3 .99
------ ----- ------ ------ ------ -----
Net income..................................... $282.9 $ .66 $499.5 $ 1.06 $439.7 $1.02
====== ===== ====== ====== ====== =====
</TABLE>
Income (loss) from continuing operations in 1999 and 1997 includes
restructuring and impairment charges and a 1997 non-recurring gain from the sale
of certain marketable securities further described below.
CONTINUING OPERATIONS
We are the largest automotive retailer in the United States. We own and
operate more than 400 new vehicle franchises from dealership locations in 26
major metropolitan markets in 19 states, predominantly in
17
<PAGE> 20
the Sunbelt states. Our business consists primarily of the sale, financing and
servicing of new and used vehicles. We also provide other related services and
products, such as the sale of parts and accessories, extended service contracts,
aftermarket automotive products and collision repair services. The core brands
of vehicles that we sell are manufactured or distributed by General Motors
Corporation, Ford Motor Company, DaimlerChrysler Corporation, Toyota Motor
Sales, U.S.A., Inc., American Honda Motor Co., Inc. and Nissan North America,
Inc. We also sell several luxury vehicle brands, including Mercedes-Benz, BMW,
Lexus and Porsche. In total, we offer 39 different brands of vehicles.
Our historical operating results include the results of acquired businesses
from the date of acquisition for acquisitions accounted for under the purchase
method of accounting. Due to our aggressive expansion through acquisitions, year
over year comparisons of our reported operating results do not provide a
meaningful representation of our internal performance. Accordingly, we have
presented below our operating results for the years ended December 31, 1999 and
1998 on a same store basis to better represent our internal performance.
Same Store Operating Data:
The following table sets forth the components of same store revenue, with
the percentage change between periods, and same store gross margin, same store
selling, general and administrative expenses and same store performance margin,
with percentages of total same store revenue and with the percentage change
between periods, for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1999 1998 % CHANGE
--------- --------- --------
<S> <C> <C> <C>
Revenue:
New vehicle...................................... $ 7,349.7 $ 6,426.5 14.4
Used vehicle..................................... 2,921.0 2,990.4 (2.3)
Fixed operations................................. 1,372.2 1,288.1 6.5
Other............................................ 922.1 969.3 (4.9)
--------- ---------
$12,565.0 $11,674.3 7.6
========= =========
Gross margin....................................... $ 1,654.9 $ 1,577.4 4.9
%.................................................. 13.2% 13.5% (0.3)
S, G & A........................................... $ 1,268.9 $ 1,205.6 5.3
%.................................................. 10.1% 10.3% (0.2)
Store performance margin........................... $ 386.0 $ 371.8 3.8
%.................................................. 3.1% 3.2% (0.1)
</TABLE>
Overall, our same store performance margins increased 3.8% to $386.0
million during 1999, primarily due to increases in same store sales partially
offset by decreased gross margins and other factors described below.
Same store sales were $12.57 billion for the year ended December 31, 1999
versus $11.67 billion for the year ended December 31, 1998, an increase of 7.6%.
The primary components of the same store sales increase are described below.
In 1999, the automotive retail industry experienced a record level of new
vehicle unit sales volume representing an increase of 8.7% over 1998. Our new
vehicle same store sales increased 14.4% to $7.35 billion during the year ended
December 31, 1999 due to an increase in unit volume of 11.5% and price increases
of 2.9%.
The used vehicle market has been less robust due, in part, to strong
manufacturer incentives for new vehicles which we expect to continue in 2000.
Used vehicle same store sales at our used vehicle megastores and our franchised
stores decreased 2.3% to $2.92 billion during the year ended December 31, 1999
due to a decrease in unit volume of 6.4% offset by price increases of 4.1%. A
1.9% increase in used vehicle revenue at our franchised stores was more than
offset by a decline in used vehicle revenue at our used vehicle megastores. As
described below under the heading "Restructuring Activities", we have exited the
used vehicle megastore business.
18
<PAGE> 21
Fixed operations same store sales increased 6.5% to $1.37 billion during
the year ended December 31, 1999. The increase is primarily volume driven.
Same store other sales consist primarily of wholesale revenue. Same store
other sales decreased 4.9% to $922.1 million during the year ended December 31,
1999. The decrease is primarily due to a decline in wholesale unit pricing
during the period.
Same store gross margins were $1.65 billion for the year ended December 31,
1999 versus $1.58 billion for the year ended December 31, 1998. Same store gross
margins as a percentage of same store total revenue were 13.2% for the year
ended December 31, 1999 versus 13.5% for the year ended December 31, 1998. The
decrease in same store gross margin percentage is primarily due to a shift in
product mix as a result of stronger new versus used vehicle sales and, to a
lesser extent, decreases in used vehicle margins. As described above, we believe
that consumer demand for used vehicles has decreased relative to demand for new
vehicles due in part to aggressive manufacturer incentive programs.
Same store selling, general and administrative expenses were $1.27 billion
during the year ended December 31, 1999 versus $1.21 billion for the year ended
December 31, 1998. Same store selling, general and administrative expenses as a
percentage of same store total revenue were 10.1% for the year ended December
31, 1999 versus 10.3% for the year ended December 31, 1998. The decrease is
primarily due to better overall leveraging of the overhead structure, although
selling, general and administrative expenses increased in the latter half of
1999 due to the implementation of various corporate-wide initiatives. We have
shifted our focus away from many of these initiatives, however, and more towards
margin performance and on driving costs out of our business. To this end, in
late 1999, we took dramatic steps to reduce our cost structure as described in
greater detail under the heading "Restructuring Activities" below.
Same store performance margins were $386.0 million for the year ended
December 31, 1999 versus $371.8 million for the year ended December 31, 1998.
Same store performance margins as a percentage of same store total revenue were
3.1% for the year ended December 31, 1999 versus 3.2% for the year ended
December 31, 1998. The decrease in same store performance margins is a result of
lower gross margins partially offset by lower selling, general and
administrative costs described above.
Reported Operating Data:
The following table sets forth the components of revenue, with percentages
of total revenue, and gross margin, store level S,G&A, store performance margin,
corporate and district overhead, restructuring and impairment charges and
operating income (loss), with percentages of total revenue, on a reported basis
for the years ended December 31 (in millions):
<TABLE>
<CAPTION>
1999 % 1998 % 1997 %
--------- ----- --------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Revenue:
New vehicle.............................. $11,703.5 58.2 $ 6,879.1 54.3 $3,683.7 60.2
Used vehicle............................. 4,631.0 23.0 3,326.3 26.3 1,496.7 24.4
Fixed operations......................... 2,222.0 11.1 1,383.2 10.9 519.5 8.5
Other.................................... 1,555.3 7.7 1,076.0 8.5 422.9 6.9
--------- ----- --------- ----- -------- -----
$20,111.8 100.0 $12,664.6 100.0 $6,122.8 100.0
========= ===== ========= ===== ======== =====
Gross margin............................... $ 2,712.2 13.5 $ 1,755.0 13.8 $ 663.8 10.9
Store S, G & A............................. 2,105.4 10.5 1,304.4 10.3 597.7 9.8
Store performance margin................... 606.8 3.0 450.6 3.5 66.1 1.1
Overhead................................... 205.8 1.0 94.3 .7 75.1 1.2
Restructuring and impairment charges....... 416.4 2.1 -- -- 85.0 1.4
Operating income (loss).................... (15.4) (.1) 356.3 2.8 (94.0) (1.5)
</TABLE>
Revenue was $20.11 billion, $12.66 billion and $6.12 billion for the years
ended December 31, 1999, 1998 and 1997, respectively. The increases are
primarily volume driven due to acquisitions and same store sales increases
previously described.
19
<PAGE> 22
Gross margins were $2.71 billion, $1.76 billion and $663.8 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increases in
aggregate dollars are primarily due to acquisitions. Excluding inventory related
restructuring costs described below, gross margins as a percentage of revenue
were 13.6%, 13.8% and 11.9% for the years ended December 31, 1999, 1998 and
1997, respectively. The 1999 decrease in gross margin as a percentage of revenue
is primarily due to a shift in product mix as a result of strong new versus used
vehicle sales and, to a lesser extent, decreases in used vehicle margins due in
part to strong new vehicle sales. The 1998 increase in gross margin as a
percentage of revenue is primarily due to reduced inventory costs, product mix
and the acquisition of dealerships that generated higher gross margins than our
pre-existing dealerships.
Store selling, general and administrative expenses were $2.11 billion,
$1.30 billion and $597.7 million or, as percentages of revenue, 10.5%, 10.3% and
9.8% for the years ended December 31, 1999, 1998 and 1997, respectively. The
increases in aggregate dollars are primarily due to acquisitions. The 1999 and
1998 increases as percentages of revenue are primarily due to higher megastore
fixed costs and, in 1999, costs incurred in connection with the megastore
closures and other one-time costs.
Store performance margins were $606.8 million, $450.6 million and $66.1
million or, as percentages of revenue, 3.0%, 3.5% and 1.1% for the years ended
December 31, 1999, 1998 and 1997, respectively. The increases in aggregate
dollars are primarily due to acquisitions. The 1999 decrease as a percentage of
revenue is due to lower gross margins and increased S,G&A expenses as described
above. The 1998 increase as a percentage of revenue is due to increased gross
margins partially offset by higher S,G&A expenses.
Corporate and district overhead was $205.8 million, $94.3 million and $75.1
million or, as a percentage of revenue, 1.0%, .7% and 1.2%, for the years ended
December 31, 1999, 1998 and 1997, respectively. The increases in aggregate
dollars are a result of the overall growth we experienced during our aggressive
acquisition growth phase as well as various corporate initiatives. The 1999
increase as a percentage of revenue is primarily due to increased headcount and
spending for various corporate initiatives which have been curtailed or
eliminated in conjunction with our 1999 restructuring activities further
described below. The 1998 decrease as a percentage of revenue is primarily due
to better leveraging of overhead costs on an expanded revenue base. We expect
our 2000 overhead costs as a percentage of revenue to return to 1998 levels.
Corporate expenses which will no longer be incurred following the separation of
the automotive rental division have been allocated to income from discontinued
operations. These allocated costs totaled approximately $16.0 million, $14.8
million and $9.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
Restructuring Activities
During the fourth quarter of 1999, we approved a plan to restructure
certain of our operations. The restructuring plan is comprised of the following
major components: (1) exiting the used vehicle megastore business by immediately
closing 23 of our used vehicle megastores and converting the six remaining
stores into new vehicle franchises (eight used vehicle megastores had previously
been converted); and (2) reducing the corporate workforce. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in a pre-tax charge of $443.7 million, the majority of which
is non-cash. Approximately $416.4 million appears as restructuring and
impairment charges in our 1999 Consolidated Statement of Operations and consists
of: $390.2 million of asset impairment charges and $26.2 million of termination
benefits and other exit costs. The remaining $27.3 million represents inventory
related costs associated with the used vehicle megastore closures and is
included in cost of operations in our 1999 Consolidated Statement of Operations.
The $390.2 million asset impairment charge consists of: $348.2 million of used
vehicle megastore and other property impairments (including $103.3 million of
reserves for guaranteed lease residual values for properties leased under our
$500.0 million lease facility described below); and $42.0 million of information
systems and other impairments.
Our 1999 operating results include revenue and operating losses of $1.45
billion and $14.1 million, respectively, associated with the operations to be
disposed. We will dispose of our closed megastore and other
20
<PAGE> 23
properties primarily through sale to independent third parties. Although we
intend to aggressively market these properties, the ultimate disposition could
exceed one year. Expected annual carrying costs associated with closed
properties total approximately $40.4 million and will be charged to expense in
future periods as incurred.
These restructuring and impairment charges are primarily non-cash asset
impairment charges which are not expected to result in a material future cash
outlay except for the property carrying costs described above. Through December
31, 1999, we have spent approximately $10.8 million of these charges primarily
for severance benefits and have recorded $312.4 million of these charges against
certain assets. As of December 31, 1999, approximately $120.5 million remained
in accrued liabilities related primarily to reserves for residual value
guarantees described above. We intend to fund our residual value guarantee
obligation primarily using cash received from the sale of owned properties.
During the year ended December 31, 1997, we recorded approximately $150.0
million of pre-tax charges associated with consolidating our automotive retail
operations. Approximately $85.0 million of these charges appear as restructuring
and impairment charges in our 1997 Consolidated Statement of Operations and
consists of: $42.5 million for consolidation of information systems; $25.3
million related to relocating or closing certain operations; and $17.2 million
of severance and other costs. The remaining $65.0 million of these charges
relates to inventory consolidation and is included in cost of operations in our
1997 Consolidated Statement of Operations. During the year ended December 31,
1998, we reduced our estimated restructuring reserves for information systems
and increased our estimated reserves for closed operations by approximately
$21.0 million. The decrease in the information systems reserve is a result of
our decision to eliminate or delay the conversion of certain systems. The
increase in the reserve for closed operations is due to our decision to close
our vehicle reconditioning centers. Approximately $32.0 million of the $85.0
million charge was spent on restructuring activities and the remaining $53.0
million was applied against certain assets. Included in the 1999 restructuring
and impairment charges described above are $30.1 million of additional estimated
impairment losses related to the closed reconditioning centers and other
properties held for sale.
NON-OPERATING INCOME (EXPENSE)
Interest Income
Interest income was $20.6 million, $8.8 million and $5.4 million for the
years ended December 31, 1999, 1998 and 1997, respectively. The increases are
primarily the result of investments in marketable securities.
Interest Expense
Interest expense was incurred primarily on borrowings under our revolving
credit facilities for general corporate purposes. Interest expense was $34.9
million, $14.0 million and $4.5 million for the years ended December 31, 1999,
1998 and 1997, respectively. The increases are due to higher average borrowings.
Other Income, Net
Other income for the year ended December 31, 1997 consists primarily of a
$102.3 million pre-tax gain from the May 1997 sale of our 15.0 million shares of
ADT Limited common stock, net of fees and expenses. Such shares of ADT Limited
common stock were received in March 1997 upon our exercise of a warrant which
became exercisable upon termination of our agreement to acquire ADT Limited by
mutual agreement of the parties in September 1996.
Income Taxes
The provision for income taxes from continuing operations was $4.0 million,
$126.8 million and $8.0 million for the years ended December 31, 1999, 1998 and
1997, respectively. The effective income tax rate was 14.6%, 36.0% and 37.4% for
the years ended December 31, 1999, 1998 and 1997, respectively. Although we
reported a pre-tax loss from continuing operations in 1999, an income tax
provision of $4.0 million has been recorded due to the effect of certain
non-deductible expenses primarily associated with the restructuring and
21
<PAGE> 24
impairment charges. We anticipate that our effective income tax rate will
increase to between 37% and 38% in 2000.
FINANCIAL CONDITION
At December 31, 1999, we had $369.3 million in cash and cash equivalents
and approximately $775.8 million of availability under our $1.5 billion
unsecured revolving credit facilities which we may use for general corporate
purposes. As of February 29, 2000, we had approximately $362.0 million of
availability under our $1.5 billion unsecured revolving credit facilities. In
March 2000, we entered into a new $500.0 million 364-day unsecured bank
revolving credit facility to replace our existing 364-day facility which matured
in March 2000. This facility complements the $1.0 billion bank revolving credit
facility maturing in April 2002.
We have vehicle inventory financing and other credit facilities to fund our
operations. We have a $500.0 million bank-sponsored multi-seller commercial
paper conduit facility to finance new and used vehicle inventory. As of December
31, 1999, approximately $224.4 million was outstanding under this facility. This
facility supplements the new and used vehicle inventory finance facilities
provided by vehicle manufacturer captive finance companies.
We are the lessee under a $500.0 million lease facility that was
established to acquire and develop the used vehicle megastores and other
properties. At December 31, 1999, $469.7 million was funded under this facility
of which $152.5 million has been accounted for as capital leases and the
remaining $317.2 million has been accounted for as operating leases. We have
guaranteed the residual value of the properties under this facility. This
guarantee totaled approximately $413.3 million at December 31, 1999. As
previously described, we have closed certain megastores and other properties,
some of which are leased under this facility. We have accrued $103.3 million as
part of our 1999 restructuring and impairment charges representing our estimated
liability for the residual value of the closed properties. As previously
described, we expect to fund our residual value guarantee obligation primarily
using proceeds from the sale of owned properties.
We have a $1.7 billion commercial paper warehouse facility with unrelated
financial institutions for the securitization of installment loan finance
receivables. At December 31, 1999, we had approximately $687.4 million of
capacity under this program. We retain risk on the receivables securitized only
up to our retained interest. Proceeds from securitizations are primarily used to
repay borrowings under our revolving credit facilities. We expect to continue to
securitize receivables under this facility and/or other programs. We have
entered into interest rate derivative transactions with certain financial
institutions to manage the impact of interest rate changes on securitized
installment loan receivables. These derivative transactions consist of a series
of interest rate caps and floors which effectuate a variable to fixed rate swap.
The weighted average fixed rate under these derivatives was 6.13% at December
31, 1999. Variable rates on the underlying portfolio are indexed to the
Commercial Paper Nonfinancial Rate.
In October 1999, we formed a non-consolidated special purpose entity that
issued $786.8 million of asset-backed notes under a $2.0 billion shelf
registration statement. The weighted average fixed interest rate on these notes
was 6.61%. Proceeds from these notes were used to refinance installment loans
previously securitized under the $1.7 billion warehouse facility discussed above
and to securitize additional loans. We provide credit enhancement related to
these notes in the form of 1% overcollateralization, a reserve fund and a third
party surety bond. We retain responsibility for servicing the loans for which we
are paid a servicing fee.
Since the 1998 inception of our board authorized $1.75 billion cumulative
share repurchase programs through December 1999, we repurchased 100.1 million
shares of our common stock under these programs for an aggregate purchase price
of $1.29 billion. We have repurchased and expect to continue repurchasing shares
under these programs.
Our discontinued automotive rental operations are financed through various
revenue earning vehicle and working capital debt facilities. We provide various
credit enhancements related to this financing in the form of guarantees and
letters of credit. At December 31, 1999, letters of credit totaling $465.0
million which mature through September 2000 were outstanding related to this
financing. In February 2000, we contributed $180.0 million of capital to ANC
Rental to replace maturing letters of credit. ANC Rental's ultimate financing
structure may include additional capital funding from us and/or credit support
in the form of guarantees or letters of credit.
22
<PAGE> 25
We believe that we have sufficient operating cash flow and other financial
resources necessary to meet our anticipated capital requirements and obligations
as they come due.
CASH FLOWS
Cash and cash equivalents (decreased) increased by ($377.9) million, $644.7
million and ($215.5) million during the years ended December 31, 1999, 1998 and
1997, respectively. The major components of these changes are discussed below.
Cash Flows from Operating Activities
Cash provided by (used in) operating activities was $.9 million, ($34.2)
million and ($517.7) million for the years ended December 31, 1999, 1998 and
1997, respectively. Cash used in operating activities was substantially higher
in 1997 primarily due to the development of the used vehicle megastores.
Cash flows from operating activities include purchases of vehicle inventory
which are separately financed through secured vehicle financings. Accordingly,
we measure our operating cash flow including net proceeds (payments) under these
secured vehicle financings which totaled $460.1 million, $65.1 million and
($239.7) million during the years ended December 31, 1999, 1998 and 1997,
respectively. Including net proceeds (payments) under these secured vehicle
financings, the Company generated (used) operating cash flow of $461.0 million,
$30.9 million and ($757.4) million during the years ended 1999, 1998 and 1997,
respectively.
Cash Flows from Investing Activities
Cash flows from investing activities consist primarily of cash used for
business acquisitions, capital additions and other transactions as further
described below.
Cash used in business acquisitions was $879.1 million, $727.0 million and
$84.6 million for the years ended December 31, 1999, 1998 and 1997,
respectively. The increase in cash used in business acquisitions from 1997 to
1998 was primarily due to our shift away from the use of our common stock to pay
for acquisitions. As previously described, we currently expect that we will
continue to complete acquisitions of franchised automotive dealerships during
2000, although such acquisitions will tend to be single dealerships or small
dealership groups focused in our key existing markets. We believe this strategy
will result in substantially less cash to be used in business acquisitions in
2000. See "Business Combinations" of Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note 2, Business Combinations,
of Notes to Consolidated Financial Statements for a further discussion of
business combinations.
Capital expenditures were $242.3 million, $244.4 million and $210.0 million
during the years ended December 31, 1999, 1998 and 1997, respectively. We expect
capital expenditures to decrease in 2000 due to the megastore closures, fewer
acquisitions and other factors.
In July 1998, our former solid waste subsidiary, Republic Services,
completed an initial public offering resulting in proceeds of approximately
$1.43 billion. In May 1999, we sold substantially all of our remaining interest
in Republic Services in a public offering resulting in proceeds of approximately
$1.78 billion. Proceeds from the offerings were used to repay non-vehicle debt,
finance acquisitions, acquire shares under our share repurchase programs and
invest in our business.
In October 1997, we sold our electronic security services division for
approximately $610.0 million. In March 1997, we exercised our warrant to acquire
15.0 million common shares of ADT Limited for $20 per share. In May 1997, we
sold the 15.0 million ADT Limited common shares for $27.50 per share to certain
institutional investors.
We intend to finance capital expenditures and business acquisitions through
cash flow from operations, our revolving credit facilities and other financings.
23
<PAGE> 26
Cash Flows from Financing Activities
Cash flows from financing activities include revolving credit and vehicle
floor plan financings, repayments of acquired debt, treasury stock purchases and
other transactions as further described below.
During the year ended December 31, 1999, we repurchased approximately 91.0
million shares of our common stock for an aggregate price of approximately $1.16
billion under our Board approved share repurchase programs.
During the year ended December 31, 1998, we repurchased approximately 9.1
million shares of our common stock for an aggregate price of approximately
$136.0 million under our Board approved share repurchase program.
During the year ended December 31, 1997, we sold 15.8 million shares of our
common stock in a private placement transaction resulting in net proceeds of
approximately $552.7 million.
Cash Flows from Discontinued Operations
Cash (used in) provided by discontinued operations was as follows during
the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Automotive rental......................................... $(106.8) $(129.2) $(184.5)
Solid waste services...................................... (536.7) 558.4 31.0
Electronic security services.............................. -- -- (48.0)
------- ------- -------
$(643.5) $ 429.2 $(201.5)
======= ======= =======
</TABLE>
Cash used in our discontinued automotive rental business consists primarily
of capital expenditures for systems and airport location improvements. Cash
(used in) provided by our former solid waste services business primarily
represents bank borrowings in 1998 to fund acquisitions completed in 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The tables below provide information about our market sensitive financial
instruments and constitute "forward-looking statements". All items described are
non-trading.
Our primary market risk exposure is changing interest rates, primarily in
the United States. We do not have material market risk exposures relative to
changes in foreign exchange rates. Our policy is to manage interest rates
through the use of a combination of fixed and floating rate debt. Interest rate
derivatives may be used to adjust interest rate exposures when appropriate,
based upon market conditions. These derivatives consist of interest rate swaps,
caps and floors which are entered into with a group of financial institutions
with investment grade credit ratings, thereby minimizing the risk of credit
loss.
In our continuing operations, we use variable to fixed interest rate swaps
to manage the impact of interest rate changes on our variable rate revolving
credit and vehicle inventory financing facilities. Expected maturity dates for
variable rate debt and interest rate swaps in the tables below are based upon
contractual maturity dates. Average pay rates under interest rate swaps are
based upon contractual fixed rates. Average interest rates on variable rate debt
and average variable receive rates under interest rate swaps are based on
implied forward rates in the yield curve at the reporting date. In addition, we
have entered into a series of interest rate caps and floors contractually
maturing through 2006 to manage the impact of interest rate changes on
securitized installment loan receivables. Expected maturity dates for interest
rate caps and floors in the tables below are based upon the estimated repayment
of the underlying receivables after considering estimated prepayments and credit
losses. Average rates on interest rate caps and floors are based upon
contractual rates.
In our discontinued automotive rental operations, we use variable to fixed
interest rate swap agreements and interest rate caps and floors to manage the
impact of interest rate changes on our variable rate revenue earning vehicle
debt. Expected maturity dates for variable rate debt and interest rate
derivatives in the tables below are based upon contractual maturity dates.
Average pay rates under interest rate swaps are based upon
24
<PAGE> 27
contractual fixed rates. Average interest rates on variable rate debt and
average variable receive rates under interest rate swaps are based on implied
forward rates in the yield curve at the reporting date. Average rates on
interest rate caps and floors are based upon contractual rates.
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
judgement. The fair value of variable rate debt approximates the carrying value
since interest rates are variable and, thus, approximate current market rates.
The fair value of interest rate swaps, caps and floors is determined from dealer
quotations and represents the discounted future cash flows through maturity or
expiration using current rates. The fair value is effectively the amount we
would pay or receive to terminate the agreements.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE
-------------------------------------------------------------------- DECEMBER 31,
DECEMBER 31, 1999: 2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
------------------ -------- ------ ------ ------ ------ ---------- -------- ------------
(LIABILITY/(ASSET) IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Variable rate debt............. $2,240.9 $ 2.3 $821.5 $ -- $ -- $ -- $3,064.7 $3,064.7
Average interest rates....... 6.53% 6.57% 6.82% -- -- --
Interest rate swaps............ 150.0 -- -- -- -- -- 150.0 (.1)
Average pay rate............. 5.96% -- -- -- -- --
Average receive rate......... 5.82% -- -- -- -- --
Interest rate caps(1).......... 197.1 220.6 229.9 202.4 145.4 21.9 1,017.3 (18.5)
Average rate................. 6.15% 6.15% 6.15% 6.15% 6.15% 6.15%
Interest rate floors(1)........ 197.1 220.6 229.9 202.4 145.4 21.9 1,017.3 7.7
Average rate................. 6.10% 6.10% 6.10% 6.10% 6.10% 6.10%
DISCONTINUED OPERATIONS:
Variable rate debt............. $1,600.8 $ 3.2 $ 35.0 $550.0 $ -- $700.0 $2,889.0 $2,889.0
Average interest rates....... 6.00% 6.50% 5.56% 6.72% -- 6.71%
Interest rate swaps............ 300.0 100.0 -- 200.0 -- -- 600.0 (6.8)
Average pay rate............. 5.96% 5.63% -- 5.59% -- --
Average receive rate......... 6.67% 7.32% -- 7.50% -- --
Interest rate caps............. -- -- -- 550.0 -- 700.0 1,250.0 (66.4)
Average rate................. -- -- -- 5.73% -- 6.26%
Interest rate floors........... -- -- -- 550.0 -- 700.0 1,250.0 15.2
Average rate................. -- -- -- 5.73% -- 6.26%
</TABLE>
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE FAIR VALUE
---------------------------------------------------------------------- DECEMBER 31,
DECEMBER 31, 1998: 1999 2000 2001 2002 2003 THEREAFTER TOTAL 1998
------------------ -------- -------- ------ ------ ------ ---------- -------- ------------
(LIABILITY/(ASSET) IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONTINUING OPERATIONS:
Variable rate debt........... $1,339.2 $ -- $ -- $500.0 $ -- $ -- $1,839.2 $1,839.2
Average interest rates..... 5.81% -- -- 6.57% -- --
Interest rate swaps.......... -- -- -- -- 100.0 -- 100.0 1.7
Average pay rate........... -- -- -- -- 5.60% --
Average receive rate....... -- -- -- -- 5.65% --
Interest rate caps(1)........ 287.2 192.6 146.1 90.3 20.9 -- 737.1 (8.9)
Average rate............... 5.47% 5.47% 5.47% 5.47% 5.47% --
Interest rate floors(1)...... 287.2 192.6 146.1 90.3 20.9 -- 737.1 7.1
Average rate............... 4.61% 4.61% 4.61% 4.61% 4.61% --
DISCONTINUED OPERATIONS:
Variable rate debt........... $3,043.8 $1,263.3 $ 3.2 $ 38.0 $503.1 $35.9 $4,887.3 $4,887.3
Average interest rates..... 5.73% 5.54% 5.31% 5.83% 6.42% 5.21%
Interest rate swaps.......... 650.0 1,000.0 250.0 150.0 400.0 -- 2,450.0 45.3
Average pay rate........... 5.83% 5.94% 6.15% 5.88% 5.64% --
Average receive rate....... 5.19% 5.41% 5.53% 5.53% 5.53% --
</TABLE>
- ---------------
(1) In our continuing operations, interest rate caps and floors are used to
hedge installment loan finance receivables securitized under an off-balance
sheet commercial paper warehouse facility. Amounts outstanding under this
commercial paper facility were $1.01 billion and $676.1 million at December
31, 1999 and 1998, respectively.
25
<PAGE> 28
SEASONALITY
Our operations generally experience higher volumes of vehicle sales in the
second and third quarters of each year in part due to consumer buying trends and
the introduction of new vehicle models. Also, demand for cars and light trucks
is generally lower during the winter months than in other seasons, particularly
in regions of the United States where dealerships may be subject to harsh
winters. Accordingly, we expect our revenue and operating results to be
generally lower in our first and fourth quarters as compared to our second and
third quarters.
YEAR 2000
We believe that all of our systems are operating and that no material Year
2000 issues have been encountered. We are also presently unaware of any third
party Year 2000 issues that would materially affect our financial condition or
results of operations. Nevertheless, if any Year 2000 issues presently unknown
to us occur with us or with third party products and business dependencies, we
may experience a delay or disruption in the delivery of products, including but
not limited to, the supply of new vehicles and/or original equipment
manufacturer replacement parts. Either of these conditions could have a material
adverse impact on our financial condition and results of operations including,
but not limited to, loss of revenue, increased operating costs, loss of
customers or suppliers, or other significant disruptions to our business.
We spent approximately $21.0 million on Year 2000 efforts across all areas,
of which $10.0 million relates to our continuing automotive retail operations
and $11.0 million relates to our discontinued automotive rental operations. We
do not expect to incur any material future Year 2000 related costs.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends FASB Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to fiscal
years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. We will adopt
SFAS 133 beginning January 1, 2001. We have not yet quantified the impact of
adopting SFAS 133 on our consolidated financial statements. However, SFAS 133
could increase volatility in earnings and other comprehensive income.
DISCONTINUED OPERATIONS
Automotive Rental
As a result of our decision to separate ANC Rental, the net assets and
operating results of our rental segment have been classified as discontinued
operations for all periods presented in the accompanying Consolidated Financial
Statements. We have accrued a loss on disposition of the rental segment totaling
$34.1 million, net of income taxes. This represents the estimated losses from
operations through the expected distribution date and costs associated with the
planned spin-off.
ANC Rental primarily rents vehicles on a daily or weekly basis through
Alamo Rent-A-Car, Inc., National Car Rental System, Inc. and CarTemps USA. Our
automotive rental operations and particularly the leisure travel market are
highly seasonal. In these operations, the third quarter, which includes the peak
summer travel months, has historically been the strongest quarter of the year.
During the peak season, ANC Rental increases its rental 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
ANC Rental's business, results of operations, cash flows and financial
condition. The first and fourth quarters
26
<PAGE> 29
for ANC Rental's operations are generally the weakest, when there is limited
leisure travel and a greater potential for adverse or unseasonable weather
conditions. Many of the operating expenses such as rent, general insurance and
administrative personnel are fixed and cannot be reduced during periods of
decreased rental demand.
A summary of ANC Rental's operations is as follows for the years ended
December 31 (in millions):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue.................................................. $3,542.3 $3,453.6 $3,055.1
Expenses:
Cost of operations..................................... 2,785.3 2,622.9 2,337.5
Selling, general and administrative.................... 792.8 651.8 553.5
Restructuring and other charges........................ 40.5 -- 78.0
-------- -------- --------
Operating income (loss).................................. (76.3) 178.9 86.1
Interest expense......................................... (14.3) (8.0) (6.6)
Interest and other income (expense)...................... 2.4 (.8) 6.0
-------- -------- --------
Income (loss) before income taxes........................ (88.2) 170.1 85.5
Provision (benefit) for income taxes..................... (18.8) 61.3 31.8
-------- -------- --------
Income (loss) before extraordinary charge................ (69.4) 108.8 53.7
Extraordinary charge, net of income taxes................ (1.6) -- (2.5)
-------- -------- --------
Net income (loss)........................................ $ (71.0) $ 108.8 $ 51.2
======== ======== ========
</TABLE>
Revenue was $3.54 billion for the year ended December 31, 1999, $3.45
billion for the year ended December 31, 1998 and $3.06 billion for the year
ended December 31, 1997. The increase in 1999 over 1998 of $88.7 million or 2.6%
is due to a 3.2% increase in volume offset by a .6% reduction in price. The
increase in 1998 over 1997 of $398.5 million, or 13.0%, is a result of
acquisitions which accounted for 10.3% and volume and price which accounted for
2.7%.
Cost of operations was $2.79 billion for the year ended December 31, 1999,
$2.62 billion for the year ended December 31, 1998 and $2.34 billion for the
year ended December 31, 1997, or, as a percentage of revenue, 78.6% for the year
ended December 31, 1999, 76.0% for the year ended December 31, 1998 and 76.5%
for the year ended December 31, 1997. The increase in cost of operations for
1999 is due primarily to higher fleet costs and the recognition of certain
non-recurring expenses related to ANC Rental's restructuring plan discussed
below. The increase in 1998 is primarily due to acquisitions and maintaining a
larger fleet. The increase in cost of operations as a percentage of revenue in
1999 is due to higher fleet costs and the recognition of the non-recurring
restructuring expense in 1999 combined with a slightly lower average rental rate
in 1999 compared to 1998. The decrease in such expenses as a percentage of
revenue in 1998 is a result of revenue improvement from rental rate increases
over 1997.
Selling, general and administrative expenses were $792.8 million for the
year ended December 31, 1999, $651.8 million for the year ended December 31,
1998 and $553.5 million for the year ended December 31, 1997, or, as a
percentage of automotive rental revenue, 22.4% for the year ended December 31,
1999, 18.8% for the year ended December 31, 1998, and 18.1% for the year ended
December 31, 1997. The increase in 1999 over 1998 in aggregate dollars is
primarily due to higher administration costs and information system costs in
part associated with implementing and remediating a new system, Global Odyssey,
at National, higher selling and marketing expenses and higher commissions. The
1998 increase in aggregate dollars over 1997 is primarily due to acquisitions
and costs associated with implementing Global Odyssey. The 1999 and 1998
increases in selling, general and administrative expenses as percentages of
revenue are primarily due to costs associated with implementing and remediating
Global Odyssey and higher selling costs. As previously described, ANC Rental's
S,G&A expenses include allocations of AutoNation corporate overhead totaling
approximately $16.0 million, $14.8 million and $9.6 million for the years ended
December 31, 1999, 1998 and 1997, respectively.
27
<PAGE> 30
In the fourth quarter of 1999, ANC Rental approved and implemented a plan
to restructure certain of its operations. Included in the plan are actions to
(1) consolidate the North American headquarters, (2) reduce non-field headcount
as a result of the consolidation of the North American headquarters, (3)
renegotiate certain existing international vehicle supply agreements and
rationalize revenue earning vehicle fleet, (4) exit and consolidate certain
unprofitable or marginally profitable operating locations both domestically and
internationally. ANC Rental anticipates substantially completing the
restructuring plan prior to December 31, 2000. During the year ended December
31, 1999, ANC Rental recorded a restructuring charge of approximately $40.5
million related to the consolidation of the North American operations,
renegotiation of fleet agreements and closing of certain locations. These
charges primarily include severance costs, asset impairments for idled
facilities, costs related to non-cancelable leases and costs related to the
closure and disposition of certain unprofitable operations. At December 31,
1999, $21.7 million of the restructuring charge remains accrued with most costs
to be incurred by the end of 2000, excluding certain lease commitments.
Separately, ANC Rental has incurred additional charges approximating $18.4
million related to the renegotiation of certain international supply
arrangements as well as rationalization of existing fleet and costs related to
employee retention payments to be made during the restructuring plan.
During the year ended December 31, 1997, ANC Rental recorded approximately
$78.0 million of restructuring and other charges associated with integrating
automotive rental operations. These charges primarily include costs related to
elimination of redundant information systems, fleet consolidation, closure or
sale of duplicate rental facilities and other non-recurring expenses. As of
December 31, 1999, approximately $11.5 million of restructuring reserves
remained accrued related to certain contractual obligations for closed locations
which extend through 2002.
ANC Rental finances vehicle purchases for its domestic automotive rental
operations through commercial paper and medium-term note financings. ANC Rental
currently has a $1.89 billion single-seller commercial paper program. Borrowings
under this program are secured by eligible vehicle collateral and bear interest
at market-based commercial paper rates. As of February 29, 2000, ANC Rental had
approximately $547.2 million of availability under this program.
As of December 31, 1999, approximately 69% of ANC Rental's worldwide fleet
was acquired under repurchase programs. Repurchase programs allow ANC Rental to
require counterparties to repurchase vehicles held for periods up to 24 months.
ANC Rental expects to continue to fund its revenue earning vehicle purchases
with secured vehicle financings.
In 1999, ANC Rental issued $2.5 billion of rental vehicle asset-backed
medium-term notes consisting of $1.25 billion floating rate notes maturing
through 2005; $750.0 million 5.88% fixed rate notes maturing through 2003; and
$500.0 million 6.02% fixed rate notes maturing through 2005. ANC Rental fixed
the effective interest rate on the $1.25 billion floating rate notes at 6.03%
through the use of certain derivative transactions. Letters of credit totaling
$70.0 million currently provide credit enhancement for these notes. Proceeds
from the notes were used to refinance amounts outstanding under the commercial
paper programs.
ANC Rental uses interest rate swap and interest rate caps and floors to
manage the impact of interest rate changes on variable rate revenue earning
vehicle debt. At December 31, 1999, notional principal amounts related to
revenue earning vehicle debt interest rate swaps (variable to fixed rate) were
$600.0 million. As of December 31, 1999, the weighted average fixed rate payment
on variable to fixed rate swaps was 5.78%. Variable rates received are indexed
to the Commercial Paper Nonfinancial Rate. Notional principal amounts related to
interest rate caps and floors as of December 31, 1999 were both $1.25 billion.
The interest rate caps and floors effectuate a variable to fixed rate swap at a
weighted average rate of 5.77% as of December 31, 1999. Variable rates on
interest rate caps and floors are indexed to LIBOR.
Solid Waste Services
In July 1998, we completed an initial public offering of 36.1% of Republic
Services resulting in net proceeds of $1.43 billion. We sold substantially all
of our remaining interest in RSG in May 1999 resulting in an after tax gain of
approximately $377.0 million. Accordingly, the gain on disposition, operating
results and
28
<PAGE> 31
net assets at December 31, 1998 of our former solid waste services segment have
been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements. Revenue from these discontinued
operations was $552.5 million in 1999 for the period prior to the disposition
and $1.37 billion and $1.13 billion for the years ended December 31, 1998 and
1997, respectively. Income from these discontinued operations, net of minority
interest, was $40.4 million in 1999 for the period prior to disposition and
$153.3 million and $135.6 million for the years ended December 31, 1998 and
1997, respectively.
Electronic Security Services
In October 1997, we sold our electronic security services division
resulting in an after tax gain of approximately $230.0 million. In 1999 and
1998, we recognized additional after tax gains of approximately $2.1 million and
$11.6 million, respectively, related to finalizing the gain on disposition. The
operating results and gain on disposition of our former electronic security
services segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements. Revenue and net
income from the electronic security services segment was $83.8 million and $9.5
million in 1997 for the period prior to disposition, respectively.
See Note 11, Discontinued Operations, of Notes to Consolidated Financial
Statements, for further discussion of these discontinued operations.
FORWARD LOOKING STATEMENTS
Our business, financial condition, results of operations, cash flows and
future prospects, and the prevailing market price and performance of our common
stock, may be adversely affected by a number of factors, including the matters
discussed below. Some of the statements and information contained throughout
this Annual Report on Form 10-K constitute "forward-looking statements" within
the meaning of the Federal Private Securities Litigation Reform Act of 1995. You
can identify these forward-looking statements by the use of terms including
"may," "will," "should," "expect," "anticipate," "believe," "estimate" or
"continue" or variations of those terms, or the use of those terms in the
negative, or words of similar import in the context presented. The
forward-looking statements describe known and unknown risks, uncertainties and
other factors which may cause our actual results, performance, or achievements
to be materially different from any future results, performance, or
achievements, expressed or implied, by the forward-looking statements. These
risks, uncertainties and other factors include the following: we face
significant competition in the automotive retail industry; we will need
substantial additional capital and we have significant indebtedness outstanding;
the automotive retail industry is cyclical and is sensitive to changing economic
conditions; the automotive retail industry is highly seasonal; we may not be
able to successfully rollout our strategy to other markets where we currently
operate; we may have difficulty expanding through acquisitions of franchised
automotive dealerships in our key markets; automotive manufacturers may impede
our acquisition strategy; we may have difficulty integrating acquired
dealerships into our operations; we depend on vehicle manufacturers for our new
vehicle inventory supply; we are subject to operating restrictions imposed by
vehicle manufacturers; the loss of key personnel could affect our operations; we
are subject to extensive governmental and environmental regulation; we are
subject to various legal and administrative proceedings, matters relating to
imported products may affect our operations; and our ability to complete the
spin-off of ANC Rental.
29
<PAGE> 32
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants.......... 31
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... 32
Consolidated Statements of Operations for Each of the Three
Years Ended December 31, 1999............................. 33
Consolidated Statements of Shareholders' Equity for Each of
the Three Years Ended December 31, 1999................... 34
Consolidated Statements of Cash Flows for Each of the Three
Years Ended December 31, 1999............................. 35
Notes to Consolidated Financial Statements.................. 36
Financial Statement Schedule II, Valuation and Qualifying
Accounts and Reserves, for Each of the Three Years Ended
December 31, 1999......................................... 60
</TABLE>
30
<PAGE> 33
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of AutoNation, Inc.:
We have audited the accompanying consolidated balance sheets of AutoNation,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998,
and the related consolidated statements of operations, shareholders' equity and
cash flows for each of the years in the three-year period ended December 31,
1999. These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. 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 AutoNation,
Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999, in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
consolidated financial statements is presented for the purpose of complying with
the Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic 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 financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 27, 2000.
31
<PAGE> 34
AUTONATION, INC.
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31,
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 369.3 $ 183.8
Receivables, net.......................................... 1,151.0 966.4
Inventory................................................. 2,706.8 1,849.5
Other current assets...................................... 73.8 61.5
-------- --------
Total Current Assets.............................. 4,300.9 3,061.2
INVESTMENTS................................................. 175.8 167.7
PROPERTY AND EQUIPMENT, NET................................. 1,360.4 1,216.4
INTANGIBLE ASSETS, NET...................................... 2,831.0 2,080.9
OTHER ASSETS................................................ 218.7 317.1
NET ASSETS OF DISCONTINUED OPERATIONS....................... 726.6 1,568.9
-------- --------
$9,613.4 $8,412.2
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.......................................... $ 163.1 $ 117.6
Accrued liabilities....................................... 622.9 428.5
Notes payable and current maturities of long-term debt.... 2,248.7 1,344.8
Other current liabilities................................. 129.8 106.4
-------- --------
Total Current Liabilities......................... 3,164.5 1,997.3
LONG-TERM DEBT, NET OF CURRENT MATURITIES................... 836.1 520.9
DEFERRED INCOME TAXES....................................... 804.8 323.0
OTHER LIABILITIES........................................... 206.8 146.8
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; 1,500,000,000
shares authorized; 474,965,676 and 467,240,307 shares
issued and outstanding including shares held in
treasury, respectively................................. 4.7 4.7
Additional paid-in capital................................ 4,661.5 4,628.9
Retained earnings......................................... 1,213.8 930.9
Accumulated other comprehensive income (loss)............. 6.6 (4.3)
Treasury stock, at cost; 99,602,444 and 9,110,400 shares
held, respectively..................................... (1,285.4) (136.0)
-------- --------
Total Shareholders' Equity........................ 4,601.2 5,424.2
-------- --------
$9,613.4 $8,412.2
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
32
<PAGE> 35
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
REVENUE..................................................... $20,111.8 $12,664.6 $6,122.8
COST OF OPERATIONS.......................................... 17,399.6 10,909.6 5,459.0
--------- --------- --------
GROSS MARGIN................................................ 2,712.2 1,755.0 663.8
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 2,311.2 1,398.7 672.8
RESTRUCTURING AND IMPAIRMENT CHARGES........................ 416.4 -- 85.0
--------- --------- --------
OPERATING INCOME (LOSS)..................................... (15.4) 356.3 (94.0)
INTEREST INCOME............................................. 20.6 8.8 5.4
INTEREST EXPENSE............................................ (34.9) (14.0) (4.5)
OTHER INCOME, NET........................................... 2.2 1.5 114.5
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES....................................... (27.5) 352.6 21.4
PROVISION FOR INCOME TAXES.................................. 4.0 126.8 8.0
--------- --------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS.................... (31.5) 225.8 13.4
--------- --------- --------
DISCONTINUED OPERATIONS:
Income (loss) from discontinued operations, net of income
taxes.................................................. (30.6) 262.1 196.3
Gain on disposal of segments, net of income taxes of
$516.9 in 1999, $8.4 in 1998 and $233.7 in 1997........ 345.0 11.6 230.0
--------- --------- --------
314.4 273.7 426.3
--------- --------- --------
NET INCOME.................................................. $ 282.9 $ 499.5 $ 439.7
========= ========= ========
BASIC EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ (.07) $ .50 $ .03
Discontinued operations................................... .73 .60 1.06
--------- --------- --------
Net income................................................ $ .66 $ 1.10 $ 1.09
========= ========= ========
DILUTED EARNINGS (LOSS) PER SHARE:
Continuing operations..................................... $ (.07) $ .48 $ .03
Discontinued operations................................... .73 .58 .99
--------- --------- --------
Net income................................................ $ .66 $ 1.06 $ 1.02
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
33
<PAGE> 36
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPRE- COMPRE-
ADDITIONAL HENSIVE HENSIVE
COMMON PAID-IN RETAINED INCOME TREASURY INCOME
STOCK CAPITAL EARNINGS (LOSS) STOCK (LOSS)
------ ---------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1996................ $3.4 $1,387.6 $ 27.1 $ 1.8 $ --
Comprehensive income (loss):
Net income.............................. -- -- 439.7 -- -- $439.7
Other comprehensive loss -- foreign
currency translation adjustments...... -- -- -- (4.7) -- (4.7)
------
Comprehensive income.................. -- -- -- -- -- $435.0
======
Sales of common stock..................... .2 552.5 -- -- --
Stock issued in acquisitions.............. .6 962.8 -- -- --
Exercise of stock options and warrants,
including income tax benefit of $32.7... .1 92.0 -- -- --
Distributions to former owners of pooled
companies............................... -- -- (31.4) -- --
Other..................................... -- 56.6 (4.0) -- --
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1997................ 4.3 3,051.5 431.4 (2.9) --
Comprehensive income (loss):
Net income.............................. -- -- 499.5 -- -- $499.5
------
Other comprehensive income (loss):
Foreign currency translation
adjustments........................ -- -- -- -- -- (1.6)
Unrealized gains on marketable
securities and interest-only strip
receivables........................ -- -- -- -- -- .2
------
Other comprehensive loss.............. -- -- -- (1.4) -- (1.4)
------
Comprehensive income............... -- -- -- -- -- $498.1
======
Stock issued in acquisitions.............. .3 540.9 -- -- --
Sale of common stock of RSG............... -- 998.5 -- -- --
Purchases of treasury stock............... -- -- -- -- (136.0)
Exercise of stock options and warrants,
including income tax benefit of $4.8.... .1 38.0 -- -- --
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1998................ 4.7 4,628.9 930.9 (4.3) (136.0)
Comprehensive income (loss):
Net income.............................. -- -- 282.9 -- -- $282.9
------
Other comprehensive income (loss):
Foreign currency translation
adjustments........................ -- -- -- -- -- (1.9)
Unrealized gains on marketable
securities and interest-only strip
receivables........................ -- -- -- -- -- 12.8
------
Other comprehensive income............ -- -- -- 10.9 -- 10.9
------
Comprehensive income............... -- -- -- -- -- $293.8
======
Purchases of treasury stock............... -- -- -- -- (1,158.0)
Issuance of treasury stock for employee
benefit plan............................ -- .1 -- -- 10.4
Exercise of stock options and warrants,
including income tax benefit of $.4..... -- 28.5 -- -- --
Other..................................... -- 4.0 -- -- (1.8)
---- -------- -------- ----- ---------
BALANCE AT DECEMBER 31, 1999................ $4.7 $4,661.5 $1,213.8 $ 6.6 $(1,285.4)
==== ======== ======== ===== =========
</TABLE>
The accompanying notes are an integral part of these statements.
34
<PAGE> 37
AUTONATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(IN MILLIONS)
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- -------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net income................................................ $ 282.9 $ 499.5 $ 439.7
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation and amortization of property and
equipment............................................ 60.1 40.1 23.2
Amortization of intangible assets...................... 62.9 39.6 15.6
Deferred income tax provision (benefit)................ (127.2) 12.2 75.9
Non-cash restructuring and impairment charges.......... 432.9 -- 118.6
Gain on sale of marketable securities.................. (4.5) -- (102.3)
Income from discontinued operations.................... (314.4) (273.7) (426.3)
Changes in assets and liabilities, net of effects from
business acquisitions:
Receivables.......................................... (98.7) (400.4) (125.5)
Inventory............................................ (380.8) 66.5 (207.6)
Other assets......................................... 42.0 (23.0) 30.6
Accounts payable and accrued liabilities............. (68.2) (85.2) (100.7)
Other liabilities.................................... 113.9 90.2 (258.9)
--------- --------- -------
.9 (34.2) (517.7)
--------- --------- -------
CASH PROVIDED BY INVESTING ACTIVITIES:
Cash used in business acquisitions, net of cash
acquired............................................... (879.1) (727.0) (84.6)
Purchases of property and equipment....................... (242.3) (244.4) (210.0)
Purchases of marketable securities........................ (88.6) (193.6) (300.0)
Sales of marketable securities............................ 116.8 94.1 402.3
Proceeds from sale of common stock of RSG................. 1,779.6 1,433.6 --
Cash received on disposal of electronic security
division............................................... -- -- 610.0
Other..................................................... 204.4 (64.0) .2
--------- --------- -------
890.8 298.7 417.9
--------- --------- -------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Payments of long-term debt and notes payable.............. (126.1) (260.3) (335.5)
Net proceeds (payments) from vehicle inventory financing
facilities............................................. 460.1 65.1 (239.7)
Net proceeds from revolving credit facilities............. 169.0 250.0 100.0
Purchases of treasury stock............................... (1,158.0) (136.0) --
Sales of common stock..................................... -- -- 552.7
Other..................................................... 28.9 32.2 8.3
--------- --------- -------
(626.1) (49.0) 85.8
--------- --------- -------
CASH PROVIDED BY (USED IN) CONTINUING OPERATIONS............ 265.6 215.5 (14.0)
CASH (USED IN) PROVIDED BY DISCONTINUED OPERATIONS.......... (643.5) 429.2 (201.5)
--------- --------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ (377.9) 644.7 (215.5)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD, INCLUDING
CASH AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF
$590.1, $44.9 AND $256.3 RESPECTIVELY..................... 773.9 129.2 344.7
--------- --------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD, INCLUDING CASH
AND CASH EQUIVALENTS OF DISCONTINUED OPERATIONS OF $26.7,
$590.1 AND $44.9, RESPECTIVELY............................ $ 396.0 $ 773.9 $ 129.2
========= ========= =======
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE> 38
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL TABLES IN MILLIONS, EXCEPT PER SHARE DATA)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying Consolidated Financial Statements include the accounts of
AutoNation, Inc. and its subsidiaries (the "Company"). All intercompany accounts
and transactions have been eliminated.
In August 1999, the Company announced its intention to separate the
Company's automotive rental businesses, which have been organized under ANC
Rental Corporation ("ANC Rental"), from the Company. The Company intends to
distribute its entire interest in ANC Rental to the Company's stockholders on a
tax-free basis, subject to, among other things, ANC Rental securing the
necessary financing and third party approvals to operate as an independent
public company as well as certain other conditions. The Company has obtained a
private letter ruling from the Internal Revenue Service that, subject to the
conditions set forth in the letter, the distribution will qualify as a tax-free
distribution for federal income tax purposes under Section 355 of the Internal
Revenue Code of 1986, as amended. As discussed in Note 11, Discontinued
Operations, the Company's automotive rental segment has been accounted for as
discontinued operations and the accompanying Consolidated Financial Statements
presented herein have been restated to report separately the net assets and
operating results of these discontinued operations.
In July 1998, the Company completed an initial public offering of 36.1% of
the common stock of the Company's former solid waste subsidiary, Republic
Services, Inc. ("RSG"). In May 1999, the Company sold substantially all of its
remaining interest in RSG in a public offering. As discussed in Note 11,
Discontinued Operations, the Company's former solid waste services segment has
been accounted for as discontinued operations and accordingly, the gain on
disposition, operating results and net assets at December 31, 1998 have been
classified as discontinued operations in the accompanying Consolidated Financial
Statements presented herein.
In October 1997, the Company sold its former electronic security services
division. As discussed in Note 11, Discontinued Operations, the Company's former
electronic security services segment has been accounted for as discontinued
operations and accordingly the operating results and gain on disposition have
been classified as discontinued operations in the accompanying Consolidated
Financial Statements presented herein.
In order to maintain consistency and comparability between periods
presented, certain amounts have been reclassified from the previously reported
financial statements 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.
36
<PAGE> 39
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RECEIVABLES
The components of receivables, net of allowance for doubtful accounts, at
December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Contracts in transit........................................ $ 422.3 $ 298.9
Finance receivables......................................... 413.1 352.0
Trade receivables........................................... 166.5 202.8
Manufacturer receivables.................................... 134.1 86.1
Other....................................................... 57.5 60.4
-------- --------
1,193.5 1,000.2
Less: allowance for doubtful accounts....................... (42.5) (33.8)
-------- --------
$1,151.0 $ 966.4
======== ========
</TABLE>
Finance receivables at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Finance leases.............................................. $196.3 $170.9
Installment loans........................................... 83.8 95.6
Retained interests in securitized installment loans......... 133.0 85.5
------ ------
$413.1 $352.0
====== ======
</TABLE>
The Company has a $1.7 billion commercial paper warehouse facility with
unrelated financial institutions for the securitization of installment loan
finance receivables. During the years ended December 31, 1999 and 1998, the
Company securitized approximately $1.4 billion and $698.8 million of loan
receivables under this program, net of retained interests, respectively.
Installment loans sold under this program are nonrecourse beyond the Company's
retained interests. The Company sells its receivables to a commercial paper
conduit, but retains responsibility for servicing the loans for which it is paid
a servicing fee. The Company retains a subordinated interest in the sold
receivables and the future excess cash flow from the loan portfolio after
required interest payments, servicing and other fees and expenses. The Company
provides additional credit enhancement in the form of restricted cash deposits.
At December 31, 1999, $1.01 billion was outstanding under this program. As
further discussed in Note 12, Derivative Financial Instruments, the Company
enters into interest rate protection agreements to manage the impact of interest
rate changes on amounts securitized.
In October 1999, a non-consolidated special purpose entity formed by the
Company issued $786.8 million of asset-backed notes under a $2.0 billion shelf
registration statement. Proceeds from these notes were used to refinance
installment loans previously securitized under the warehouse facility and to
securitize additional loans held by the Company. The Company provides credit
enhancement related to these notes in the form of 1% overcollateralization, a
reserve fund and a third party surety bond. The Company retains responsibility
for servicing the loans for which it is paid a servicing fee.
The Company accounts for the sale of receivables in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities".
Gains or losses from the sales of finance receivables are recognized in the
period in which sales occur. In determining the gain or loss for each sale, the
Company allocates the book value of the loan portfolio between amounts sold and
retained interests based upon relative fair values. The Company's retained
interests in securitized installment loan receivables consist of retained
interests in sold principal, interest-only strip receivables representing the
present value of future excess cash flow and servicing assets. Retained
interests in the sold principal are carried at allocated carrying amounts and
subsequently assessed for impairment. Interest-only strip receivables are
carried at fair value and marked to market as a component of
37
<PAGE> 40
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
other comprehensive income. Servicing assets are initially recorded at allocated
carrying amounts and subsequently amortized over the servicing period and
assessed for impairment.
INVENTORY
Inventory consists primarily of retail vehicles held for sale valued using
the specific identification method, net of reserves. Cost includes acquisition,
reconditioning and transportation expenses. Parts and accessories are valued at
the factory list price which approximates lower of cost (first-in, first-out) or
market.
Inventory acquired in business acquisitions is recorded at fair value.
Adjustments to convert from the acquired company's accounting method (generally
last-in, first-out) to the Company's accounting method are recorded as an
adjustment to the cost in excess of the fair value of net assets acquired.
A summary of inventory at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
New vehicles................................................ $2,085.0 $1,274.3
Used vehicles............................................... 470.1 457.3
Parts, accessories and other................................ 151.7 117.9
-------- --------
$2,706.8 $1,849.5
======== ========
</TABLE>
INVESTMENTS
Investments consist of marketable securities and investments in businesses
accounted for under the equity method. Marketable securities include investments
in debt and equity securities classified as available for sale and are stated at
fair value with unrealized gains and losses included in other comprehensive
income. Fair value is estimated based on quoted market prices. Equity method
investments represent investments in 50% or less owned automotive businesses
over which the Company has the ability to exercise significant influence. The
Company records its initial equity method investments at cost and subsequently
adjusts the carrying amounts of the investments for the Company's share of the
earnings or losses of the investee after the acquisition date as a component of
other income in the Company's Consolidated Statements of Operations.
A summary of investments at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Marketable securities....................................... $106.2 $ 96.8
Equity method investments................................... 69.6 70.9
------ ------
$175.8 $167.7
====== ======
</TABLE>
Investments in marketable securities at December 31 are as follows:
<TABLE>
<CAPTION>
1999
----------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. government debt securities.................... $37.2 $ -- $ (.6) $ 36.6
Corporate debt securities.......................... 21.5 -- (.4) 21.1
Equity securities.................................. 27.4 21.1 -- 48.5
----- ----- ----- ------
$86.1 $21.1 $(1.0) $106.2
===== ===== ===== ======
</TABLE>
38
<PAGE> 41
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1998
----------------------------------------
GROSS GROSS FAIR
UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----- ---------- ---------- ------
<S> <C> <C> <C> <C>
U.S. government debt securities.................... $70.6 $-- $(.6) $70.0
Corporate debt securities.......................... 26.8 -- -- 26.8
----- ---- ---- -----
$97.4 $-- $(.6) $96.8
===== == ==== =====
</TABLE>
At December 31, 1999, aggregate maturities of debt securities are as
follows:
<TABLE>
<CAPTION>
FAIR
COST VALUE
----- -----
<S> <C> <C>
Due in 2 - 5 years.......................................... $55.7 $54.7
Due in 6 - 10 years......................................... 3.0 3.0
----- -----
$58.7 $57.7
===== =====
</TABLE>
Proceeds from sales of available for sale securities were $116.8 million,
$94.1 million and $402.3 million for the years ended December 31, 1999, 1998 and
1997, respectively. Gross realized gains and losses of $5.3 million and $.8
million, respectively were recognized for the year ended December 31, 1999.
Gross realized gains and losses were not material for the year ended December
31, 1998. During the year ended December 31, 1997, proceeds from sales of $402.3
million and realized gains of $102.3 million were recognized on the sale of 15.0
million common shares of ADT Limited. Such shares of ADT Limited common stock
were received in March 1997 upon the Company's exercise of a warrant which
became exercisable upon termination of the Company's agreement to acquire ADT
Limited by mutual agreement of the parties in September 1996.
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 the
Consolidated Statements of 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 equipment and five to ten years for
furniture and fixtures.
A summary of property and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Land........................................................ $ 529.7 $ 431.3
Buildings and improvements.................................. 670.9 594.3
Furniture, fixtures and equipment........................... 310.5 284.1
-------- --------
1,511.1 1,309.7
Less: accumulated depreciation and amortization............. (150.7) (93.3)
-------- --------
$1,360.4 $1,216.4
======== ========
</TABLE>
The Company periodically evaluates whether events and circumstances have
occurred that may warrant revision of the estimated useful life of property and
equipment or whether the remaining balance of property
39
<PAGE> 42
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and equipment should be evaluated for possible impairment. The Company uses an
estimate of the related undiscounted cash flows over the remaining life of the
property and equipment in assessing whether an asset has been impaired. The
Company measures impairment losses based upon the amount by which the carrying
amount of the asset exceeds the fair value. Fair values generally are estimated
using prices for similar assets and/or discounted cash flows. As described in
Note 10, Restructuring and Impairment Charges, the Company recognized an
impairment charge in 1999 for the write-down of certain megastore and other
properties held for sale to fair value. Properties held for sale are included in
other assets as described below.
INTANGIBLE ASSETS
Intangible assets consist primarily of the cost of acquired businesses in
excess of the fair value of net assets acquired. The cost in excess of the fair
value of net assets is amortized over forty years on a straight-line basis.
Accumulated amortization of intangible assets was $122.5 million and $59.7
million at December 31, 1999 and 1998, 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 cash flows over the remaining life of the intangible assets in
assessing whether intangible assets have been impaired.
OTHER ASSETS
Other assets consist primarily of megastore and other properties held for
sale. As described in Note 10, Restructuring and Impairment Charges, the Company
recognized an impairment charge in 1999 for the write-down of the carrying value
of properties held for sale to fair value. Assets held for sale totaled
approximately $212.0 million and $305.1 million at December 31, 1999 and 1998,
respectively.
REVENUE RECOGNITION
Revenue consists of sales of new and used vehicles and related finance and
insurance products, sales from fixed operations (parts, service and body shop)
and sales of other products including wholesale units. The Company recognizes
revenue over the period in which products are sold or services are provided. An
estimated allowance for chargebacks against revenue recognized from sales of
finance and insurance products is established during the period in which related
revenue is recognized.
A summary of the Company's revenue by major products and services for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
New vehicles........................................... $11,703.5 $ 6,879.1 $3,683.7
Used vehicles.......................................... 4,631.0 3,326.3 1,496.7
Fixed operations....................................... 2,222.0 1,383.2 519.5
Other.................................................. 1,555.3 1,076.0 422.9
--------- --------- --------
$20,111.8 $12,664.6 $6,122.8
========= ========= ========
</TABLE>
DERIVATIVE FINANCIAL INSTRUMENTS
The Company utilizes interest rate derivatives to manage the impact of
interest rate changes on borrowings under the Company's variable rate vehicle
inventory and revolving credit facilities. The Company also utilizes interest
rate derivatives to manage the impact of interest rate changes on securitized
installment loan receivables. The Company does not use derivative financial
instruments for trading purposes.
40
<PAGE> 43
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Derivative financial instruments entered into concurrently with
securitizations are accounted for at fair value as part of the proceeds received
in the determination of the gain or loss on sale. If a derivative financial
instrument entered into concurrently with a securitization is terminated, any
resulting gain or loss is recognized in earnings upon termination.
Interest rate swaps are used to manage the impact of interest rate changes
on vehicle inventory and revolving credit facility borrowings. Under interest
rate swaps, the Company agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate interest amounts
calculated by reference to an agreed notional principal amount. Income or
expense under these instruments is recorded on an accrual basis as an adjustment
to the yield of the underlying exposures over the periods covered by the
contracts. If an interest rate swap is terminated early, any resulting gain or
loss is deferred and amortized as an adjustment of the cost of the underlying
exposure position over the remaining periods originally covered by the
terminated swap. If all or part of an underlying position is terminated, the
related pro-rata portion of any unrecognized gain or loss on the swap is
recognized in income at that time as part of the gain or loss on the
termination. Amounts receivable or payable under the agreements are included in
receivables or accrued liabilities in the accompanying Consolidated Balance
Sheets and were not material at December 31, 1999 or 1998.
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, 1999 or 1998. Advertising expense was $212.2 million, $158.0
million and $94.7 million for the years ended December 31, 1999, 1998 and 1997,
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, Business Combinations, and other non-cash transactions are excluded from the
accompanying Consolidated Statements of Cash Flows.
The Company made interest payments of approximately $175.2 million, $190.2
million and $76.4 million for the years ended December 31, 1999, 1998 and 1997,
respectively, including interest on vehicle inventory financing. The Company
made income tax payments of approximately $84.2 million, $139.8 million and
$59.0 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1999, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133" ("SFAS
137"). SFAS 137 amends SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities" ("SFAS 133") by deferring the effective date of SFAS 133 to
fiscal years beginning after June 15, 2000. SFAS 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
133 requires that changes in the derivative's fair value be recognized currently
in earnings unless specific hedge accounting criteria are met. The Company will
adopt SFAS 133 beginning January 1, 2001. The Company has not yet quantified the
impact of adopting SFAS 133 on the Company's consolidated financial statements.
However, SFAS 133 could increase volatility in earnings and other comprehensive
income.
41
<PAGE> 44
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. BUSINESS COMBINATIONS
Businesses acquired through December 31, 1999 and accounted for under the
purchase method of accounting are included in the Consolidated Financial
Statements from the date of acquisition. Businesses acquired and accounted for
under the pooling of interests method of accounting have been included
retroactively in the Consolidated Financial Statements as if the companies had
operated as one entity since inception.
During the year ended December 31, 1999, the Company acquired various
automotive retail businesses. The Company paid approximately $879.1 million in
cash for these acquisitions, all of which were accounted for under the purchase
method of accounting.
During the year ended December 31, 1998, the Company acquired various
businesses in the automotive retail, solid waste services and automotive rental
industries. With respect to continuing operations, the Company issued
approximately 21.9 million shares of the Company's common stock, par value $.01
per share ("Common Stock"), valued at $473.2 million and paid approximately
$727.0 million in cash for acquisitions accounted for under the purchase method
of accounting. With respect to discontinued operations, the Company issued
approximately 3.4 million shares of Common Stock valued at $68.0 million and
paid approximately $494.4 million in cash and certain properties for
acquisitions accounted for under the purchase method of accounting.
During the year ended December 31, 1997, the Company acquired various
businesses in the automotive retail, automotive rental, solid waste services and
electronic security services industries. With respect to continuing operations,
the Company issued approximately 43.6 million shares of Common Stock valued at
$739.1 million and paid approximately $84.6 million in cash for acquisitions
accounted for under the purchase method of accounting and issued approximately
23.6 million shares of Common Stock for acquisitions accounted for under the
pooling of interests method of accounting. With respect to discontinued
operations, the Company issued approximately 10.1 million shares of Common Stock
valued at $224.3 million and paid approximately $163.9 million in cash and notes
for acquisitions accounted for under the purchase method of accounting and
issued approximately 59.9 million shares of Common Stock for acquisitions
accounted for under the pooling of interests method of accounting.
The preliminary purchase price allocations for business combinations
accounted for under the purchase method of accounting related to continuing
operations for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- --------- -------
<S> <C> <C> <C>
Property and equipment................................... $ 145.5 $ 372.3 $ 468.8
Intangible and other assets.............................. 942.7 1,239.7 824.9
Working capital.......................................... 450.3 735.8 198.4
Debt assumed............................................. (623.8) (1,074.5) (618.3)
Other liabilities........................................ (35.6) (73.1) (50.1)
Common stock issued...................................... -- (473.2) (739.1)
------- --------- -------
Cash used in business acquisitions, net of cash
acquired............................................... $ 879.1 $ 727.0 $ 84.6
======= ========= =======
</TABLE>
The Company's unaudited pro forma consolidated results of continuing
operations assuming acquisitions accounted for under the purchase method of
accounting had occurred at the beginning of each period presented are as follows
for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenue..................................................... $21,454.8 $19,588.1
Income (loss) from continuing operations.................... (15.3) 306.3
Diluted earnings (loss) per share from continuing
operations................................................ (.04) .65
</TABLE>
42
<PAGE> 45
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The unaudited pro forma results of continuing 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 these businesses as of the beginning of each
period presented.
3. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt at December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Vehicle inventory credit facilities; secured by the
Company's vehicle inventory; interest rates of 6.6% and
5.8% at December 31, 1999 and 1998, respectively.......... $ 2,212.6 $ 1,339.2
$1.5 billion unsecured revolving credit facilities; interest
payable using LIBOR based rates; interest rates of 6.6%
and 5.4% at December 31, 1999 and 1998, respectively;
$500.0 million matures March 2000; $1.0 billion matures
April 2002................................................ 669.0 500.0
Other debt; secured by real property, equipment and other
assets; interest ranging from 6.0% to 9.0%; maturing
through 2009.............................................. 203.2 26.5
--------- ---------
3,084.8 1,865.7
Less: current portion....................................... (2,248.7) (1,344.8)
--------- ---------
$ 836.1 $ 520.9
========= =========
</TABLE>
The Company's revolving credit facilities require, among other items, that
the Company maintain certain financial ratios and comply with certain financial
covenants. The Company was in compliance with these ratios and covenants at
December 31, 1999.
In March 2000, the Company entered into a new $500.0 million 364-day
unsecured bank revolving credit facility to replace its existing 364-day
facility which matured in March 2000. This facility will be used for general
corporate purposes and complements the $1.0 billion bank revolving credit
facility maturing in April 2002.
The Company has a $500.0 million bank-sponsored multi-seller commercial
paper conduit facility to finance new and used vehicle inventory. At December
31, 1999, approximately $224.4 million was outstanding under this facility. The
facility supplements the new and used vehicle inventory finance facilities
provided by vehicle manufacturer captive finance companies.
Interest expense on vehicle inventory credit facilities is included as a
component of cost of operations in the accompanying Consolidated Statements of
Operations.
At December 31, 1999, aggregate maturities of notes payable and long-term
debt are as follows:
<TABLE>
<S> <C>
2000........................................................ $2,248.7
2001........................................................ 7.2
2002........................................................ 823.7
2003........................................................ 1.0
2004........................................................ .9
Thereafter.................................................. 3.3
--------
$3,084.8
========
</TABLE>
43
<PAGE> 46
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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.
Certain businesses acquired in 1997 and accounted for under the pooling of
interests method of accounting were subchapter S corporations for income tax
purposes. The subchapter S corporation status of these companies was terminated
effective with the closing date of the acquisitions. For purposes of these
Consolidated Financial Statements, federal and state income taxes have been
recorded 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 components of the provision for income taxes from continuing operations
for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Current:
Federal................................................... $ 108.4 $105.5 $(63.5)
State..................................................... 22.8 9.1 (4.4)
Federal and state deferred.................................. (111.2) 26.7 75.9
Change in valuation allowance............................... (16.0) (14.5) --
------- ------ ------
Provision for income taxes.................................. $ 4.0 $126.8 $ 8.0
======= ====== ======
</TABLE>
A reconciliation of the provision (benefit) for income taxes calculated
using the statutory federal income tax rate to the Company's provision for
income taxes from continuing operations for the years ended December 31 is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Provision (benefit) for income taxes at statutory rate of
35%....................................................... $ (9.6) $123.4 $ 7.6
Non-deductible expenses..................................... 28.6 10.3 2.6
State income taxes, net of federal benefit.................. 1.0 7.6 .5
Change in valuation allowance............................... (16.0) (14.5) --
Other, net.................................................. -- -- (2.7)
------ ------ -----
Provision for income taxes.................................. $ 4.0 $126.8 $ 8.0
====== ====== =====
</TABLE>
Components of the net deferred income tax liability at December 31 are as
follows:
<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Deferred income tax liabilities:
Book basis in property over tax basis..................... $ 336.1 $ 244.8
Expenses deducted for tax, not for book................... 705.6 144.8
Deferred income tax assets:
Net operating losses...................................... (4.2) (33.6)
Accruals not currently deductible......................... (342.0) (163.0)
Valuation allowance......................................... 109.3 130.0
------- -------
Net deferred income tax liability........................... $ 804.8 $ 323.0
======= =======
</TABLE>
At December 31, 1999, the Company had available domestic net operating loss
carryforwards of approximately $11.1 million which begin to expire in the year
2010. In assessing the realizability of deferred
44
<PAGE> 47
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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
provides valuation allowances to offset portions of deferred tax assets 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.
Future decreases to the valuation allowance may be allocated to reduce
intangible assets associated with business acquisitions accounted for under the
purchase method of accounting.
5. OTHER COMPREHENSIVE INCOME
The changes in the components of other comprehensive income (loss), net of
income taxes, for the years ended December 31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
------------------------- ------------------------- -------------------------
PRE-TAX TAX NET PRE-TAX TAX NET PRE-TAX TAX NET
AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT AMOUNT EFFECT AMOUNT
------- ------ ------ ------- ------ ------ ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Foreign currency translation
adjustments.................... $(1.9) $ -- $(1.9) $(1.6) $ -- $(1.6) $(4.7) $-- $(4.7)
Unrealized gain (loss) on
marketable securities and
interest-only strip
receivables.................... 20.1 (7.3) 12.8 .3 (.1) .2 -- -- --
----- ----- ----- ----- ---- ----- ----- --- -----
Other comprehensive income
(loss)......................... $18.2 $(7.3) $10.9 $(1.3) $(.1) $(1.4) $(4.7) $-- $(4.7)
===== ===== ===== ===== ==== ===== ===== === =====
</TABLE>
Accumulated other comprehensive income (loss) at December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
----- -----
<S> <C> <C>
Foreign currency translation adjustments.................... $(6.4) $(4.5)
Unrealized gain on marketable securities and interest-only
strip receivables......................................... 13.0 .2
----- -----
$ 6.6 $(4.3)
===== =====
</TABLE>
No material reclassification adjustments were recorded in 1999 or 1998.
During the year ended December 31, 1997, the Company reclassified unrealized
holding gains totaling approximately $65.0 million, net of income taxes of
approximately $37.3 million, to realized gains in connection with the sale of
the shares of ADT Limited common stock in May 1997.
6. SHAREHOLDERS' EQUITY
During the year ended December 31, 1999, the Company's Board of Directors
authorized additional share repurchase programs increasing the cumulative share
repurchase programs to $1.75 billion from $500.0 million authorized in 1998. The
Company repurchased 91.0 million shares of Common Stock during 1999 for an
aggregate purchase price of $1.16 billion. Repurchases are made pursuant to Rule
10b-18 of the Securities Exchange Act of 1934, as amended.
During the year ended December 31, 1998, the Company's former solid waste
subsidiary, RSG, completed an initial public offering of approximately 36.1% of
its outstanding common stock, resulting in net proceeds of approximately $1.43
billion. In addition, in August 1998, the Company's Board of Directors
authorized the repurchase of up to $500.0 million of Common Stock over the
following 12 months. During the year ended December 31, 1998, the Company
repurchased 9.1 million shares of Common Stock for an aggregate purchase price
of $136.0 million under the Board authorized share repurchase program.
During the year ended December 31, 1997, the Company sold 15.8 million
shares of Common Stock in a private placement transaction resulting in net
proceeds of approximately $552.7 million. In addition, in May
45
<PAGE> 48
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1997, the Company's Certificate of Incorporation was amended to increase the
number of authorized shares of Common Stock from 500.0 million to 1.5 billion
shares.
The Company has 5.0 million 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 quoted market price of the Common Stock at the date of grant. Generally,
options granted will have a term of 10 years from the date of grant, and will
vest in increments of 25% per year over a four-year period on the yearly
anniversary of the grant date. In October 1998, the Company's Board of Directors
approved the repricing of approximately 32.1 million employee stock options to
$12.75 per share, equal to the closing price of the Company's Common Stock on
the last business day prior to the date of the repricing. Option holders were
precluded from exercising any of their repriced options prior to January 2,
2000. All other terms of the existing options, including the vesting schedules,
were unchanged.
A summary of stock option and warrant transactions is as follows for the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------------ ------------------ ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of period....................... 54.6 $12.52 48.1 $15.67 52.5 $7.63
Granted..................................... 17.0 15.80 16.9 21.89 15.2 28.52
Exercised................................... (7.8) 3.73 (9.3) 3.62 (18.7) 3.24
Canceled.................................... (12.9) 13.90 (1.1) 25.34 (.9) 24.59
----- ----- -----
Options and warrants outstanding at end of
period.................................... 50.9 15.84 54.6 12.52 48.1 15.67
===== ===== =====
Options and warrants exercisable at end of
period.................................... 15.4 18.58 18.8 11.27 26.8 8.71
Options available for future grants......... 24.1 28.2 14.0
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options at December 31, 1999:
<TABLE>
<CAPTION>
OUTSTANDING EXERCISABLE
-------------------------------- ------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE PRICE OR CONTRACTUAL EXERCISE EXERCISE
RANGE OF EXERCISE PRICES SHARES LIFE(YRS.) PRICE SHARES PRICE
- ------------------------ ------ ----------- --------- ------ ---------
<S> <C> <C> <C> <C> <C>
$1.13 - $12.38.......................... 7.2 5.28 $11.08 6.2 $10.97
12.75.................................. 19.2 7.54 12.75 -- --
12.88 - 41.88.......................... 24.5 7.75 19.65 9.2 23.72
---- ---- ------ ---- ------
50.9 7.32 $15.84 15.4 $18.58
==== ==== ====== ==== ======
</TABLE>
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" in accounting for stock-based employee
compensation arrangements whereby compensation cost related to stock options is
generally not recognized in determining net income. Had compensation cost for
the Company's stock option plans been determined pursuant to SFAS No. 123,
"Accounting for Stock-Based
46
<PAGE> 49
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Compensation", the Company's net income and earnings per share would have
decreased accordingly. Using the Black-Scholes option pricing model for all
options granted after December 31, 1994, the Company's pro forma net income, pro
forma earnings per share and pro forma weighted average fair value of options
granted, with related assumptions, are as follows for the years ended December
31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Pro forma net income........................... $ 199.5 $ 368.5 $ 375.3
Pro forma diluted earnings per share........... .46 .81 .88
Pro forma weighted average fair value of
options granted.............................. 6.87 13.87 10.03
Risk free interest rates....................... 6.34-6.38% 4.76-4.82% 5.74-5.78%
Expected lives................................. 5-7 years 5-7 years 5-7 years
Expected volatility............................ 40% 40% 40%
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
LEGAL PROCEEDINGS
By letter dated January 11, 1996, Acme Commercial Corp. d/b/a CarMax, The
Auto Superstore, accused the Company's wholly-owned subsidiary, AutoNation USA
Corporation of infringing CarMax's trademark rights by using the marks
"AutoNation USA(SM)" and "The Better Way to Buy a Car(SM)." The Company denied
such allegations and on February 5, 1996, filed suit in the U.S. District Court
for the Southern District of Florida seeking a declaratory judgment that its use
and registration of such marks do not violate any of the rights of CarMax. On or
about October 11, 1996, CarMax filed a counterclaim against the Company seeking
damages and an order enjoining the Company from using certain marks, including
the marks "AutoNation USA" and "The Better Way to Buy a Car." On November 5,
1998, following a jury trial, the court entered a judgment in favor of
AutoNation USA and against CarMax with respect to the marks in question. On
December 2, 1998, CarMax filed a notice of appeal of the trial court's decision
with the U.S. Court of Appeals for the Eleventh Circuit. In December 1999, the
Eleventh Circuit affirmed per curiam the lower court's dismissal of this matter.
To the Company's knowledge, no further appeals have been filed in this matter.
The Company is a party to numerous other legal proceedings which arose in
the ordinary course of business. The Company does not believe that the ultimate
resolution of these matters will have a material adverse effect on the Company's
consolidated results of operations, financial condition or cash flows. However,
the results of these matters cannot be predicted with certainty and unfavorable
resolution of one or more of these matters could have a material adverse effect
on the Company's consolidated results of operations, financial condition and/or
cash flows.
LEASE COMMITMENTS
The Company leases real property, equipment and software under various
operating leases most of which have terms from 1 to 25 years.
Expenses under real property, equipment and software leases were $86.2
million, $45.0 million and $12.0 million for the years ended December 31, 1999,
1998 and 1997, respectively.
47
<PAGE> 50
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Future minimum lease obligations under noncancelable real property,
equipment and software leases with initial terms in excess of one year at
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Year Ending December 31:
2000........................................................ $ 91.0
2001........................................................ 81.0
2002........................................................ 58.0
2003........................................................ 45.8
2004........................................................ 36.5
Thereafter.................................................. 149.6
------
$461.9
======
</TABLE>
The Company is the lessee under a $500.0 million lease facility that was
established to acquire and develop the Company's used vehicle megastores and
other properties. At December 31, 1999, $469.7 million was funded under this
facility of which $152.5 million has been accounted for as capital leases and
the remaining $317.2 million has been accounted for as operating leases. The
Company has guaranteed the residual value of the properties under this facility
which guarantee totaled approximately $413.3 million at December 31, 1999. As
described in Note 10, Restructuring and Impairment Charges, the Company has
closed certain megastore and other properties, some of which are leased under
this facility. The Company has accrued $103.3 million as part of its 1999
restructuring and impairment charges representing its estimated liability under
the residual value guarantee for the closed properties.
OTHER MATTERS
In the normal course of business, the Company is required to post
performance and surety bonds, letters of credit, and/or cash deposits as
financial guarantees of the Company's performance. To date, the Company has
satisfied financial responsibility requirements for regulatory agencies by
making cash deposits, obtaining surety bonds or by obtaining bank letters of
credit. At December 31, 1999, surety bonds and letters of credit totaling $261.3
million expire through 2007; $138.5 million of which relate to ANC Rental's
operations.
The Company provides credit enhancement related to ANC Rental's vehicle
financing in the form of guarantees and letters of credit. At December 31, 1999,
letters of credit totaling $465.0 million which mature through September 2000
were outstanding related to this financing. In February 2000, the Company
contributed $180.0 million of capital to ANC Rental which was used to replace
maturing letters of credit.
9. EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
by the weighted average number of common shares outstanding during the year.
Diluted earnings (loss) per share is 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 options and warrants.
In computing diluted earnings (loss) per share, the Company has utilized the
treasury stock method.
48
<PAGE> 51
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The computation of weighted average common and common equivalent shares
used in the calculation of basic and diluted earnings (loss) per share for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Weighted average shares outstanding used in calculating
basic earnings per share.................................. 429.8 455.1 403.1
Effect of dilutive options and warrants..................... -- 15.8 27.8
----- ----- -----
Weighted average common and common equivalent shares used in
calculating diluted earnings per share.................... 429.8 470.9 430.9
===== ===== =====
</TABLE>
At December 31, 1999, total outstanding employee stock options of
approximately 50.9 million have been excluded from the computation of diluted
earnings per share since they are anti-dilutive due to the 1999 loss from
continuing operations. At December 31, 1998 and 1997, the Company had
approximately 4.8 million and 5.4 million stock options outstanding,
respectively, which have been excluded from the computation of diluted earnings
per share since they are anti-dilutive.
10. RESTRUCTURING AND IMPAIRMENT CHARGES
During the fourth quarter of 1999, the Company approved a plan to
restructure certain of its operations. The restructuring plan is comprised of
the following major components: (1) exiting the used vehicle megastore business
by immediately closing 23 of the Company's megastores and converting six others
into new vehicle franchises (eight used vehicle megastores had previously been
converted); and (2) reducing the corporate workforce. Approximately 2,000
positions were eliminated as a result of the restructuring plan of which 1,800
were megastore positions and 200 were corporate positions. These restructuring
activities resulted in pre-tax charges of $443.7 million. Approximately $416.4
million appears as restructuring and impairment charges in the Company's 1999
Consolidated Statement of Operations and consists of: $390.2 million of asset
impairment charges and $26.2 million of termination benefits and other exit
costs. The remaining $27.3 million represents inventory related costs associated
with the megastore closures and is included in cost of operations in the
Company's 1999 Consolidated Statement of Operations. The $390.2 million asset
impairment charge consists of: $348.2 million of megastore and other property
impairments (including $103.3 million of reserves for guaranteed lease residual
values for properties leased under the Company's $500.0 million lease facility
described in Note 8, Commitments and Contingencies); and $42.0 million of
information systems and other impairments.
The Company will dispose of its closed properties primarily through sale to
independent third parties. Although the Company intends to aggressively market
these properties, the ultimate disposition could exceed one year. Expected
annual carrying costs associated with closed properties total approximately
$40.4 million and will be charged to expense in future periods as incurred.
Operating results for the operations to be disposed for the years ended December
31 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Revenue................................................... $1,445.7 $1,133.0 $495.9
Operating loss............................................ (14.1) (1.1) (34.6)
</TABLE>
Through December 31, 1999, the Company has spent approximately $10.8
million of these charges primarily for severance benefits and has recorded
$312.4 million of these charges against certain assets. As of December 31, 1999,
approximately $120.5 million remained in accrued liabilities related primarily
to reserves for leased properties.
During the year ended December 31, 1997, the Company recorded pre-tax
charges of approximately $150.0 million associated with consolidating the
Company's automotive retail operations. Approximately $85.0 million appears as
restructuring and impairment charges in the Company's 1997 Consolidated
49
<PAGE> 52
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Statement of Operations and consists of: $42.5 million for consolidation of
information systems; $25.3 million related to relocating or closing certain
operations; and $17.2 million of severance and other costs. The remaining $65.0
million of this charge relates to inventory consolidation and is included in
cost of operations in the Company's 1997 Consolidated Statement of Operations.
During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for closed operations by approximately $21.0 million. The decrease in
the information systems reserve is a result of the Company's decision to
eliminate or delay the conversion of certain systems. The increase in the
reserve for closed operations is due to the Company's decision to close its
reconditioning centers and relocate the reconditioning operations to the
Company's AutoNation USA megastores. Approximately $32.0 million of the $85.0
million charge was spent on restructuring activities and the remaining $53.0
million was applied against certain assets. Included in the 1999 restructuring
and impairment charges described above are $30.1 million of additional estimated
impairment losses related to the closed reconditioning centers and other
properties held for sale.
11. DISCONTINUED OPERATIONS
As a result of the Company's decision to separate its automotive rental
business, the net assets and operating results of the Company's automotive
rental segment have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements. The Company has
recorded a loss on disposition of the rental segment totaling $34.1 million, net
of income taxes, representing the estimated loss from operations through the
expected distribution date and costs associated with the planned spin-off.
In July 1998, the Company's former solid waste services subsidiary, RSG,
completed an initial public offering of 36.1% of its outstanding common stock
resulting in net proceeds of approximately $1.43 billion. In May 1999, the
Company sold substantially all of its remaining interest in RSG in a public
offering resulting in net proceeds of approximately $1.78 billion and an after
tax gain of approximately $377.0 million. Accordingly, the gain on disposition,
operating results through the date of disposition and net assets at December 31,
1998 of RSG have been classified as discontinued operations for all periods
presented in the accompanying Consolidated Financial Statements.
In October 1997, the Company sold its electronic security services division
for approximately $610.0 million resulting in an after tax gain of approximately
$230.0 million. In 1999 and 1998, the Company recognized additional after tax
gains of approximately $2.1 million and $11.6 million, respectively, related to
finalizing the gain on disposition. The operating results through the date of
disposition and gain on disposition of the electronic security services segment
have been classified as discontinued operations for all periods presented in the
accompanying Consolidated Financial Statements.
50
<PAGE> 53
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the net assets of discontinued operations as of December 31 is
as follows:
<TABLE>
<CAPTION>
1999 1998
------------ --------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
------------ ---------- -------- --------
<S> <C> <C> <C> <C>
Current assets............................... $5,349.3 $5,345.1 $ 784.0 $6,129.1
Non-current assets........................... 1,000.2 907.5 2,028.1 2,935.6
-------- -------- -------- --------
Total assets....................... 6,349.5 6,252.6 2,812.1 9,064.7
-------- -------- -------- --------
Current liabilities.......................... 2,235.8 3,438.6 783.8 4,222.4
Non-current liabilities...................... 3,387.1 2,075.3 729.2 2,804.5
-------- -------- -------- --------
Total liabilities.................. 5,622.9 5,513.9 1,513.0 7,026.9
-------- -------- -------- --------
Minority interest............................ -- -- 468.9 468.9
-------- -------- -------- --------
Net assets of discontinued operations........ $ 726.6 $ 738.7 $ 830.2 $1,568.9
======== ======== ======== ========
</TABLE>
Selected statement of operations data for the Company's discontinued
operations for the years ended December 31 is as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------- --------------------------------
AUTOMOTIVE SOLID AUTOMOTIVE SOLID
RENTAL WASTE TOTAL RENTAL WASTE TOTAL
---------- ------ -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue................. $3,542.3 $552.5 $4,094.8 $3,453.6 $1,369.1 $4,822.7
Operating income
(loss)................ (76.3)(1) 113.5 37.2 178.9 299.3 478.2
Provision (benefit) for
income taxes.......... (18.8) 38.8 20.0 61.3 105.3 166.6
Minority interest in
RSG................... -- 21.6 21.6 -- 33.9 33.9
Income (loss) from
discontinued
operations............ (71.0) 40.4 (30.6) 108.8 153.3 262.1
<CAPTION>
1997
--------------------------------------------
AUTOMOTIVE SOLID ELECTRONIC
RENTAL WASTE SECURITY TOTAL
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Revenue................. $3,055.1 $1,127.7 $83.8 $4,266.6
Operating income
(loss)................ 86.1(2) 211.5 14.7 312.3
Provision (benefit) for
income taxes.......... 31.8 76.9 5.2 113.9
Minority interest in
RSG................... -- -- -- --
Income (loss) from
discontinued
operations............ 51.2 135.6 9.5 196.3
</TABLE>
- ---------------
(1) Includes pre-tax restructuring and other charges of $58.9 million in 1999
primarily related to ANC Rental's consolidation of its North American
operations and other restructuring activities.
(2) Includes pre-tax restructuring and other charges of $78.0 million in 1997
related to integrating the automotive rental operations.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate swap agreements to manage the impact of
interest rate changes on borrowings under the Company's variable rate vehicle
inventory and revolving credit facilities. At December 31, 1999, notional
principal amounts related to interest rate swaps (variable to fixed rate) were
$150.0 million maturing in 2000. At December 31, 1999, the weighted average
fixed rate payment on variable to fixed rate swaps was 5.96%. Variable rates are
indexed to LIBOR.
The Company has also entered into interest rate derivative transactions
with certain financial institutions to manage the impact of interest rate
changes on securitized installment loan receivables. These derivative
transactions consist of a series of interest rate caps and floors with an
aggregate notional amount of $1.02 billion contractually maturing through 2006
which effectuate a variable to fixed rate swap at a weighted average rate of
6.13% at December 31, 1999. Variable rates on the underlying portfolio are
indexed to the Commercial Paper Nonfinancial Rate.
The amounts exchanged by the counterparties to interest rate derivatives
are based upon the notional amounts and other terms, generally related to
interest rates, of the derivatives. While notional amounts of interest rate
derivatives form part of the basis for the amounts exchanged by the
counterparties, the notional amounts are not themselves exchanged and,
therefore, do not represent a measure of the Company's exposure as an end user
of derivative financial instruments.
51
<PAGE> 54
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is exposed to credit related losses in the event of
non-performance by counterparties to derivative financial instruments. The
Company monitors the credit worthiness of the counterparties and presently does
not expect default by any of the counterparties. The Company does not obtain
collateral in connection with its derivative financial instruments.
The credit exposure that results from interest rate contracts is
represented by the fair value of contracts with a positive fair value as of the
reporting date. See Note 13, Fair Value of Financial Instruments, for the fair
value of derivatives.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument represents the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced sale or liquidation. 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 following methods and assumptions were used by the Company in
estimating fair value disclosures for financial instruments:
- Cash and cash equivalents, trade and manufacturer receivables, other
current assets, accounts payable, accrued liabilities, other current
liabilities and variable and fixed rate debt: The amounts reported in the
accompanying Consolidated Balance Sheets approximate fair value.
- Installment loans receivable and retained interests in securitized
receivables: The fair value of installment loans receivable and retained
interests in securitized receivables are estimated based upon the
discounted value of the future cash flows expected to be received.
Significant assumptions used to estimate the fair value at December 31,
1999 and 1998 are as follows: discount rate -- 9.64% and 8.13%;
cumulative loss rate -- 4.49% and 1.97%; and prepayment rate -- 1.5% per
month.
- Interest rate swaps, caps and floors: The fair value of interest rate
swaps, caps and floors is determined from dealer quotations and
represents the discounted future cash flows through maturity or
expiration using current rates, and is effectively the amount the Company
would pay or receive to terminate the agreements.
The following table sets forth the carrying amounts and fair values of the
Company's financial instruments, except for those noted above for which carrying
amounts approximate fair value, as of December 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ----------------
CARRYING FAIR CARRYING FAIR
ASSETS (LIABILITIES) AMOUNT VALUE AMOUNT VALUE
- -------------------- -------- ----- -------- -----
<S> <C> <C> <C> <C>
Installment loans receivable........................... $83.8 $84.8 $95.6 $99.2
Retained interests in securitized receivables:
Principal............................................ 70.4 70.6 44.2 44.6
Interest-only strips................................. 51.8 51.8 38.2 38.2
Servicing assets..................................... 10.8 10.4 3.1 3.1
Interest rate caps..................................... -- 18.5 -- 8.9
Interest rate floors................................... -- (7.7) -- (7.1)
Interest rate swaps.................................... -- .1 -- (1.7)
</TABLE>
52
<PAGE> 55
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. BUSINESS AND CREDIT CONCENTRATIONS
The Company owns and operates franchised automotive dealerships in the
United States.
Automotive dealerships operate pursuant to franchise agreements with
vehicle manufacturers. Franchise agreements generally provide the manufacturers
with considerable influence over the operations of the dealership and generally
provide for termination of the franchise agreement for a variety of causes. The
success of any franchised automotive dealership is dependent, to a large extent,
on the financial condition, management, marketing, production and distribution
capabilities of the vehicle manufacturers of which the Company holds franchises.
At December 31, 1999 and 1998, the Company had receivables from manufacturers of
$134.1 million and $86.1 million, respectively.
The Company purchases substantially all of its new vehicles from various
manufacturers at the prevailing prices charged by the manufacturers to all
franchised dealers. The Company's sales volume could be adversely impacted by
the manufacturers' inability to supply the dealerships with an adequate supply
of vehicles.
Concentrations of credit risk with respect to non-manufacturer trade
receivables are limited due to the wide variety of customers and markets in
which the Company's products are sold as well as their dispersion across many
different geographic areas in the United States. Consequently, at December 31,
1999, the Company does not consider itself to have any significant
non-manufacturer concentrations of credit risk.
15. QUARTERLY INFORMATION (UNAUDITED)
The Company's operations generally experience higher volumes of vehicle
sales in the second and third quarters of each year in part due to consumer
buying trends and the introduction of new vehicle models. Also, demand for cars
and light trucks is generally lower during the winter months than in other
seasons, particularly in regions of the United States where dealerships may be
subject to harsh winters. Accordingly, the Company expects revenue and operating
results to be generally lower in the first and fourth quarters as compared to
the second and third quarters.
Operating income (loss) in the fourth quarter of 1999 includes
restructuring and impairment charges of $443.7 million, as described in Note 10,
Restructuring and Impairment Charges.
The following is an analysis of certain items in the Consolidated
Statements of Operations by quarter for 1999 and 1998.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue........................................... 1999 $4,562.7 $5,069.6 $5,459.7 $5,019.8
1998 2,343.4 3,172.6 3,508.0 3,640.6
Operating income (loss)........................... 1999 92.9 154.9 141.4 (404.6)
1998 45.9 94.9 119.7 95.8
Income (loss) from continuing operations.......... 1999 58.4 97.1 92.6 (279.6)
1998 27.7 54.2 81.3 62.6
Basic earnings (loss) per share from continuing
operations...................................... 1999 .13 .22 .22 (.71)
1998 .06 .12 .18 .13
Diluted earnings (loss) per share from continuing
operations...................................... 1999 .13 .21 .22 (.71)
1998 .06 .11 .17 .13
Net income (loss)................................. 1999 80.1 501.2 104.7 (403.1)
1998 77.1 127.4 179.7 115.3
</TABLE>
53
<PAGE> 56
AUTONATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth, for the periods indicated, the high and low
prices per share of the Company's Common Stock as reported by the New York Stock
Exchange.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1999
First Quarter............................................... $16 15/16 $12 1/8
Second Quarter.............................................. 18 3/8 11 5/8
Third Quarter............................................... 17 7/8 11 1/2
Fourth Quarter.............................................. 12 11/16 7 1/2
1998
First Quarter............................................... $29 $19 3/16
Second Quarter.............................................. 30 22 15/16
Third Quarter............................................... 27 13 3/4
Fourth Quarter.............................................. 18 3/8 10
</TABLE>
54
<PAGE> 57
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
55
<PAGE> 58
PART III
Except for biographical information regarding our executive officers who
are not also directors of our company, which appears on page 8 of this document,
the information required by Items 10, 11, 12 and 13 of Part III of Form 10-K
will be set forth in our Proxy Statement relating to the 2000 Annual Meeting of
Stockholders and is incorporated herein by reference.
56
<PAGE> 59
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements of the Company are set forth in Part II, Item 8.
(2) Financial Statement Schedule II, Valuation and Qualifying Accounts and
Reserves, for each of the three years ended December 31, 1999 is
submitted herewith.
(3) Exhibits -- See Index to Exhibits included elsewhere in this document.
(b) Reports on Form 8-K.
Current Report on Form 8-K filed December 14, 1999 and dated December 13,
1999, Item 5, reporting AutoNation's decision to exit the used vehicle megastore
category, a related announcement of a pre-tax charge to earnings to be taken in
the fourth quarter and the Board of Directors' authorization to repurchase an
additional $500 million shares of the company's common stock.
Current Report on Form 8-K filed October 22, 1999 and dated October 21,
1999, Item. 5, reporting AutoNation's plans to separate its automotive rental
business and filing Selected Financial Data, MD&A and audited consolidated
financial statements restated to present the automotive rental business as
discontinued operations.
57
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, we have duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
REGISTRANT:
AutoNation, Inc.
By: /s/ MICHAEL J. JACKSON
------------------------------------
Michael J. Jackson
Chief Executive Officer and Director
March 30, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ H. WAYNE HUIZENGA Chairman of the Board March 30, 2000
- -----------------------------------------------------
H. Wayne Huizenga
/s/ MICHAEL J. JACKSON Chief Executive Officer and March 30, 2000
- ----------------------------------------------------- Director (Principal Executive
Michael J. Jackson Officer)
/s/ PATRICIA A. MCKAY Senior Vice March 30, 2000
- ----------------------------------------------------- President -- Finance and
Patricia A. McKay Controller, and Acting Chief
Financial Officer (Principal
Financial Officer and
Principal Accounting Officer)
/s/ HARRIS W. HUDSON Vice Chairman and Director March 30, 2000
- -----------------------------------------------------
Harris W. Hudson
/s/ ROBERT J. BROWN Director March 30, 2000
- -----------------------------------------------------
Robert J. Brown
/s/ J.P. BRYAN Director March 30, 2000
- -----------------------------------------------------
J.P. Bryan
/s/ RICK L. BURDICK Director March 30, 2000
- -----------------------------------------------------
Rick L. Burdick
/s/ MICHAEL G. DEGROOTE Director March 30, 2000
- -----------------------------------------------------
Michael G. DeGroote
/s/ GEORGE D. JOHNSON, JR. Director March 30, 2000
- -----------------------------------------------------
George D. Johnson, Jr.
</TABLE>
58
<PAGE> 61
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOHN J. MELK Director March 30, 2000
- -----------------------------------------------------
John J. Melk
/s/ IRENE B. ROSENFELD Director March 30, 2000
- -----------------------------------------------------
Irene B. Rosenfeld
</TABLE>
59
<PAGE> 62
AUTONATION, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
SCHEDULE II
(IN MILLIONS)
<TABLE>
<CAPTION>
BALANCE
AT ADDITIONS BALANCE
BEGINNING CHARGED TO AT END
CLASSIFICATIONS OF YEAR INCOME DEDUCTIONS OTHER OF YEAR
--------------- --------- ---------- ---------- ------- -------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
1999.................................... $33.8 $ 13.4 $ (9.4)(2) $ 4.7(1) $ 42.5
1998.................................... 8.5 1.8 (3.1)(2) 26.6(1) 33.8
1997.................................... 2.4 1.4 (1.6)(2) 6.3(1) 8.5
Restructuring reserves(3):
1999.................................... 24.1 416.4 (12.5)(5) (307.5)(4) 120.5
1998.................................... 46.0 --(6) (15.5)(5) (6.4)(4) 24.1
1997.................................... -- 85.0 (14.8)(5) (24.2)(4) 46.0
</TABLE>
- ---------------
(1) Allowance of acquired businesses.
(2) Accounts written off.
(3) Included under the caption "Accrued Liabilities" in the accompanying
Consolidated Balance Sheets.
(4) Primarily asset write-offs.
(5) Primarily cash payments of costs associated with restructuring activities.
(6) During the year ended December 31, 1998, the Company reduced its estimated
restructuring reserves for information systems and increased its estimated
reserves for closed operations by approximately $21.0 million.
60
<PAGE> 63
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S> <C>
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 AutoNation's Annual Report on Form 10-K for the year
ended December 31, 1991).
2.2* -- U.S. Purchase Agreement relating to the sale of Class A
Common Stock of Republic Services, Inc., dated as of April
27, 1999.
2.3* -- International Purchase Agreement relating to the sale of
Class A Common Stock of Republic Services, Inc., dated as of
April 27, 1999.
3.1 -- Third Amended and Restated Certificate of Incorporation of
AutoNation, Inc. (incorporated by reference to Exhibit 3.1
to AutoNation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999).
3.2 -- Bylaws of AutoNation, Inc., as amended to date (incorporated
by reference to Exhibit 3.2 to AutoNation's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1999).
4.1 -- Credit Facilities and Reimbursement Agreement dated as of
April 23, 1997, by and among Republic Industries, Inc., and
Republic Resources Company, as Borrowers, NationsBank,
National Association (South), as Arranger and Administrative
Agent, Various Co-Agents Listed Therein and Various Lenders
Listed Therein (incorporated by reference to Exhibit 4.22 to
AutoNation's Current Report on Form 8-K, dated June 13,
1997).
4.2 -- Master Motor Vehicle Lease and Servicing Agreement dated as
of February 26, 1999 among National Car Rental System, Inc.
as lessee, National Car Rental Financing Limited Partnership
as lessor, and AutoNation, Inc. as guarantor (incorporated
by reference to Exhibit 4.1 to AutoNation's Quarterly Report
on Form 10-Q for the Quarter Ended March 31, 1999).
4.3 -- Series 1999-1 Supplement dated as of February 26, 1999
between National Car Rental Financing Limited Partnership
("NFLP"), and The Bank of New York, as Trustee (the
"Trustee") to the Base Indenture, dated as of April 30, 1996
between NFLP and the Trustee, as amended by the supplement
and amendment to the Base Indenture, dated as of December
20, 1996, between NFLP and the Trustee (incorporated by
reference to Exhibit 4.2 to AutoNation's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1999).
4.4 -- Base Indenture dated as of February 26, 1999 between ARG
Funding Corp. and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.3 to AutoNation's
Quarterly Report on Form 10-Q for the Quarter ended March
31, 1999).
4.5 -- Series 1999-1 Supplement dated as of February 26, 1999
between ARG Funding Corp. and The Bank of New York as
Trustee to the ARG Base Indenture (incorporated by reference
to Exhibit 4.4 to AutoNation's Quarterly Report on Form 10-Q
for the Quarter ended March 31, 1999).
4.6 -- Third Amended and Restated Master Collateral Agency
Agreement dated as of February 26, 1999 among National Car
Rental System, Inc., Alamo Rent-A-Car, Inc. and Spirit
Rent-A-Car, Inc. d/b/a CarTemps USA, Alamo Financing, L.P.,
National Car Rental Financing Limited Partnership and
CarTemps Financing, L.P., as lessor grantors, AutoNation,
Inc. as master servicer and Citibank, N.A., as master
collateral agent (incorporated by reference to Exhibit 4.5
to AutoNation's Quarterly Report on Form 10-Q for the
Quarter ended March 31, 1999).
10.1 -- AutoNation, Inc. 1990 Stock Option and Stock Purchase Plan
(incorporated by reference to Exhibit 10.1(a) to
AutoNation's Registration Statement on Form S-1 Commission
File No. 33-37191).
10.2 -- AutoNation, Inc. 1991 Stock Option Plan (incorporated by
reference to Exhibit 10.42 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1992).
</TABLE>
61
<PAGE> 64
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION OF EXHIBIT
- -------- ----------------------
<C> <S> <C>
10.3 -- AutoNation, Inc. 1995 Amended and Restated Employee Stock
Option Plan (incorporated by reference to Exhibit 10.9 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.4 -- AutoNation, Inc. Amended and Restated 1995 Non-Employee
Director Stock Option Plan (incorporated by reference to
Exhibit 10.10 to AutoNation's Annual Report on Form 10-K for
the year ended December 31, 1998).
10.5 -- AutoNation, Inc. Amended and Restated 1997 Employee Stock
Option Plan (incorporated by reference to Exhibit 10.19 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.6 -- AutoNation, Inc. Amended and Restated 1998 Employee Stock
Option Plan (incorporated by reference to Exhibit 10.20 to
AutoNation's Annual Report on Form 10-K for the year ended
December 31, 1998).
10.7 -- Letter Agreements dated March 26, 1999 and July 29, 1999
between AutoNation, Inc. and Michael E. Maroone, President
and Chief Operating Officer (incorporated by reference to
Exhibit 10.1 of AutoNation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.8 -- Separation Agreement dated June 24, 1999 and effective
September 24, 1999 for Steven R. Berrard, former Co-Chief
Executive Officer (incorporated by reference to Exhibit 10.2
of AutoNation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1999).
10.9 -- Letter Agreement dated September 22, 1999 between
AutoNation, Inc. and Michael J. Jackson, Chief Executive
Officer (incorporated by reference to Exhibit 10.4 of
AutoNation's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1999).
10.10* -- Separation Agreement effective December 31, 1999 for James
O. Cole, former Senior Vice President, General Counsel and
Secretary.
10.11 -- Separation Agreement dated July 30, 1999 for John R.
Costello, former President (incorporated by reference to
Exhibit 10.3 of AutoNation's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999).
10.12 -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated November 18, 1997 (incorporated by
reference to Exhibit 10.25 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.13 -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated November 18, 1997
(incorporated by reference to Exhibit 10.26 to AutoNation's
Annual Report on Form 10-K for the year ended December 31,
1997).
10.14 -- Letter Agreement between National Car Rental System, Inc.
and General Motors Corporation dated December 16, 1998
(incorporated by reference to Exhibit 10.22 to AutoNation's
Annual Report on Form 10-K for the year ended December 31,
1998).
10.15 -- Letter Agreement between Alamo Rent-A-Car, Inc. and General
Motors Corporation dated December 16, 1998 (incorporated by
reference to Exhibit 10.23 to AutoNation's Annual Report on
Form 10-K for the year ended December 31, 1998).
21.1* -- Subsidiaries of AutoNation, Inc.
23.1* -- Consent of Arthur Andersen LLP.
27.1* -- 1999 Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Filed herewith.
62
<PAGE> 1
Exhibit 2.2
================================================================================
REPUBLIC SERVICES, INC.
A Delaware corporation
100,000,000 Shares of Class A Common Stock
U.S. PURCHASE AGREEMENT
Dated: April 27, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties ........................................... 4
(a) Representations and Warranties by the Company ............................... 4
(i) Compliance with Registration Requirements ............................ 4
(ii) Independent Accountants ............................................. 5
(iii) Financial Statements ............................................... 5
(iv) No Material Adverse Change in Business .............................. 5
(v) Good Standing of the Company ......................................... 5
(vi) Good Standing of Subsidiaries ....................................... 6
(vii) Capitalization ..................................................... 6
(viii) Authorization of Agreement ........................................ 7
(ix) Description of Securities ........................................... 7
(x) Absence of Defaults and Conflicts .................................... 7
(xi) Absence of Labor Dispute ............................................ 7
(xii) Absence of Proceedings ............................................. 8
(xiii) Accuracy of Exhibits .............................................. 8
(xiv) Possession of Intellectual Property ................................ 8
(xv) Absence of Further Requirements ..................................... 8
(xvi) Possession of Licenses and Permits ................................. 9
(xvii) Title to Property ................................................. 9
(xviii) Investment Company Act ........................................... 9
(xix) Environmental Laws ................................................. 9
(xx) Registration Rights ................................................. 10
(xxi) Income Taxes ....................................................... 10
(xxii) Internal Controls ................................................. 10
(xxiii) Insurance ........................................................ 11
(xxiv) Offering Material ................................................. 11
(xxv) Related Party Transactions ......................................... 11
(xxvi) Solvency .......................................................... 11
(xxvii) U.S. Real Property Holding Corporation ........................... 11
(xxviii) Year 2000 and Euro Disclosures .................................. 11
(b) Representations and Warranties by AutoNation and the Selling Shareholder .... 12
(i) Accurate Disclosure .................................................. 12
(ii) Authorization of Agreeements ........................................ 12
(iii) Good and Marketable Title .......................................... 12
(iv) Absence of Manipulation ............................................. 12
(v) Absence of Defaults and Conflicts .................................... 13
(vi) Absence of Further Requirements ..................................... 13
(vii) Restriction on Sale of Securities .................................. 13
(viii) No Association with NASD .......................................... 14
(c) Officer's Certificates ...................................................... 14
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 2. Sale and Delivery to U.S. Underwriters; Closing .......................... 14
(a) Initial Securities .......................................................... 14
(b) Option Securities ........................................................... 14
(c) Payment ..................................................................... 15
(d) Denominations; Registration ................................................. 16
SECTION 3. Covenants of the Company ................................................. 16
(a) Compliance with Securities Regulations and Commission Requests .............. 16
(b) Filing of Amendments ........................................................ 16
(c) Delivery of Registration Statements ......................................... 16
(d) Delivery of Prospectus ...................................................... 17
(e) Continued Compliance with Securities Laws ................................... 17
(f) Blue Sky Qualifications ..................................................... 17
(g) Rule 158 .................................................................... 18
(h) Listing ..................................................................... 18
(i) Restriction on Sale of Securities ........................................... 18
(j) Reporting Requirements ...................................................... 18
SECTION 4. Payment of Expenses.......................................................
(a) Expenses.....................................................................
(b) Expenses of AutoNation and the Selling Shareholder .......................... 19
(c) Termination of Agreement .................................................... 19
(d) Allocation of Expenses.......................................................
SECTION 5. Conditions of U.S. Underwriters' Obligations ............................. 20
(a) Effectiveness of Registration Statement ..................................... 20
(b) Opinion of Counsel for Company .............................................. 20
(c) Opinion of Counsel for AutoNation and the Selling Shareholder ............... 20
(d) Opinion of Counsel for U.S. Underwriters .................................... 20
(e) Company Officers' Certificate ............................................... 21
(f) AutoNation and Selling Shareholder Officers' Certificates ................... 21
(g) Accountant's Comfort Letter ................................................. 21
(h) Bring-down Comfort Letter ...................................................
(i) Approval of Listing ......................................................... 22
(j) No Objection ................................................................ 22
(k) Lock-up Agreements .......................................................... 22
(l) Purchase of Initial International Securities ................................ 22
(m) Additional Documents ....................................................... 22
(n) Conditions to Purchase of U.S. Option Securities ............................ 22
(i) Company Officers' Certificate ........................................
(ii) AutoNation and Selling Shareholder Officers' Certificates ........... 23
(iii) Opinion of Counsel for Company ..................................... 23
(iv) Opinion of Counsel for AutoNation and the Selling Shareholder ....... 23
(v) Opinion of Counsel for U.S. Underwriters ............................. 23
(vi) Bring-down Comfort Letter ........................................... 23
(o) Termination of Agreement ....................................................
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6. Indemnification ............................................................... 24
(a) Indemnification of U.S. Underwriters ............................................. 24
(b) Indemnification of Company, Directors and Officers, AutoNation and the Selling
Shareholder ...................................................................... 25
(c) Actions against Parties; Notification ............................................ 25
(d) Settlement without Consent if Failure to Reimburse ............................... 26
(e) Other Agreements with Respect to Indemnifcation .................................. 26
SECTION 7. Contribution .................................................................. 26
SECTION 8. Representations, Warranties and Agreements to Survive Delivery ................ 28
SECTION 9. Termination Agreement ......................................................... 28
(a) Termination; General ............................................................. 28
(b) Liabilities ...................................................................... 28
SECTION 10. Default by One or More of the U.S. Underwriters .............................. 28
SECTION 11. Notices ...................................................................... 29
SECTION 12. Parties ...................................................................... 30
SECTION 13 Governing Law and Time ........................................................ 30
SECTION 14 Effect of Headings ............................................................ 30
SCHEDULES
SCHEDULE A LIST OF U.S. UNDERWRITERS ........................................ SCH A-1
SCHEDULE B PRICING INFORMATION .............................................. SCH B-1
SCHEDULE C LIST OF PERSONS SUBJECT TO LOCK-UP ............................... SCH C-1
EXHIBITS
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S COUNSEL ............................ A-1
EXHIBIT A-2 FORM OF OPINION OF VERMONT COUNSEL .............................. A-2
EXHIBIT B FORM OF LOCK-UP LETTER ............................................ B-1
</TABLE>
-iii-
<PAGE> 5
REPUBLIC SERVICES, INC.
A Delaware corporation
100,000,000 Shares of Class A Common Stock
Par Value $0.01 Per Share
U.S. PURCHASE AGREEMENT
-----------------------
April 27, 1999
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
Deutsche Bank Securities Inc.
Bear, Stearns & Co. Inc.
CIBC Oppenheimer Corp.
Credit Suisse First Boston Corporation
Morgan Stanley & Co. Incorporated
Salomon Smith Barney Inc.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch & Co.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
North Tower
World Financial Center
New York, New York 10281-1209
Ladies and Gentlemen:
Republic Services, Inc., a Delaware corporation (the "Company"),
AutoNation, Inc., a Delaware corporation ("AutoNation"), and AutoNation
Insurance Company, Inc., a Vermont corporation (the "Selling Shareholder"),
confirm their respective agreements with Merrill Lynch
-1-
<PAGE> 6
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") and
each of the other U.S. Underwriters named in Schedule A hereto (collectively,
the "U.S. Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 10 hereof), for whom Merrill
Lynch, Donaldson, Lufkin & Jenrette Securities Corporation, Deutsche Bank
Securities Inc., Bear, Stearns & Co. Inc., CIBC Oppenheimer Corp., Credit Suisse
First Boston Corporation, Morgan Stanley & Co. Incorporated and Salomon Smith
Barney Inc. are acting as representatives (in such capacity, the "U.S.
Representatives"), with respect to (i) the sale by the Selling Shareholder and
the purchase by the U.S Underwriters, acting severally and not jointly, of the
respective numbers of shares of Class A Common Stock, par value $0.01 per share,
of the Company ("Common Stock") set forth in Schedule A hereto, and (ii) the
grant by the Selling Shareholder to the U.S. Underwriters, acting severally and
not jointly, of the option described in Section 2(b) hereof to purchase all or
any part of 9,730,000 additional shares of Common Stock solely to cover
over-allotments, if any. The aforesaid 80,000,000 shares of Common Stock (the
"Initial U.S. Securities") to be purchased by the U.S. Underwriters and all or
any part of the 9,730,000 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "U.S. Option Securities") are hereinafter called,
collectively, the "U.S. Securities."
It is understood that the Company, AutoNation and the Selling
Shareholder are concurrently entering into an agreement dated the date hereof
(the "International Purchase Agreement") providing for the offering by the
Selling Shareholder of an aggregate of 20,000,000 shares of Common Stock (the
"Initial International Securities") through arrangements with certain
underwriters outside the United States and Canada (the "International Managers")
for which Merrill Lynch International, Donaldson, Lufkin & Jenrette
International, Deutsche Bank AG London, Bear, Stearns International Limited,
CIBC Oppenheimer International Ltd., Credit Suisse First Boston (Europe)
Limited, Morgan Stanley & Co. International Limited and Salomon Brothers
International Limited are acting as lead managers (the "Lead Managers") and the
grant by the Selling Shareholder to the International Managers, acting severally
and not jointly, of an option to purchase all or any part of the International
Managers' pro rata portion of up to 2,432,500 additional shares of Common Stock
solely to cover over-allotments, if any (the "International Option Securities"
and, together with the U.S. Option Securities, the "Option Securities"). The
Initial International Securities and the International Option Securities are
hereinafter called the "International Securities." It is understood that the
Selling Shareholder is not obligated to sell, and the U.S. Underwriters are not
obligated to purchase, any Initial U.S. Securities unless all of the Initial
International Securities are contemporaneously purchased by the International
Managers.
The U.S. Underwriters and the International Managers are hereinafter
collectively called the "Underwriters," the Initial U.S. Securities and the
Initial International Securities are hereinafter collectively called the
"Initial Securities," and the U.S. Securities and the International Securities
are hereinafter collectively called the "Securities."
-2-
<PAGE> 7
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
The Company, AutoNation and the Selling Shareholder understand that the
U.S. Underwriters propose to make a public offering of the U.S. Securities as
soon as the U.S. Representatives deem advisable after this Agreement has been
executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-73259) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of U.S. Prospectus is identical to the Form
of International Prospectus, except for their respective front cover pages,
"Underwriting" sections and back cover pages. The information included in any
such prospectus or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
(a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of U.S. Prospectus and Form of International
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated April 6, 1999 and preliminary
International Prospectus dated April 6, 1999, respectively, each together with
the
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<PAGE> 8
applicable Term Sheet and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be deemed to
include the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each U.S. Underwriter as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each U.S.
Underwriter, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any U.S. Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto complied and will comply in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations and did not and will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectuses nor any amendments or supplements thereto, at
the time the Prospectuses or any amendments or supplements thereto were
issued and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
If Rule 434 is used, the Company will comply with the requirements of
Rule 434 and the Prospectuses shall not be "materially different," as
such term is used in Rule 434, from the prospectuses included in the
Registration Statement at the time it became effective. The
representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the U.S.
Representatives or the Lead Managers expressly for use in the
Registration Statement or the Prospectuses.
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Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the 1933 Act
Regulations and each preliminary prospectus and the Prospectuses
delivered to the Underwriters for use in connection with this offering
was identical to the electronically transmitted copies thereof filed
with the Commission pursuant to EDGAR, except to the extent permitted
by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data
and the summary financial information included in the Prospectuses
present fairly the information shown therein and have been compiled on
a basis consistent with that of the audited financial statements
included in the Registration Statement. The pro forma financial
information included in the Registration Statement and the Prospectuses
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial information and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
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(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectuses or as proposed to be
conducted and to enter into and perform its obligations under this
Agreement; and the Company is duly qualified as a foreign corporation
to transact business and is in good standing in each other jurisdiction
in which such qualification is required, whether by reason of the
ownership or leasing of property or the conduct of business, except
where the failure so to qualify or to be in good standing would not
result in a Material Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has
the corporate or limited liability company power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation or limited liability company, as the case may be, to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
or limited liability interests of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through Subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock or limited
liability interests of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only subsidiaries of the Company are (a) the subsidiaries listed on
Exhibit 21.1 to the Registration Statement and (b) certain other
subsidiaries which, considered in the aggregate as a single subsidiary,
do not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under
the caption "Description of Capital Stock" (except for subsequent
issuances, if any, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the
exercise of convertible securities, warrants or options referred to in
the Prospectuses). The shares of issued and outstanding capital stock
of the Company, including the Securities to be purchased by the
Underwriters from the Selling Shareholder, have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company, including the
Securities to be purchased by the
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<PAGE> 11
Underwriters from the Selling Shareholder, was issued in violation of
the preemptive or other similar rights of any securityholder of the
Company.
(viii) AUTHORIZATION OF AGREEMENT. This Agreement and the
International Purchase Agreement have been duly authorized, executed
and delivered by the Company.
(ix) DESCRIPTION OF SECURITIES. The Common Stock conforms to
all statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions
contemplated in this Agreement, in the International Purchase Agreement
and in the Registration Statement (including the sale and delivery of
the Securities) and compliance by the Company with its obligations
under this Agreement and the International Purchase Agreement have been
duly authorized by all necessary corporate action and do not and will
not, whether with or without the giving of notice or passage of time or
both, conflict with or constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any subsidiary pursuant to, the Agreements and Instruments
(except for such conflicts, breaches or defaults or liens, charges or
encumbrances that would not result in a Material Adverse Effect), nor
will such action result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary or any applicable
law, statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over the Company or any subsidiary or any of their
assets, properties or operations. As used herein, a "Repayment Event"
means any event or condition which gives the holder of any note,
debenture or other evidence of indebtedness (or any person acting on
such holder's behalf) the right to require the repurchase, redemption
or repayment of all or a portion of such indebtedness by the Company,
AutoNation, the Selling Shareholder or any of their respective
subsidiaries.
(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the
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<PAGE> 12
employees of any of its or any subsidiary's principal suppliers,
manufacturers, customers or contractors, which, in any case, may
reasonably be expected to result in a Material Adverse Effect.
(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company, AutoNation, the Selling Shareholder or any of their respective
subsidiaries, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably
be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement and the International Purchase Agreement
or the performance by the Company of its obligations hereunder or
thereunder; the aggregate of all pending legal or governmental
proceedings to which the Company or any subsidiary is a party or of
which any of their respective property or assets is the subject which
are not described in the Registration Statement, including ordinary
routine litigation incidental to the business, could not reasonably be
expected to result in a Material Adverse Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the International
Purchase Agreement or the consummation of the transactions contemplated
by this Agreement and the International Purchase Agreement, except such
as have been already obtained or as may be required
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<PAGE> 13
under the 1933 Act or the 1933 Act Regulations and foreign or state
securities or blue sky laws.
(xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively, "Governmental Licenses") issued by
the appropriate federal, state, local or foreign regulatory agencies or
bodies necessary to conduct the business now operated by them; the
Company and its subsidiaries are in compliance with the terms and
conditions of all such Governmental Licenses, except where the failure
so to comply would not, singly or in the aggregate, have a Material
Adverse Effect; all of the Governmental Licenses are valid and in full
force and effect, except when the invalidity of such Governmental
Licenses or the failure of such Governmental Licenses to be in full
force and effect would not have a Material Adverse Effect; and neither
the Company nor any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a
Material Adverse Effect.
(xvii) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate, materially affect the value of such
property as currently used or intended to be used and do not interfere
with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, are in
full force and effect, and neither the Company nor any subsidiary has
any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xix) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common
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<PAGE> 14
law or any judicial or administrative interpretation thereof, including
any judicial or administrative order, consent, decree or judgment,
relating to pollution or protection of human health, the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata) or wildlife, including,
without limitation, laws and regulations relating to the release or
threatened release of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no administrative, regulatory or judicial actions, suits,
demands, demand letters, claims, liens, notices of noncompliance or
violation, investigation or proceedings pending or, to the best of the
Company's knowledge, threatened relating to any Environmental Law
against the Company or any of its subsidiaries and (D) to the best of
the Company's knowledge, there are no events or circumstances that
might reasonably be expected to form the basis of an order for clean-up
or remediation, or an action, suit or proceeding by any private party
or governmental body or agency, against or affecting the Company or any
of its subsidiaries relating to Hazardous Materials or any
Environmental Laws.
(xx) REGISTRATION RIGHTS. Except as disclosed in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement, or otherwise registered by the Company under
the 1933 Act.
(xxi) INCOME TAXES. All United States federal income tax
returns of the Company and its subsidiaries required by law to be filed
have been filed (taking into account extensions granted by the
applicable federal governmental agency) and all taxes shown by such
returns or otherwise assessed, which are due and payable, have been
paid, except for such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. All other
corporate franchise and income tax returns of the Company and its
subsidiaries required to be filed pursuant to applicable foreign, state
or local law have been filed, except insofar as the failure to file
such returns would not individually or in the aggregate have a Material
Adverse Effect, and all taxes shown on such returns or otherwise
assessed which are due and payable have been paid, except for such
taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company in respect of any income and
corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional
income tax for any years not finally determined, except to the extent
of any inadequacy that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered
together as one enterprise.
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<PAGE> 15
(xxii) INTERNAL CONTROLS. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific authorization; (B) transactions
are recorded as necessary to permit preparation of financial statements
in conformity with GAAP and to maintain accountability for assets; (C)
access to assets is permitted only in accordance with management's
general or specific authorization; and (D) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any material
differences.
(xxiii) INSURANCE. The Company and its subsidiaries carry or
are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business, and all such insurance is in full force and
effect.
(xxiv) OFFERING MATERIAL. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion
of the distribution of the Securities, will not distribute any offering
material in connection with the offering and sale of the Securities
other than the Registration Statement, any preliminary prospectuses,
the Prospectuses or other materials, if any, permitted by the 1933 Act
and approved by the Global Coordinator.
(xxv) RELATED PARTY TRANSACTIONS. There are no business
relationships or related party transactions of the nature described in
Item 404 of Regulation S-K involving the Company and any person
described in such Item that are required to be disclosed in the
Registration Statement and which have not been so disclosed.
(xxvi) SOLVENCY. The Company is, and immediately after the
Closing Time the Company will be, Solvent. As used herein, the term
"Solvent" means, with respect to the Company on a particular date, that
on such date (A) the fair market value of the assets of the Company is
greater than the total amount of liabilities (including contingent
liabilities) of the Company, (B) the present fair salable value of the
assets of the Company is greater than the amount that will be required
to pay the probable liabilities of the Company on its debts as they
become absolute and matured, (C) the Company is able to realize upon
its assets and pay its debts and other liabilities, including
contingent obligations, as they mature, and (D) the Company does not
have unreasonably small capital.
(xxvii) U.S. REAL PROPERTY HOLDING CORPORATION. The Company is
not, and has not been, at any time within the year prior to the date
hereof, a "United States real property holding corporation" within the
meaning of Section 897 of the Internal Revenue Code of 1986, as
amended.
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<PAGE> 16
(xxviii) YEAR 2000 AND EURO DISCLOSURES. All disclosure
regarding year 2000 compliance and the Euro conversion that is required
to be described under the 1933 Act and the 1933 Act Regulations
(including disclosures required by Staff Legal Bulletin No. 6, SEC
Release No. 33-7558 (July 29, 1998) and SEC Release No. 33-7609
(November 9, 1998)) has been included in the Prospectuses. Neither the
Company nor any of its subsidiaries will incur significant operating
expenses or costs to ensure that its information systems will be year
2000 compliant or to adjust its operating and information systems to
the conversion to a single currency in Europe, other than as disclosed
in the Prospectuses.
(b) REPRESENTATIONS AND WARRANTIES BY AUTONATION AND THE SELLING
SHAREHOLDER. AutoNation and the Selling Shareholder, jointly and severally,
represent and warrant to each U.S. Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery
(if any) referred to in Section 2(b), hereof and agrees with each U.S.
Underwriter as follows:
(i) ACCURATE DISCLOSURE. To the best knowledge of AutoNation
and the Selling Shareholder, the representations and warranties of the
Company contained in Section 1(a) hereof are true and correct. At the
respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any U.S. Option Securities
are purchased, at the Date of Delivery), the Registration Statement,
the Rule 462(b) Registration Statement and any amendments and
supplements thereto did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectuses nor any amendments or supplements thereto, at
the time the Prospectuses or any amendments or supplements thereto were
issued and at the Closing Time (and, if any U.S. Option Securities are
purchased, at the Date of Delivery), included or will include an untrue
statement of a material fact or omitted or will omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(ii) AUTHORIZATION OF AGREEMENTS. Each of AutoNation and the
Selling Shareholder has the full right, power and authority to enter
into this Agreement and the International Purchase Agreement and to
sell, transfer and deliver the Securities.
(iii) GOOD AND MARKETABLE TITLE. The Selling Shareholder has
and will at the Closing Time and, if any Option Securities are
purchased, on the Date of Delivery have good and marketable title to
the Securities to be sold by the Selling Shareholder hereunder, free
and clear of any security interest, mortgage, pledge, lien, charge,
claim, equity or encumbrance of any kind, other than pursuant to this
Agreement; and upon delivery of such Securities and payment of the
purchase price therefor as herein contemplated, assuming each such
Underwriter has no notice of any adverse claim, each of the
Underwriters will receive good and marketable title to the Securities
purchased by it from
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<PAGE> 17
the Selling Shareholder, free and clear of any security interest,
mortgage, pledge, lien, charge, claim, equity or encumbrance of any
kind.
(iv) ABSENCE OF MANIPULATION. Each of AutoNation and the
Selling Shareholder has not taken, and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(v) ABSENCE OF DEFAULTS AND CONFLICTS. Neither AutoNation, the
Selling Shareholder nor any of their subsidiaries is in violation of
its charter or by-laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which AutoNation, the
Selling Shareholder or any of their subsidiaries is a party or by which
it or any of them may be bound, or to which any of the property or
assets of AutoNation, the Selling Shareholder or any of their
subsidiaries is subject (collectively, "the AutoNation/Selling
Shareholder Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the International
Purchase Agreement and the consummation of the transactions
contemplated in this Agreement, in the International Purchase
Agreement, and in the Registration Statement (including the sale and
delivery of the Securities) and compliance by AutoNation and the
Selling Shareholder with their obligations under this Agreement and the
International Purchase Agreement have been duly authorized by all
necessary corporate action and do not and will not, whether with or
without the giving of notice or passage of time or both, conflict with
or constitute a breach of, or default or Repayment Event under, or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of AutoNation and the Selling Shareholder
or any subsidiary pursuant to, the AutoNation/Selling Shareholder
Agreements and Instruments (except for such conflicts, breaches or
defaults or liens, charges or encumbrances that would not result in a
Material Adverse Effect), nor will such action result in any violation
of the provisions of the charter or by-laws of each of AutoNation and
the Selling Shareholder or any subsidiary or any applicable law,
statute, rule, regulation, judgment, order, writ or decree of any
government, government instrumentality or court, domestic or foreign,
having jurisdiction over AutoNation, the Selling Shareholder or any of
their subsidiaries or any of their assets, properties or operations.
(vi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency, is necessary or required for the performance by AutoNation and
the Selling Shareholder of their respective obligations hereunder, in
connection with the offering or sale of the Securities under this
Agreement and the International Purchase Agreement or the consummation
of the transactions contemplated
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by this Agreement and the International Purchase Agreement, except such
as have been already obtained or as may be required under the 1933 Act
or the 1933 Act Regulations and foreign or state securities or blue sky
laws.
(vii) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, neither AutoNation nor the
Selling Shareholder will, without the prior written consent of the
Global Coordinator, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock
or the Company's Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") or any securities convertible into or
exercisable or exchangeable for Common Stock and/or Class B Common
Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the
Common Stock and/or the Class B Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of such Stock or such other securities, in cash or otherwise.
(viii) NO ASSOCIATION WITH NASD. Neither AutoNation, the
Selling Shareholder nor any of their affiliates (within the meaning of
NASD Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.) of, any member firm of the National
Association of Securities Dealers, Inc.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company, AutoNation, the Selling Shareholder or any of the Company's
subsidiaries delivered to the Global Coordinator, the U.S. Representatives, or
to counsel for the U.S. Underwriters shall be deemed a representation and
warranty by the Company, AutoNation or the Selling Shareholder, as the case may
be, to each U.S. Underwriter as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO U.S. UNDERWRITERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholder agrees to sell to each U.S. Underwriter,
severally and not jointly, and each U.S. Underwriter, severally and not jointly,
agrees to purchase from the Selling Shareholder, at the price per share set
forth in Schedule B, the number of Initial U.S. Securities set forth in Schedule
A opposite the name of such U.S. Underwriter, plus any additional number of
Initial U.S. Securities which such U.S. Underwriter may become obligated to
purchase pursuant to the provisions of Section 10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholder
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hereby grants an option to the U.S. Underwriters, severally and not jointly, to
purchase up to an additional 9,730,000 shares of Common Stock at the price per
share set forth in Schedule B, less an amount per share equal to any dividends
or distributions declared by the Company and payable on the Initial U.S.
Securities but not payable on the U.S. Option Securities. The option hereby
granted will expire 30 days after the date hereof and may be exercised in whole
or in part from time to time only for the purpose of covering over-allotments
which may be made in connection with the offering and distribution of the
Initial U.S. Securities upon notice by the Global Coordinator to the Company and
the Selling Shareholder setting forth the number of U.S. Option Securities as to
which the several U.S. Underwriters are then exercising the option and the time
and date of payment and delivery for such U.S. Option Securities. Any such time
and date of delivery for the Option Securities (a "Date of Delivery") shall be
determined by the Global Coordinator, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the U.S. Option Securities, each of the U.S. Underwriters, acting
severally and not jointly, will purchase that proportion of the total number of
U.S. Option Securities then being purchased which the number of Initial U.S.
Securities set forth in Schedule A opposite the name of such U.S. Underwriter
bears to the total number of Initial U.S. Securities, subject in each case to
such adjustments as the Global Coordinator in its discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Global Coordinator and the
Company and the Selling Shareholder, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Global Coordinator and the
Company and the Selling Shareholder (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the U.S. Option Securities
are purchased by the U.S. Underwriters, payment of the purchase price for, and
delivery of certificates for, such U.S. Option Securities shall be made at the
above-mentioned offices, or at such other place as shall be agreed upon by the
Global Coordinator and the Company, on each Date of Delivery as specified in the
notice from the Global Coordinator to the Company and the Selling Shareholder.
Payment shall be made to the Selling Shareholder by wire transfer of
immediately available funds to a bank account designated by the Selling
Shareholder, against delivery to the U.S. Representatives for the respective
accounts of the U.S. Underwriters of certificates for the U.S. Securities to be
purchased by them. It is understood that each U.S. Underwriter has authorized
the U.S. Representatives, for its account, to accept delivery of, receipt for,
and make payment of the purchase price for, the Initial U.S. Securities and the
U.S. Option Securities, if any, which it has agreed to purchase. Merrill Lynch,
individually and not as representative of the
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<PAGE> 20
U.S. Underwriters, may (but shall not be obligated to) make payment of the
purchase price for the Initial U.S. Securities or the U.S. Option Securities, if
any, to be purchased by any U.S. Underwriter whose funds have not been received
by the Closing Time or the relevant Date of Delivery, as the case may be, but
such payment shall not relieve such U.S. Underwriter from its obligations
hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial U.S.
Securities and the U.S. Option Securities, if any, shall be in such
denominations and registered in such names as the U.S. Representatives may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
U.S. Securities and the U.S. Option Securities, if any, will be made available
for examination and packaging by the U.S. Representatives in The City of New
York not later than 10:00 A.M. (Eastern time) on the business day prior to the
Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
U.S. Underwriter as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator as soon as practicable, and confirm the notice
in writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectuses
or any amended Prospectuses shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, will furnish the Global Coordinator
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use,
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<PAGE> 21
as the case may be, and will not file or use any such document to which
the Global Coordinator or counsel for the U.S. Underwriters shall
reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or will deliver to the U.S. Representatives and counsel for
the U.S. Underwriters, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates
of experts, and will also deliver to the U.S. Representatives, without
charge, a conformed copy of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) for each of the
U.S. Underwriters. The copies of the Registration Statement and each
amendment thereto furnished to the U.S. Underwriters will be identical
to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to
each U.S. Underwriter, without charge, as many copies of each
preliminary prospectus as such U.S. Underwriter reasonably requested,
and the Company hereby consents to the use of such copies for purposes
permitted by the 1933 Act. The Company will furnish to each U.S.
Underwriter, without charge, during the period when the U.S. Prospectus
is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of the
U.S. Prospectus (as amended or supplemented) as such U.S. Underwriter
may reasonably request. The U.S. Prospectus and any amendments or
supplements thereto furnished to the U.S. Underwriters will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the International Purchase Agreement
and in the Prospectuses. If at any time when a prospectus is required
by the 1933 Act to be delivered in connection with sales of the
Securities, any event shall occur or condition shall exist as a result
of which it is necessary, in the opinion of counsel for the U.S.
Underwriters or for the Company, to amend the Registration Statement or
amend or supplement any Prospectus in order that the Prospectuses will
not include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion
of such counsel, at any such time to amend the Registration Statement
or amend or supplement any Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such
statement or omission or to make the
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<PAGE> 22
Registration Statement or the Prospectuses comply with such
requirements, and the Company will furnish to the U.S. Underwriters
such number of copies of such amendment or supplement as the U.S.
Underwriters may reasonably request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best
efforts, in cooperation with the U.S. Underwriters, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) LISTING. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange (the
"NYSE").
(i) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or the Company's Class B Common
Stock, par value $0.01 per share (the "Class B Common Stock") or any
securities convertible into or exercisable or exchangeable for Common
Stock and/or Class B Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock and/or the Class B Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of such Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (a) shares of Common Stock issued to a third party as
consideration for the Company's acquisition from such third party of a
non hazardous solid waste business and (b) options to purchase shares
of Common Stock granted under the Company's 1998 Stock Option Plan.
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<PAGE> 23
(j) REPORTING REQUIREMENTS. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company, AutoNation
and the Selling Shareholder will pay or cause to be paid all expenses incident
to the performance of their obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the U.S. Underwriters and the International Managers,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities and (x)
the fees and expenses incurred in connection with the listing of the Securities
on the NYSE.
(b) EXPENSES OF AUTONATION AND THE SELLING SHAREHOLDER. AutoNation and
the Selling Shareholder will pay or cause to be paid all expenses incident to
the performance of their obligations under, and the consummation of the
transactions contemplated by, this Agreement, including (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of the
Securities to the Underwriters, and their transfer between the Underwriters
pursuant to an agreement between such Underwriters, and (ii) the fees and
disbursements of its counsel and accountants.
(c) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
U.S. Representatives in accordance with the provisions of Section 5 or Section
9(a)(i) hereof, the Company, AutoNation and the Selling Shareholder shall
reimburse the U.S. Underwriters for all of their reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of counsel for the
U.S. Underwriters.
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<PAGE> 24
(d) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect any agreement that the Company, AutoNation and the Selling Shareholder
may make for the sharing of such costs and expenses.
SECTION 5. CONDITIONS OF U.S. UNDERWRITERS' OBLIGATIONS. The
obligations of the several U.S. Underwriters hereunder are subject to the
accuracy of the representations and warranties of the Company, AutoNation and
the Selling Shareholder contained in Section 1 hereof or in certificates of any
officer of the Company or any subsidiary of the Company or on behalf of
AutoNation or the Selling Shareholder delivered pursuant to the provisions
hereof, to the performance by the Company of its covenants and other obligations
hereunder, and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the U.S. Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the U.S.
Representatives shall have received the opinion, dated as of Closing
Time, of Akerman, Senterfitt & Eidson, P.A., counsel for the Company,
in form and substance reasonably satisfactory to counsel for the U.S.
Underwriters, together with signed or reproduced copies of such letter
for each of the other U.S. Underwriters to the effect set forth in
Exhibit A-1 hereto and to such further effect as counsel to the U.S.
Underwriters may reasonably request, based upon events occurring or
information discovered after the date hereof.
(c) OPINION OF COUNSEL FOR AUTONATION AND THE SELLING
SHAREHOLDER. At Closing Time, the U.S. Representatives shall have
received the favorable opinion, dated as of Closing Time, of Akerman,
Senterfitt & Eidson, P.A., counsel for AutoNation and the Selling
Shareholder and of Primmer & Piper, P.C., Vermont counsel for the
Selling Shareholder, in form and substance satisfactory to counsel for
the U.S. Underwriters, together with signed or reproduced copies of
such letter for each of the other U.S. Underwriters to the effect set
forth in Exhibits A-1 and A-2, respectively, hereto and to such further
effect as counsel to the U.S. Underwriters may reasonably request.
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(d) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. At Closing Time,
the U.S. Representatives shall have received the favorable opinion,
dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the U.S. Underwriters, together with signed or reproduced
copies of such letter for each of the other U.S. Underwriters with
respect to the matters pertaining to the Company set forth in clauses
(i), (ii), (vi) through (viii), inclusive, (ix), (xi) (solely as to the
information in the Prospectus under "Description of Capital
Stock--Common Stock") and (xviii) and the matters set forth in the
penultimate paragraph of Exhibit A-1 hereto. In giving such opinion
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the
U.S. Representatives which may include counsel to the Company. Such
counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon
certificates of officers of the Company and its subsidiaries and
certificates of public officials.
(e) COMPANY OFFICERS' CERTIFICATE. At Closing Time, there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectuses, any
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the U.S. Representatives shall
have received a certificate of the Chief Executive Officer, the
President or a Vice President of the Company and of the chief financial
or chief accounting officer of the Company, dated as of Closing Time,
to the effect that (i) there has been no such material adverse change,
(ii) the representations and warranties in Section 1(a) hereof are true
and correct with the same force and effect as though expressly made at
and as of Closing Time, (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time, and (iv) no stop order
suspending the effectiveness of the Registration Statement has been
issued and no proceedings for that purpose have been instituted or are
pending or, to the knowledge of such officers, are contemplated by the
Commission.
(f) AUTONATION AND SELLING SHAREHOLDER OFFICERS' CERTIFICATES.
At Closing Time the U.S. Representatives shall have received a
certificate of a Co-Chief Executive Officer, the President or a Vice
President of each of AutoNation and the Selling Shareholder, each dated
as of Closing Time, to the effect that (i) the representations and
warranties in Section 1(b) hereof are true and correct with the same
force and effect as though expressly made at and as of Closing Time,
and (ii) AutoNation or the Selling Shareholder, as the case may be, has
complied with all agreements and satisfied all conditions on its part
to be performed or satisfied at or prior to Closing Time.
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(g) ACCOUNTANT'S COMFORT LETTER. At the time of the execution
of this Agreement, the U.S. Representatives shall have received from
Arthur Andersen LLP a letter dated such date, in form and substance
satisfactory to the U.S. Representatives, together with signed or
reproduced copies of such letter for each of the other U.S.
Underwriters containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the
Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the U.S.
Representatives shall have received from Arthur Andersen LLP a letter,
dated as of Closing Time, to the effect that they reaffirm the
statements made in the letter furnished pursuant to subsection (g) of
this Section, except that the specified date referred to shall be a
date not more than three business days prior to Closing Time.
(i) APPROVAL OF LISTING. At Closing Time, the Securities shall
have been approved for listing on the NYSE, subject only to official
notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the
U.S. Representatives shall have received an agreement substantially in
the form of Exhibit B hereto signed by AutoNation, the Selling
Shareholder and the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL INTERNATIONAL SECURITIES.
Contemporaneously with the purchase by the U.S. Underwriters of the
Initial U.S. Securities under this Agreement, the International
Managers shall have purchased the Initial International Securities
under the International Purchase Agreement.
(m) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the U.S. Underwriters shall have been furnished
with such documents and opinions as they may require for the purpose of
enabling them to pass upon the issuance and sale of the Securities as
herein contemplated, or in order to evidence the accuracy of any of the
representations or warranties, or the fulfillment of any of the
conditions, herein contained; and all proceedings taken by the Company,
AutoNation and the Selling Shareholder in connection with the issuance
and sale of the Securities as herein contemplated shall be satisfactory
in form and substance to the U.S. Representatives and counsel for the
U.S. Underwriters.
(n) CONDITIONS TO PURCHASE OF U.S. OPTION SECURITIES. In the
event that the U.S. Underwriters exercise their option provided in
Section 2(b) hereof to purchase all or
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any portion of the U.S. Option Securities, the representations and
warranties of the Company, AutoNation and the Selling Shareholder
contained herein and the statements in any certificates furnished by
the Company, any subsidiary of the Company, AutoNation or the Selling
Shareholder hereunder shall be true and correct as of each Date of
Delivery and, at the relevant Date of Delivery, the U.S.
Representatives shall have received:
(i) COMPANY OFFICERS' CERTIFICATE. A certificate, dated
such Date of Delivery, of the Chief Executive
Officer, the President or a Vice President of the
Company and of the chief financial or chief
accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to
Section 5(e) hereof remains true and correct as of
such Date of Delivery.
(ii) AUTONATION AND SELLING SHAREHOLDER OFFICERS'
CERTIFICATES. A certificate, dated such Date of
Delivery, of a Co-Chief Executive Officer, the
President or a Vice President of each of AutoNation
and the Selling Shareholder confirming that the
certificates delivered at the Closing Time pursuant
to Section 5(f) hereof remains true and correct as of
such Date of Delivery.
(iii) OPINION OF COUNSEL FOR COMPANY. The opinion of
Akerman, Senterfitt & Eidson, P.A., counsel for the
Company, in form and substance reasonably
satisfactory to counsel for the U.S. Underwriters,
dated such Date of Delivery, relating to the Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Section 5(b) hereof.
(iv) OPINION OF COUNSEL FOR AUTONATION AND THE SELLING
SHAREHOLDER. The opinion of Akerman, Senterfitt &
Eidson, P.A., counsel for AutoNation and the Selling
Shareholder and of Primmer & Piper, P.C., Vermont
counsel for the Selling Shareholder, in form and
substance reasonably satisfactory to counsel for the
U.S. Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c)
hereof.
(v) OPINION OF COUNSEL FOR U.S. UNDERWRITERS. The
favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the U.S. Underwriters, dated
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<PAGE> 28
such Date of Delivery, relating to the U.S. Option
Securities to be purchased on such Date of Delivery
and otherwise to the same effect as the opinion
required by Section 5(d) hereof.
(vi) BRING-DOWN COMFORT LETTER. A letter from Arthur
Andersen LLP, in form and substance satisfactory to
the U.S. Representatives and dated such Date of
Delivery, substantially in the same form and
substance as the letter furnished to the U.S.
Representatives pursuant to Section 5(h) hereof,
except that the "specified date" in the letter
furnished pursuant to this paragraph shall be a date
not more than five days prior to such Date of
Delivery.
(o) TERMINATION OF AGREEMENT. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of U.S. Option Securities on a Date of Delivery which is after
the Closing Time, the obligations of the several U.S. Underwriters to
purchase the relevant Option Securities, may be terminated by the U.S.
Representatives by notice to the Company at any time at or prior to
Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF U.S. UNDERWRITERS. The Company, AutoNation and
the Selling Shareholder, jointly and severally, agree to indemnify and hold
harmless each U.S. Underwriter and each person, if any, who controls any U.S.
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or
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<PAGE> 29
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission; provided that (subject to Section 6(d) below) any such
settlement is effected with the written consent of the Company; and
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
U.S. Underwriter through the U.S. Representatives expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS, AUTONATION AND
THE SELLING SHAREHOLDER. Each U.S. Underwriter severally agrees to indemnify and
hold harmless the Company, its directors, each of its officers who signed the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, AutoNation,
each person, if any, who controls AutoNation within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, and the Selling Shareholder and each
person, if any, who controls the Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto) in
reliance upon and in conformity with written information furnished to the
Company by such U.S. Underwriter through the U.S. Representatives expressly for
use in the Registration Statement (or any amendment thereto) or such preliminary
prospectus or the U.S. Prospectus (or any amendment or supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the
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<PAGE> 30
case of parties indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch, and, in the case of
parties indemnified pursuant to Section 6(b) above, counsel to the indemnified
parties shall be selected by the Company. An indemnifying party may participate
at its own expense in the defense of any such action; provided, however, that
counsel to the indemnifying party shall not (except with the consent of the
indemnified party) also be counsel to the indemnified party. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one action or separate but
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances. No indemnifying party shall, without the
prior written consent of the indemnified parties, settle or compromise or
consent to the entry of any judgment with respect to any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever in respect of which indemnification or
contribution could be sought under this Section 6 or Section 7 hereof (whether
or not the indemnified parties are actual or potential parties thereto), unless
such settlement, compromise or consent (i) includes an unconditional release of
each indemnified party from all liability arising out of such litigation,
investigation, proceeding or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a)(ii) or (iii) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(e) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions of
this Section shall not affect any agreement among the Company, AutoNation and
the Selling Shareholder with respect to indemnification.
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<PAGE> 31
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, AutoNation
and the Selling Shareholder on the one hand and the U.S. Underwriters on the
other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, AutoNation and the Selling Shareholder on the one hand and of the U.S
Underwriters on the other hand in connection with the statements or omissions,
which resulted in such losses, liabilities, claims, damages or expenses, as well
as any other relevant equitable considerations.
The relative benefits received by the Company, AutoNation and the
Selling Shareholder on the one hand and the U.S. Underwriters on the other hand
in connection with the offering of the U.S. Securities pursuant to this
Agreement shall be deemed to be in the same respective proportions as the total
net proceeds from the offering of the U.S. Securities pursuant to this Agreement
(before deducting expenses) received by the Company, AutoNation and the Selling
Shareholder and the total underwriting discount received by the U.S.
Underwriters, in each case as set forth on the cover of the U.S. Prospectus, or,
if Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the U.S. Securities as set forth on
such cover.
The relative fault of the Company, AutoNation and the Selling
Shareholder on the one hand and the U.S. Underwriters on the other hand shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact relates to information supplied by the Company, AutoNation
or the Selling Shareholder or by the U.S. Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Company, AutoNation, the Selling Shareholder and the U.S.
Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 7 were determined by pro rata allocation (even if the
U.S. Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to above in this Section 7. The aggregate amount of losses,
liabilities, claims, damages and expenses incurred by an indemnified party and
referred to above in this Section 7 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in investigating,
preparing or defending against any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue or alleged untrue statement or
omission or alleged omission.
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<PAGE> 32
Notwithstanding the provisions of this Section 7, no U.S. Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the U.S. Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such U.S. Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls a
U.S. Underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act shall have the same rights to contribution as such U.S.
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company, AutoNation or the Selling Shareholder within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to
contribution as the Company, AutoNation or the Selling Shareholder, as the case
may be. The U.S. Underwriters' respective obligations to contribute pursuant to
this Section 7 are several in proportion to the number of Initial U.S.
Securities set forth opposite their respective names in Schedule A hereto and
not joint.
The provisions of this Section shall not affect any agreement among the
Company, AutoNation and the Selling Shareholder with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries, AutoNation or the Selling Shareholder submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any U.S. Underwriter or controlling
person, or by or on behalf of the Company, AutoNation or the Selling
Shareholder, and shall survive delivery of the Securities to the U.S.
Underwriters.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The U.S. Representatives may terminate this
Agreement, by notice to the Company, AutoNation and the Selling Shareholder, at
any time at or prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the U.S. Prospectus, any material adverse change in the
condition, financial or otherwise, or in the earnings, business affairs or
business prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business, or (ii)
if there has occurred any material adverse change in the financial markets in
the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
development involving a prospective change in national or international
political, financial or
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<PAGE> 33
economic conditions, in each case the effect of which is such as to make it, in
the judgment of the U.S. Representatives, impracticable to market the Securities
or to enforce contracts for the sale of the Securities, or (iii) if trading in
any securities of the Company has been suspended or materially limited by the
Commission, or the NYSE, or if trading generally on the American Stock Exchange
or the NYSE or in the Nasdaq National Market has been suspended or materially
limited, or minimum or maximum prices for trading have been fixed, or maximum
ranges for prices have been required, by any of said exchanges or by such system
or by order of the Commission, the National Association of Securities Dealers,
Inc. or any other governmental authority, or (iv) if a banking moratorium has
been declared by either Federal or New York authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE U.S. UNDERWRITERS. If one or
more of the U.S. Underwriters shall fail at Closing Time or a Date of Delivery
to purchase the Securities which it or they are obligated to purchase under this
Agreement (the "Defaulted Securities"), the U.S. Representatives shall have the
right, within 24 hours thereafter, to make arrangements for one or more of the
non-defaulting U.S. Underwriters, or any other underwriters, to purchase all,
but not less than all, of the Defaulted Securities in such amounts as may be
agreed upon and upon the terms herein set forth; if, however, the U.S.
Representatives shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of U.S. Securities to be purchased on such date, each of
the non-defaulting U.S. Underwriters shall be obligated, severally and
not jointly, to purchase the full amount thereof in the proportions
that their respective underwriting obligations hereunder bear to the
underwriting obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of U.S. Securities to be purchased on such date, this Agreement
or, with respect to any Date of Delivery which occurs after the Closing
Time, the obligation of the U.S. Underwriters to purchase and of the
Company to sell the Option Securities to be purchased and sold on such
Date of Delivery shall terminate without liability on the part of any
non-defaulting U.S. Underwriter.
No action taken pursuant to this Section shall relieve any defaulting
U.S. Underwriter from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a termination of the obligation of the
U.S. Underwriters to purchase and the Selling Shareholder to
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<PAGE> 34
sell the relevant U.S. Option Securities, as the case may be, either the U.S.
Representatives or the Selling Shareholder shall have the right to postpone
Closing Time or the relevant Date of Delivery, as the case may be, for a period
not exceeding seven days in order to effect any required changes in the
Registration Statement or Prospectus or in any other documents or arrangements.
As used herein, the term "U.S. Underwriter" includes any person substituted for
a U.S.; Underwriter under this Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the U.S.
Underwriters shall be directed to the U.S. Representatives at North Tower, World
Financial Center, New York, New York 10281-1201, attention of the U.S.
Representatives; with a copy to Valerie Ford Jacob, Esq., Fried, Frank, Harris,
Shriver & Jacobson, One New York Plaza, New York, New York 10004; and notices to
the Company shall be directed to it at Republic Services, Inc., 110 S.E. Sixth
Street, Fort Lauderdale, Florida 33301, attention of David A. Barclay, General
Counsel; with a copy to Jonathan L. Awner, Esq., Akerman, Senterfitt & Eidson,
P.A., One S.E. Third Avenue, Miami, Florida 33131; notices to AutoNation shall
be directed to it at AutoNation, Inc., 110 S.E. Sixth Street, Fort Lauderdale,
Florida 33301, attention of James O. Cole with a copy to Jonathan L. Awner,
Esq., Akerman, Senterfitt & Eidson, P.A.; and notices to the Selling Shareholder
shall be directed to it at AutoNation Insurance Company, Inc., 76 St. Paul
Street, Suite 501, Burlington, Vermont 05401, attention of Guy F. Ragosta with a
copy to Jonathan L. Awner, Esq., Akerman, Senterfitt & Eidson, P.A.
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the U.S. Underwriters, the Company, AutoNation and the
Selling Shareholder and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the U.S. Underwriters, the Company,
AutoNation and the Selling Shareholder and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the U.S. Underwriters, the Company,
AutoNation and the Selling Shareholder and their respective successors, and said
controlling persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or corporation. No
purchaser of Securities from any U.S. Underwriter shall be deemed to be a
successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
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<PAGE> 35
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, AutoNation and the Selling
Shareholder a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the U.S. Underwriters, the
Company, AutoNation and the Selling Shareholder in accordance with its terms.
Very truly yours,
AUTONATION, INC.
By /s/ James O. Cole
-------------------------------
Title: Senior Vice President
General Counsel
AUTONATION INSURANCE
COMPANY, INC.
By /s/ Gui F. Ragosta
-------------------------------
Title: Vice President
REPUBLIC SERVICES, INC.
By /s/ David M. Barclay
-------------------------------
Title: Senior Vice President
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<PAGE> 36
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
DEUTSCHE BANK SECURITIES INC.
BEAR, STEARNS & CO. INC.
CIBC OPPENHEIMER CORP.
CREDIT SUISSE FIRST BOSTON CORPORATION
MORGAN STANLEY & CO. INCORPORATED
SALOMON SMITH BARNEY INC.
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By /s/ Michael Santini
-------------------------------
Authorized Signatory
For themselves and as U.S. Representatives of the other U.S. Underwriters named
in Schedule A hereto
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<PAGE> 1
Exhibit 2.3
================================================================================
REPUBLIC SERVICES, INC.
A Delaware corporation
100,000,000 Shares of Class A Common Stock
INTERNATIONAL PURCHASE AGREEMENT
Dated: April 27, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Representations and Warranties ........................................... 4
(a) Representations and Warranties by the Company ............................... 4
(i) Compliance with Registration Requirements ............................ 4
(ii) Independent Accountants ............................................. 5
(iii) Financial Statements ............................................... 5
(iv) No Material Adverse Change in Business .............................. 5
(v) Good Standing of the Company ......................................... 5
(vi) Good Standing of Subsidiaries ....................................... 6
(vii) Capitalization ..................................................... 6
(viii) Authorization of Agreement ........................................ 6
(ix) Description of Securities ........................................... 7
(x) Absence of Defaults and Conflicts .................................... 7
(xi) Absence of Labor Dispute ............................................ 7
(xii) Absence of Proceedings ............................................. 7
(xiii) Accuracy of Exhibits .............................................. 8
(xiv) Possession of Intellectual Property ................................ 8
(xv) Absence of Further Requirements ..................................... 8
(xvi) Possession of Licenses and Permits ................................. 8
(xvii) Title to Property ................................................. 9
(xviii) Investment Company Act ........................................... 9
(xix) Environmental Laws ................................................. 9
(xx) Registration Rights ................................................. 10
(xxi) Income Taxes ....................................................... 10
(xxii) Internal Controls ................................................. 10
(xxiii) Insurance ........................................................ 11
(xxiv) Offering Material ................................................. 11
(xxv) Related Party Transactions ......................................... 11
(xxvi) Solvency .......................................................... 11
(xxvii) U.S. Real Property Holding Corporation ........................... 11
(xxviii) Year 2000 and Euro Disclosures .................................. 11
(b) Representations and Warranties by AutoNation and the Selling Shareholder .... 12
(i) Accurate Disclosure .................................................. 12
(ii) Authorization of Agreeements ........................................ 12
(iii) Good and Marketable Title .......................................... 12
(iv) Absence of Manipulation ............................................. 12
(v) Absence of Defaults and Conflicts .................................... 13
(vi) Absence of Further Requirements ..................................... 13
(vii) Restriction on Sale of Securities .................................. 13
(viii) No Association with NASD .......................................... 14
(c) Officer's Certificates ...................................................... 14
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
SECTION 2. Sale and Delivery to International Managers; Closing ..................... 14
(a) Initial Securities .......................................................... 14
(b) Option Securities ........................................................... 14
(c) Payment ..................................................................... 15
(d) Denominations; Registration ................................................. 15
SECTION 3. Covenants of the Company ................................................. 16
(a) Compliance with Securities Regulations and Commission Requests .............. 16
(b) Filing of Amendments ........................................................ 16
(c) Delivery of Registration Statements ......................................... 16
(d) Delivery of Prospectus ...................................................... 17
(e) Continued Compliance with Securities Laws ................................... 17
(f) Blue Sky Qualifications ..................................................... 17
(g) Rule 158 .................................................................... 18
(h) Listing ..................................................................... 18
(i) Restriction on Sale of Securities ........................................... 18
(j) Reporting Requirements ...................................................... 18
SECTION 4. Payment of Expenses ...................................................... 19
(a) Expenses .................................................................... 19
(b) Expenses of AutoNation and the Selling Shareholder .......................... 19
(c) Termination of Agreement .................................................... 19
(d) Allocation of Expenses ...................................................... 19
SECTION 5. Conditions of International Managers' Obligations ........................ 20
(a) Effectiveness of Registration Statement ..................................... 20
(b) Opinion of Counsel for Company .............................................. 20
(c) Opinion of Counsel for AutoNation and the Selling Shareholder ............... 20
(d) Opinion of Counsel for International Managers ............................... 20
(e) Company Officers' Certificate ............................................... 21
(f) AutoNation and Selling Shareholder Officers' Certificates ................... 21
(g) Accountant's Comfort Letter ................................................. 21
(h) Bring-down Comfort Letter ................................................... 22
(i) Approval of Listing ......................................................... 22
(j) No Objection ................................................................ 22
(k) Lock-up Agreements .......................................................... 22
(l) Purchase of Initial U.S. Securities ......................................... 22
(m) Additional Documents ....................................................... 22
(n) Conditions to Purchase of International Option Securities ................... 22
(i) Company Officers' Certificate ........................................ 22
(ii) AutoNation and Selling Shareholder Officers' Certificates ........... 23
(iii) Opinion of Counsel for Company ..................................... 23
(iv) Opinion of Counsel for AutoNation and the Selling Shareholder ....... 23
(v) Opinion of Counsel for International Managers ........................ 23
(vi) Bring-down Comfort Letter ........................................... 23
(o) Termination of Agreement .................................................... 24
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
SECTION 6. Indemnification ................................................................ 24
(a) Indemnification of International Managers ......................................... 24
(b) Indemnification of Company, Directors and Officers, AutoNation and the Selling
Shareholder ..................................................................... 25
(c) Actions against Parties; Notification ............................................. 25
(d) Settlement without Consent if Failure to Reimburse ................................ 26
(e) Other Agreements with Respect to Indemnifcation ................................... 26
SECTION 7. Contribution ................................................................... 26
SECTION 8. Representations, Warranties and Agreements to Survive Delivery ................. 28
SECTION 9. Termination Agreement .......................................................... 28
(a) Termination; General .............................................................. 28
(b) Liabilities ....................................................................... 28
SECTION 10. Default by One or More of the International Managers .......................... 28
SECTION 11. Notices ....................................................................... 29
SECTION 12. Parties ....................................................................... 29
SECTION 13 Governing Law and Time ......................................................... 30
SECTION 14 Effect of Headings ............................................................. 30
SCHEDULES
SCHEDULE A LIST OF INTERNATIONAL MANAGERS .................................... SCH A-1
SCHEDULE B PRICING INFORMATION ............................................... SCH B-1
SCHEDULE C LIST OF PERSONS SUBJECT TO LOCK-UP ................................ SCH C-1
EXHIBITS
EXHIBIT A-1 FORM OF OPINION OF COMPANY'S COUNSEL ............................. A-1
EXHIBIT A-2 FORM OF OPINION OF VERMONT COUNSEL ............................... A-2
EXHIBIT B FORM OF LOCK-UP LETTER ............................................. B-1
</TABLE>
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<PAGE> 5
REPUBLIC SERVICES, INC.
A Delaware corporation
100,000,000 Shares of Class A Common Stock
Par Value $0.01 Per Share
INTERNATIONAL PURCHASE AGREEMENT
April 27, 1999
Merrill Lynch International
Donaldson, Lufkin & Jenrette International
Deutsche Bank AG London
Bear, Stearns International Limited
CIBC Oppenheimer International Ltd.
Credit Suisse First Boston (Europe) Limited
Morgan Stanley & Co. International Limited
Salomon Brothers International Limited.
as Lead Managers of the several International Managers
c/o Merrill Lynch International
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
Ladies and Gentlemen:
Republic Services, Inc., a Delaware corporation (the "Company"),
AutoNation, Inc., a Delaware corporation ("AutoNation"), and AutoNation
Insurance Company, Inc., a Vermont corporation (the "Selling Shareholder"),
confirm their respective agreements with Merrill Lynch International ("Merrill
Lynch") and each of the other International Managers named in Schedule A hereto
(collectively, the "International Managers", which term shall also include any
underwriter substituted as hereinafter provided in Section 10 hereof), for whom
Merrill Lynch, Donaldson, Lufkin & Jenrette International, Deutsche Bank AG
London, Bear, Stearns
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International Limited, CIBC Oppenheimer International Ltd., Credit Suisse First
Boston (Europe) Limited, Morgan Stanley & Co. International Limited and Salomon
Brothers International Limited are acting as representatives (in such capacity,
the "Lead Managers"), with respect to (i) the sale by the Selling Shareholder
and the purchase by the International Managers, acting severally and not
jointly, of the respective numbers of shares of Class A Common Stock, par value
$0.01 per share, of the Company ("Common Stock") set forth in Schedule A hereto,
and (ii) the grant by the Selling Shareholder to the International Managers,
acting severally and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of 2,432,500 additional shares of Common Stock
solely to cover over-allotments, if any. The aforesaid 20,000,000 shares of
Common Stock (the "Initial International Securities") to be purchased by the
International Managers and all or any part of the 2,432,500 shares of Common
Stock subject to the option described in Section 2(b) hereof (the "International
Option Securities") are hereinafter called, collectively, the "International
Securities."
It is understood that the Company, AutoNation and the Selling
Shareholder are concurrently entering into an agreement dated the date hereof
(the "U.S. Purchase Agreement") providing for the offering by the Selling
Shareholder of an aggregate of 80,000,000 shares of Common Stock (the "Initial
U.S. Securities") through arrangements with certain underwriters in the United
States and Canada (the "U.S. Underwriters") for which Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation, Deutsche Bank Securities Inc., Bear, Stearns & Co. Inc.,
CIBC Oppenheimer Corp., Credit Suisse First Boston Corporation, Morgan Stanley &
Co. Incorporated and Salomon Smith Barney Inc. are acting as representatives
(the "U.S. Representatives") and the grant by the Selling Shareholder to the
U.S. Underwriters, acting severally and not jointly, of an option to purchase
all or any part of the U.S. Underwriters' pro rata portion of up to 9,730,000
additional shares of Common Stock solely to cover over-allotments, if any (the
"U.S. Option Securities" and, together with the International Option Securities,
the "Option Securities"). The Initial U.S. Securities and the U.S. Option
Securities are hereinafter called the "U.S. Securities." It is understood that
the Selling Shareholder is not obligated to sell, and the International Managers
are not obligated to purchase, any Initial International Securities unless all
of the Initial U.S. Securities are contemporaneously purchased by the U.S.
Underwriters.
The International Managers and the U.S. Underwriters are hereinafter
collectively called the "Underwriters," the Initial International Securities and
the Initial U.S. Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
The Underwriters will concurrently enter into an Intersyndicate
Agreement of even date herewith (the "Intersyndicate Agreement") providing for
the coordination of certain transactions among the Underwriters under the
direction of Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated (in such capacity, the "Global Coordinator").
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The Company, AutoNation and the Selling Shareholder understand that the
International Managers propose to make a public offering of the International
Securities as soon as the Lead Managers deem advisable after this Agreement has
been executed and delivered.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (No. 333-73259) covering the
registration of the Securities under the Securities Act of 1933, as amended (the
"1933 Act"), including the related preliminary prospectus or prospectuses.
Promptly after execution and delivery of this Agreement, the Company will either
(i) prepare and file a prospectus in accordance with the provisions of Rule 430A
("Rule 430A") of the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of
the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule
434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a
"Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). Two
forms of prospectus are to be used in connection with the offering and sale of
the Securities: one relating to the U.S. Securities (the "Form of U.S.
Prospectus") and one relating to the International Securities (the "Form of
International Prospectus"). The Form of International Prospectus is identical to
the Form of U.S. Prospectus, except for their respective front cover pages,
"Underwriting" sections and back cover pages. The information included in any
such prospectus or in any such Term Sheet, as the case may be, that was omitted
from such registration statement at the time it became effective but that is
deemed to be part of such registration statement at the time it became effective
(a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A
Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as
"Rule 434 Information." Each Form of International Prospectus and Form of U.S.
Prospectus used before such registration statement became effective, and any
prospectus that omitted, as applicable, the Rule 430A Information or the Rule
434 Information, that was used after such effectiveness and prior to the
execution and delivery of this Agreement, is herein called a "preliminary
prospectus." Such registration statement, including the exhibits thereto and
schedules thereto at the time it became effective and including the Rule 430A
Information and the Rule 434 Information, as applicable, is herein called the
"Registration Statement." Any registration statement filed pursuant to Rule
462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b)
Registration Statement," and after such filing the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. The final Form of U.S.
Prospectus and the final Form of International Prospectus in the forms first
furnished to the Underwriters for use in connection with the offering of the
Securities are herein called the "U.S. Prospectus" and the "International
Prospectus," respectively, and collectively, the "Prospectuses." If Rule 434 is
relied on, the terms "U.S. Prospectus" and "International Prospectus" shall
refer to the preliminary U.S. Prospectus dated April 6, 1999 and preliminary
International Prospectus dated April 6, 1999, respectively, each together with
the applicable Term Sheet and all references in this Agreement to the date of
such Prospectuses shall mean the date of the applicable Term Sheet. For purposes
of this Agreement, all references to the Registration Statement, any preliminary
prospectus, the U.S. Prospectus, the International Prospectus or any Term Sheet
or any amendment or supplement to any of the foregoing shall be
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deemed to include the copy filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval system ("EDGAR").
SECTION 1. REPRESENTATIONS AND WARRANTIES.
(a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company
represents and warrants to each International Manager as of the date hereof, as
of the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b) hereof, and agrees with each
International Manager, as follows:
(i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the
Registration Statement and any Rule 462(b) Registration Statement has
become effective under the 1933 Act and no stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement has been issued under the 1933 Act and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of the Company, are contemplated by the Commission, and
any request on the part of the Commission for additional information
has been complied with.
At the respective times the Registration Statement, any Rule
462(b) Registration Statement and any post-effective amendments thereto
became effective and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), the
Registration Statement, the Rule 462(b) Registration Statement and any
amendments and supplements thereto complied and will comply in all
material respects with the requirements of the 1933 Act and the 1933
Act Regulations and did not and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading.
Neither the Prospectuses nor any amendments or supplements thereto, at
the time the Prospectuses or any amendments or supplements thereto were
issued and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), included or will
include an untrue statement of a material fact or omitted or will omit
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading. If Rule 434 is used, the Company will comply with the
requirements of Rule 434 and the Prospectuses shall not be "materially
different," as such term is used in Rule 434, from the prospectuses
included in the Registration Statement at the time it became effective.
The representations and warranties in this subsection shall not apply
to statements in or omissions from the Registration Statement or the
Prospectuses made in reliance upon and in conformity with information
furnished to the Company in writing by any Underwriter through the Lead
Managers or the U.S. Representatives expressly for use in the
Registration Statement or the Prospectuses.
Each preliminary prospectus and the prospectuses filed as part
of the Registration Statement as originally filed or as part of any
amendment thereto, or filed pursuant to Rule 424 under the 1933 Act,
complied when so filed in all material respects with the
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1933 Act Regulations and each preliminary prospectus and the
Prospectuses delivered to the Underwriters for use in connection with
this offering was identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the
extent permitted by Regulation S-T.
(ii) INDEPENDENT ACCOUNTANTS. The accountants who certified
the financial statements and supporting schedules included in the
Registration Statement are independent public accountants as required
by the 1933 Act and the 1933 Act Regulations.
(iii) FINANCIAL STATEMENTS. The financial statements included
in the Registration Statement and the Prospectuses, together with the
related schedules and notes, present fairly the financial position of
the Company and its consolidated subsidiaries at the dates indicated
and the statement of operations and cash flows of the Company and its
consolidated subsidiaries for the periods specified; said financial
statements have been prepared in conformity with generally accepted
accounting principles ("GAAP") applied on a consistent basis throughout
the periods involved. The supporting schedules included in the
Registration Statement present fairly in accordance with GAAP the
information required to be stated therein. The selected financial data
and the summary financial information included in the Prospectuses
present fairly the information shown therein and have been compiled on
a basis consistent with that of the audited financial statements
included in the Registration Statement. The pro forma financial
information included in the Registration Statement and the Prospectuses
present fairly the information shown therein, have been prepared in
accordance with the Commission's rules and guidelines with respect to
pro forma financial information and have been properly compiled on the
bases described therein, and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate
to give effect to the transactions and circumstances referred to
therein.
(iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the
respective dates as of which information is given in the Registration
Statement and the Prospectuses, except as otherwise stated therein, (A)
there has been no material adverse change in the condition, financial
or otherwise, or in the earnings, business affairs or business
prospects of the Company and its subsidiaries considered as one
enterprise, whether or not arising in the ordinary course of business
(a "Material Adverse Effect"), (B) there have been no transactions
entered into by the Company or any of its subsidiaries, other than
those in the ordinary course of business, which are material with
respect to the Company and its subsidiaries considered as one
enterprise, and (C) there has been no dividend or distribution of any
kind declared, paid or made by the Company on any class of its capital
stock.
(v) GOOD STANDING OF THE COMPANY. The Company has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware and has corporate power and
authority to own, lease and operate its properties
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and to conduct its business as described in the Prospectuses or as
proposed to be conducted and to enter into and perform its obligations
under this Agreement; and the Company is duly qualified as a foreign
corporation to transact business and is in good standing in each other
jurisdiction in which such qualification is required, whether by reason
of the ownership or leasing of property or the conduct of business,
except where the failure so to qualify or to be in good standing would
not result in a Material Adverse Effect.
(vi) GOOD STANDING OF SUBSIDIARIES. Each "significant
subsidiary" of the Company (as such term is defined in Rule 1-02 of
Regulation S-X) (each a "Subsidiary" and, collectively, the
"Subsidiaries") has been duly organized and is validly existing as a
corporation or limited liability company, as the case may be, in good
standing under the laws of the jurisdiction of its organization, has
the corporate or limited liability company power and authority to own,
lease and operate its properties and to conduct its business as
described in the Prospectuses and is duly qualified as a foreign
corporation or limited liability company, as the case may be, to
transact business and is in good standing in each jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except where the
failure so to qualify or to be in good standing would not result in a
Material Adverse Effect; except as otherwise disclosed in the
Registration Statement, all of the issued and outstanding capital stock
or limited liability interests of each such Subsidiary has been duly
authorized and validly issued, is fully paid and non-assessable and is
owned by the Company, directly or through Subsidiaries, free and clear
of any security interest, mortgage, pledge, lien, encumbrance, claim or
equity; none of the outstanding shares of capital stock or limited
liability interests of any Subsidiary was issued in violation of the
preemptive or similar rights of any securityholder of such Subsidiary.
The only subsidiaries of the Company are (a) the subsidiaries listed on
Exhibit 21.1 to the Registration Statement and (b) certain other
subsidiaries which, considered in the aggregate as a single subsidiary,
do not constitute a "significant subsidiary" as defined in Rule 1-02 of
Regulation S-X.
(vii) CAPITALIZATION. The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectuses under
the caption "Description of Capital Stock" (except for subsequent
issuances, if any, pursuant to reservations, agreements or employee
benefit plans referred to in the Prospectuses or pursuant to the
exercise of convertible securities, warrants or options referred to in
the Prospectuses). The shares of issued and outstanding capital stock
of the Company, including the Securities to be purchased by the
Underwriters from the Selling Shareholder, have been duly authorized
and validly issued and are fully paid and non-assessable; none of the
outstanding shares of capital stock of the Company, including the
Securities to be purchased by the Underwriters from the Selling
Shareholder, was issued in violation of the preemptive or other similar
rights of any securityholder of the Company.
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(viii) AUTHORIZATION OF AGREEMENT. This Agreement and the U.S.
Purchase Agreement have been duly authorized, executed and delivered by
the Company.
(ix) DESCRIPTION OF SECURITIES. The Common Stock conforms to
all statements relating thereto contained in the Prospectuses and such
description conforms to the rights set forth in the instruments
defining the same; no holder of the Securities will be subject to
personal liability by reason of being such a holder.
(x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor
any of its subsidiaries is in violation of its charter or by-laws or in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which it or any of them may be bound, or to which any of
the property or assets of the Company or any subsidiary is subject
(collectively, "Agreements and Instruments") except for such defaults
that would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated in this
Agreement, in the U.S. Purchase Agreement and in the Registration
Statement (including the sale and delivery of the Securities) and
compliance by the Company with its obligations under this Agreement and
the U.S. Purchase Agreement have been duly authorized by all necessary
corporate action and do not and will not, whether with or without the
giving of notice or passage of time or both, conflict with or
constitute a breach of, or default or Repayment Event (as defined
below) under, or result in the creation or imposition of any lien,
charge or encumbrance upon any property or assets of the Company or any
subsidiary pursuant to, the Agreements and Instruments (except for such
conflicts, breaches or defaults or liens, charges or encumbrances that
would not result in a Material Adverse Effect), nor will such action
result in any violation of the provisions of the charter or by-laws of
the Company or any subsidiary or any applicable law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over the Company or any subsidiary or any of their assets,
properties or operations. As used herein, a "Repayment Event" means any
event or condition which gives the holder of any note, debenture or
other evidence of indebtedness (or any person acting on such holder's
behalf) the right to require the repurchase, redemption or repayment of
all or a portion of such indebtedness by the Company, AutoNation, the
Selling Shareholder or any of their respective subsidiaries.
(xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the
employees of the Company or any subsidiary exists or, to the knowledge
of the Company, is imminent, and the Company is not aware of any
existing or imminent labor disturbance by the employees of any of its
or any subsidiary's principal suppliers, manufacturers, customers or
contractors, which, in any case, may reasonably be expected to result
in a Material Adverse Effect.
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(xii) ABSENCE OF PROCEEDINGS. There is no action, suit,
proceeding, inquiry or investigation before or brought by any court or
governmental agency or body, domestic or foreign, now pending, or, to
the knowledge of the Company, threatened, against or affecting the
Company, AutoNation, the Selling Shareholder or any of their respective
subsidiaries, which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which might reasonably
be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the
properties or assets thereof or the consummation of the transactions
contemplated in this Agreement and the U.S. Purchase Agreement or the
performance by the Company of its obligations hereunder or thereunder;
the aggregate of all pending legal or governmental proceedings to which
the Company or any subsidiary is a party or of which any of their
respective property or assets is the subject which are not described in
the Registration Statement, including ordinary routine litigation
incidental to the business, could not reasonably be expected to result
in a Material Adverse Effect.
(xiii) ACCURACY OF EXHIBITS. There are no contracts or
documents which are required to be described in the Registration
Statement or the Prospectuses or to be filed as exhibits thereto which
have not been so described and filed as required.
(xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its
subsidiaries own or possess, or can acquire on reasonable terms,
adequate patents, patent rights, licenses, inventions, copyrights,
know-how (including trade secrets and other unpatented and/or
unpatentable proprietary or confidential information, systems or
procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now operated by them, and neither the Company
nor any of its subsidiaries has received any notice or is otherwise
aware of any infringement of or conflict with asserted rights of others
with respect to any Intellectual Property or of any facts or
circumstances which would render any Intellectual Property invalid or
inadequate to protect the interest of the Company or any of its
subsidiaries therein, and which infringement or conflict (if the
subject of any unfavorable decision, ruling or finding) or invalidity
or inadequacy, singly or in the aggregate, would result in a Material
Adverse Effect.
(xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency is necessary or required for the performance by the Company of
its obligations hereunder, in connection with the offering, issuance or
sale of the Securities under this Agreement and the U.S. Purchase
Agreement or the consummation of the transactions contemplated by this
Agreement and the U.S. Purchase Agreement, except such as have been
already obtained or as may be required under the 1933 Act or the 1933
Act Regulations and foreign or state securities or blue sky laws.
(xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its
subsidiaries possess such permits, licenses, approvals, consents and
other authorizations (collectively,
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"Governmental Licenses") issued by the appropriate federal, state,
local or foreign regulatory agencies or bodies necessary to conduct the
business now operated by them; the Company and its subsidiaries are in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure so to comply would not, singly or in
the aggregate, have a Material Adverse Effect; all of the Governmental
Licenses are valid and in full force and effect, except when the
invalidity of such Governmental Licenses or the failure of such
Governmental Licenses to be in full force and effect would not have a
Material Adverse Effect; and neither the Company nor any of its
subsidiaries has received any notice of proceedings relating to the
revocation or modification of any such Governmental Licenses which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect.
(xvii) TITLE TO PROPERTY. The Company and its subsidiaries
have good and marketable title to all real property owned by the
Company and its subsidiaries and good title to all other properties
owned by them, in each case, free and clear of all mortgages, pledges,
liens, security interests, claims, restrictions or encumbrances of any
kind except such as (a) are described in the Prospectuses or (b) do
not, singly or in the aggregate, materially affect the value of such
property as currently used or intended to be used and do not interfere
with the use made and proposed to be made of such property by the
Company or any of its subsidiaries; and all of the leases and subleases
material to the business of the Company and its subsidiaries,
considered as one enterprise, and under which the Company or any of its
subsidiaries holds properties described in the Prospectuses, are in
full force and effect, and neither the Company nor any subsidiary has
any notice of any material claim of any sort that has been asserted by
anyone adverse to the rights of the Company or any subsidiary under any
of the leases or subleases mentioned above, or affecting or questioning
the rights of the Company or such subsidiary to the continued
possession of the leased or subleased premises under any such lease or
sublease.
(xviii) INVESTMENT COMPANY ACT. The Company is not, and upon
the issuance and sale of the Securities as herein contemplated and the
application of the net proceeds therefrom as described in the
Prospectuses will not be, an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in
the Investment Company Act of 1940, as amended (the "1940 Act").
(xix) ENVIRONMENTAL LAWS. Except as described in the
Registration Statement and except as would not, singly or in the
aggregate, result in a Material Adverse Effect, (A) neither the Company
nor any of its subsidiaries is in violation of any federal, state,
local or foreign statute, law, rule, regulation, ordinance, code,
policy or rule of common law or any judicial or administrative
interpretation thereof, including any judicial or administrative order,
consent, decree or judgment, relating to pollution or protection of
human health, the environment (including, without limitation, ambient
air, surface water, groundwater, land surface or subsurface strata) or
wildlife, including, without limitation,
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laws and regulations relating to the release or threatened release of
chemicals, pollutants, contaminants, wastes, toxic substances,
hazardous substances, petroleum or petroleum products (collectively,
"Hazardous Materials") or to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Materials (collectively, "Environmental Laws"), (B) the Company and its
subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and are each in compliance with
their requirements, (C) there are no administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
pending or, to the best of the Company's knowledge, threatened relating
to any Environmental Law against the Company or any of its subsidiaries
and (D) to the best of the Company's knowledge, there are no events or
circumstances that might reasonably be expected to form the basis of an
order for clean-up or remediation, or an action, suit or proceeding by
any private party or governmental body or agency, against or affecting
the Company or any of its subsidiaries relating to Hazardous Materials
or any Environmental Laws.
(xx) REGISTRATION RIGHTS. Except as disclosed in the
Prospectuses, there are no persons with registration rights or other
similar rights to have any securities registered pursuant to the
Registration Statement, or otherwise registered by the Company under
the 1933 Act.
(xxi) INCOME TAXES. All United States federal income tax
returns of the Company and its subsidiaries required by law to be filed
have been filed (taking into account extensions granted by the
applicable federal governmental agency) and all taxes shown by such
returns or otherwise assessed, which are due and payable, have been
paid, except for such taxes, if any, as are being contested in good
faith and as to which adequate reserves have been provided. All other
corporate franchise and income tax returns of the Company and its
subsidiaries required to be filed pursuant to applicable foreign, state
or local law have been filed, except insofar as the failure to file
such returns would not individually or in the aggregate have a Material
Adverse Effect, and all taxes shown on such returns or otherwise
assessed which are due and payable have been paid, except for such
taxes, if any, as are being contested in good faith and as to which
adequate reserves have been provided. The charges, accruals and
reserves on the books of the Company in respect of any income and
corporation tax liability for any years not finally determined are
adequate to meet any assessments or re-assessments for additional
income tax for any years not finally determined, except to the extent
of any inadequacy that would not have a material adverse effect on the
condition (financial or otherwise), earnings, business affairs or
business prospects of the Company and its subsidiaries, considered
together as one enterprise.
(xxii) INTERNAL CONTROLS. The Company and its subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (A) transactions are executed in accordance
with management's general or specific
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authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with GAAP and to
maintain accountability for assets; (C) access to assets is permitted
only in accordance with management's general or specific authorization;
and (D) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any material differences.
(xxiii) INSURANCE. The Company and its subsidiaries carry or
are entitled to the benefits of insurance, with financially sound and
reputable insurers, in such amounts and covering such risks as is
generally maintained by companies of established repute engaged in the
same or similar business, and all such insurance is in full force and
effect.
(xxiv) OFFERING MATERIAL. The Company has not distributed and,
prior to the later to occur of (i) the Closing Time and (ii) completion
of the distribution of the Securities, will not distribute any offering
material in connection with the offering and sale of the Securities
other than the Registration Statement, any preliminary prospectuses,
the Prospectuses or other materials, if any, permitted by the 1933 Act
and approved by the Global Coordinator.
(xxv) RELATED PARTY TRANSACTIONS. There are no business
relationships or related party transactions of the nature described in
Item 404 of Regulation S-K involving the Company and any person
described in such Item that are required to be disclosed in the
Registration Statement and which have not been so disclosed.
(xxvi) SOLVENCY. The Company is, and immediately after the
Closing Time the Company will be, Solvent. As used herein, the term
"Solvent" means, with respect to the Company on a particular date, that
on such date (A) the fair market value of the assets of the Company is
greater than the total amount of liabilities (including contingent
liabilities) of the Company, (B) the present fair salable value of the
assets of the Company is greater than the amount that will be required
to pay the probable liabilities of the Company on its debts as they
become absolute and matured, (C) the Company is able to realize upon
its assets and pay its debts and other liabilities, including
contingent obligations, as they mature, and (D) the Company does not
have unreasonably small capital.
(xxvii) U.S. REAL PROPERTY HOLDING CORPORATION. The Company is
not, and has not been, at any time within the year prior to the date
hereof, a "United States real property holding corporation" within the
meaning of Section 897 of the Internal Revenue Code of 1986, as
amended.
(xxviii) YEAR 2000 AND EURO DISCLOSURES. All disclosure
regarding year 2000 compliance and the Euro conversion that is required
to be described under the 1933 Act and the 1933 Act Regulations
(including disclosures required by Staff Legal Bulletin No. 6, SEC
Release No. 33-7558 (July 29, 1998) and SEC Release No. 33-7609
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<PAGE> 16
(November 9, 1998)) has been included in the Prospectuses. Neither the
Company nor any of its subsidiaries will incur significant operating
expenses or costs to ensure that its information systems will be year
2000 compliant or to adjust its operating and information systems to
the conversion to a single currency in Europe, other than as disclosed
in the Prospectuses.
(b) REPRESENTATIONS AND WARRANTIES BY AUTONATION AND THE SELLING
SHAREHOLDER. AutoNation and the Selling Shareholder, jointly and severally,
represent and warrant to each International Manager as of the date hereof, as of
the Closing Time referred to in Section 2(c) hereof, and as of each Date of
Delivery (if any) referred to in Section 2(b), hereof and agrees with each
International Manager as follows:
(i) ACCURATE DISCLOSURE. To the best knowledge of AutoNation
and the Selling Shareholder, the representations and warranties of the
Company contained in Section 1(a) hereof are true and correct. At the
respective times the Registration Statement, any Rule 462(b)
Registration Statement and any post-effective amendments thereto became
effective and at the Closing Time (and, if any International Option
Securities are purchased, at the Date of Delivery), the Registration
Statement, the Rule 462(b) Registration Statement and any amendments
and supplements thereto did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading. Neither the Prospectuses nor any amendments or supplements
thereto, at the time the Prospectuses or any amendments or supplements
thereto were issued and at the Closing Time (and, if any International
Option Securities are purchased, at the Date of Delivery), included or
will include an untrue statement of a material fact or omitted or will
omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
(ii) AUTHORIZATION OF AGREEMENTS. Each of AutoNation and the
Selling Shareholder has the full right, power and authority to enter
into this Agreement and the U.S. Purchase Agreement and to sell,
transfer and deliver the Securities.
(iii) GOOD AND MARKETABLE TITLE. The Selling Shareholder has
and will at the Closing Time and, if any Option Securities are
purchased, on the Date of Delivery have good and marketable title to
the Securities to be sold by the Selling Shareholder hereunder, free
and clear of any security interest, mortgage, pledge, lien, charge,
claim, equity or encumbrance of any kind, other than pursuant to this
Agreement; and upon delivery of such Securities and payment of the
purchase price therefor as herein contemplated, assuming each such
Underwriter has no notice of any adverse claim, each of the
Underwriters will receive good and marketable title to the Securities
purchased by it from the Selling Shareholder, free and clear of any
security interest, mortgage, pledge, lien, charge, claim, equity or
encumbrance of any kind.
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<PAGE> 17
(iv) ABSENCE OF MANIPULATION. Each of AutoNation and the
Selling Shareholder has not taken, and will not take, directly or
indirectly, any action which is designed to or which has constituted or
which might reasonably be expected to cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities.
(v) ABSENCE OF DEFAULTS AND CONFLICTS. Neither AutoNation, the
Selling Shareholder nor any of their subsidiaries is in violation of
its charter or by-laws or in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, deed of trust, loan or credit agreement,
note, lease or other agreement or instrument to which AutoNation, the
Selling Shareholder or any of their subsidiaries is a party or by which
it or any of them may be bound, or to which any of the property or
assets of AutoNation, the Selling Shareholder or any of their
subsidiaries is subject (collectively, "the AutoNation/Selling
Shareholder Agreements and Instruments") except for such defaults that
would not result in a Material Adverse Effect; and the execution,
delivery and performance of this Agreement and the U.S. Purchase
Agreement and the consummation of the transactions contemplated in this
Agreement, in the U.S. Purchase Agreement, and in the Registration
Statement (including the sale and delivery of the Securities) and
compliance by AutoNation and the Selling Shareholder with their
obligations under this Agreement and the U.S. Purchase Agreement have
been duly authorized by all necessary corporate action and do not and
will not, whether with or without the giving of notice or passage of
time or both, conflict with or constitute a breach of, or default or
Repayment Event under, or result in the creation or imposition of any
lien, charge or encumbrance upon any property or assets of AutoNation
and the Selling Shareholder or any subsidiary pursuant to, the
AutoNation/Selling Shareholder Agreements and Instruments (except for
such conflicts, breaches or defaults or liens, charges or encumbrances
that would not result in a Material Adverse Effect), nor will such
action result in any violation of the provisions of the charter or
by-laws of each of AutoNation and the Selling Shareholder or any
subsidiary or any applicable law, statute, rule, regulation, judgment,
order, writ or decree of any government, government instrumentality or
court, domestic or foreign, having jurisdiction over AutoNation, the
Selling Shareholder or any of their subsidiaries or any of their
assets, properties or operations.
(vi) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or
authorization, approval, consent, license, order, registration,
qualification or decree of, any court or governmental authority or
agency, is necessary or required for the performance by AutoNation and
the Selling Shareholder of their respective obligations hereunder, in
connection with the offering or sale of the Securities under this
Agreement and the U.S. Purchase Agreement or the consummation of the
transactions contemplated by this Agreement and the U.S. Purchase
Agreement, except such as have been already obtained or as may be
required under the 1933 Act or the 1933 Act Regulations and foreign or
state securities or blue sky laws.
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<PAGE> 18
(vii) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, neither AutoNation nor the
Selling Shareholder will, without the prior written consent of the
Global Coordinator, (i) directly or indirectly, offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of any share of Common Stock
or the Company's Class B Common Stock, par value $0.01 per share (the
"Class B Common Stock") or any securities convertible into or
exercisable or exchangeable for Common Stock and/or Class B Common
Stock or file any registration statement under the 1933 Act with
respect to any of the foregoing or (ii) enter into any swap or any
other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, the economic consequence of ownership of the
Common Stock and/or the Class B Common Stock, whether any such swap or
transaction described in clause (i) or (ii) above is to be settled by
delivery of such Stock or such other securities, in cash or otherwise.
(viii) NO ASSOCIATION WITH NASD. Neither AutoNation, the
Selling Shareholder nor any of their affiliates (within the meaning of
NASD Conduct Rule 2720(b)(1)(a)) directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, or is an associated person (within the meaning of Article
I, Section 1(q) of the By-laws of the National Association of
Securities Dealers, Inc.) of, any member firm of the National
Association of Securities Dealers, Inc.
(c) OFFICER'S CERTIFICATES. Any certificate signed by any officer of
the Company, AutoNation, the Selling Shareholder or any of the Company's
subsidiaries delivered to the Global Coordinator, the Lead Managers, or to
counsel for the International Managers shall be deemed a representation and
warranty by the Company, AutoNation or the Selling Shareholder, as the case may
be, to each International Manager as to the matters covered thereby.
SECTION 2. SALE AND DELIVERY TO INTERNATIONAL MANAGERS; CLOSING.
(a) INITIAL SECURITIES. On the basis of the representations and
warranties herein contained and subject to the terms and conditions herein set
forth, the Selling Shareholder agrees to sell to each International Manager,
severally and not jointly, and each International Manager, severally and not
jointly, agrees to purchase from the Selling Shareholder, at the price per share
set forth in Schedule B, the number of Initial International Securities set
forth in Schedule A opposite the name of such International Manager, plus any
additional number of Initial International Securities which such International
Manager may become obligated to purchase pursuant to the provisions of Section
10 hereof.
(b) OPTION SECURITIES. In addition, on the basis of the representations
and warranties herein contained and subject to the terms and conditions herein
set forth, the Selling Shareholder hereby grants an option to the International
Managers, severally and not jointly, to purchase up to an additional 2,432,500
shares of Common Stock at the price per share set forth in Schedule B, less an
amount per share equal to any dividends or distributions declared by the Company
and
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<PAGE> 19
payable on the Initial International Securities but not payable on the
International Option Securities. The option hereby granted will expire 30 days
after the date hereof and may be exercised in whole or in part from time to time
only for the purpose of covering over-allotments which may be made in connection
with the offering and distribution of the Initial International Securities upon
notice by the Global Coordinator to the Company and the Selling Shareholder
setting forth the number of International Option Securities as to which the
several International Managers are then exercising the option and the time and
date of payment and delivery for such International Option Securities. Any such
time and date of delivery for the Option Securities (a "Date of Delivery") shall
be determined by the Global Coordinator, but shall not be later than seven full
business days after the exercise of said option, nor in any event prior to the
Closing Time, as hereinafter defined. If the option is exercised as to all or
any portion of the International Option Securities, each of the International
Managers, acting severally and not jointly, will purchase that proportion of the
total number of International Option Securities then being purchased which the
number of Initial International Securities set forth in Schedule A opposite the
name of such International Manager bears to the total number of Initial
International Securities, subject in each case to such adjustments as the Global
Coordinator in its discretion shall make to eliminate any sales or purchases of
fractional shares.
(c) PAYMENT. Payment of the purchase price for, and delivery of
certificates for, the Initial Securities shall be made at the offices of Fried,
Frank, Harris, Shriver & Jacobson, One New York Plaza, New York, New York 10004,
or at such other place as shall be agreed upon by the Global Coordinator and the
Company and the Selling Shareholder, at 9:00 A.M. (Eastern time) on the third
(fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day)
business day after the date hereof (unless postponed in accordance with the
provisions of Section 10), or such other time not later than ten business days
after such date as shall be agreed upon by the Global Coordinator and the
Company and the Selling Shareholder (such time and date of payment and delivery
being herein called "Closing Time").
In addition, in the event that any or all of the International Option
Securities are purchased by the International Managers, payment of the purchase
price for, and delivery of certificates for, such International Option
Securities shall be made at the above-mentioned offices, or at such other place
as shall be agreed upon by the Global Coordinator and the Company, on each Date
of Delivery as specified in the notice from the Global Coordinator to the
Company and the Selling Shareholder.
Payment shall be made to the Selling Shareholder by wire transfer of
immediately available funds to a bank account designated by the Selling
Shareholder, against delivery to the Lead Managers for the respective accounts
of the International Managers of certificates for the International Securities
to be purchased by them. It is understood that each International Manager has
authorized the Lead Managers, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial International
Securities and the International Option Securities, if any, which it has agreed
to purchase. Merrill Lynch, individually and not as representative of the
International Managers, may (but shall not be obligated to) make payment
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<PAGE> 20
of the purchase price for the Initial International Securities or the
International Option Securities, if any, to be purchased by any International
Manager whose funds have not been received by the Closing Time or the relevant
Date of Delivery, as the case may be, but such payment shall not relieve such
International Manager from its obligations hereunder.
(d) DENOMINATIONS; REGISTRATION. Certificates for the Initial
International Securities and the International Option Securities, if any, shall
be in such denominations and registered in such names as the Lead Managers may
request in writing at least one full business day before the Closing Time or the
relevant Date of Delivery, as the case may be. The certificates for the Initial
International Securities and the International Option Securities, if any, will
be made available for examination and packaging by the Lead Managers in The City
of New York not later than 10:00 A.M. (Eastern time) on the business day prior
to the Closing Time or the relevant Date of Delivery, as the case may be.
SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each
International Manager as follows:
(a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION
REQUESTS. The Company, subject to Section 3(b), will comply with the
requirements of Rule 430A or Rule 434, as applicable, and will notify
the Global Coordinator as soon as practicable, and confirm the notice
in writing, (i) when any post-effective amendment to the Registration
Statement shall become effective, or any supplement to the Prospectuses
or any amended Prospectuses shall have been filed, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the
Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectuses or for additional
information, and (iv) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of
any order preventing or suspending the use of any preliminary
prospectus, or of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceedings for any of such purposes. The Company
will promptly effect the filings necessary pursuant to Rule 424(b) and
will take such steps as it deems necessary to ascertain promptly
whether the form of prospectus transmitted for filing under Rule 424(b)
was received for filing by the Commission and, in the event that it was
not, it will promptly file such prospectus. The Company will make every
reasonable effort to prevent the issuance of any stop order and, if any
stop order is issued, to obtain the lifting thereof at the earliest
possible moment.
(b) FILING OF AMENDMENTS. The Company will give the Global
Coordinator notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)),
any Term Sheet or any amendment, supplement or revision to either the
prospectus included in the Registration Statement at the time it became
effective or to the Prospectuses, will furnish the Global Coordinator
with copies of any such documents a reasonable amount of time prior to
such proposed filing or use,
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<PAGE> 21
as the case may be, and will not file or use any such document to which
the Global Coordinator or counsel for the International Managers shall
reasonably object.
(c) DELIVERY OF REGISTRATION STATEMENTS. The Company has
furnished or will deliver to the Lead Managers and counsel for the
International Managers, without charge, signed copies of the
Registration Statement as originally filed and of each amendment
thereto (including exhibits filed therewith or incorporated by
reference therein) and signed copies of all consents and certificates
of experts, and will also deliver to the Lead Managers, without charge,
a conformed copy of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) for each of the
International Managers. The copies of the Registration Statement and
each amendment thereto furnished to the International Managers will be
identical to the electronically transmitted copies thereof filed with
the Commission pursuant to EDGAR, except to the extent permitted by
Regulation S-T.
(d) DELIVERY OF PROSPECTUSES. The Company has delivered to
each International Manager, without charge, as many copies of each
preliminary prospectus as such International Manager reasonably
requested, and the Company hereby consents to the use of such copies
for purposes permitted by the 1933 Act. The Company will furnish to
each International Manager, without charge, during the period when the
International Prospectus is required to be delivered under the 1933 Act
or the Securities Exchange Act of 1934 (the "1934 Act"), such number of
copies of the International Prospectus (as amended or supplemented) as
such International Manager may reasonably request. The International
Prospectus and any amendments or supplements thereto furnished to the
International Managers will be identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company
will comply with the 1933 Act and the 1933 Act Regulations so as to
permit the completion of the distribution of the Securities as
contemplated in this Agreement, the U.S. Purchase Agreement and in the
Prospectuses. If at any time when a prospectus is required by the 1933
Act to be delivered in connection with sales of the Securities, any
event shall occur or condition shall exist as a result of which it is
necessary, in the opinion of counsel for the International Managers or
for the Company, to amend the Registration Statement or amend or
supplement any Prospectus in order that the Prospectuses will not
include any untrue statements of a material fact or omit to state a
material fact necessary in order to make the statements therein not
misleading in the light of the circumstances existing at the time it is
delivered to a purchaser, or if it shall be necessary, in the opinion
of such counsel, at any such time to amend the Registration Statement
or amend or supplement any Prospectus in order to comply with the
requirements of the 1933 Act or the 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to Section
3(b), such amendment or supplement as may be necessary to correct such
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<PAGE> 22
statement or omission or to make the Registration Statement or the
Prospectuses comply with such requirements, and the Company will
furnish to the International Managers such number of copies of such
amendment or supplement as the International Managers may reasonably
request.
(f) BLUE SKY QUALIFICATIONS. The Company will use its best
efforts, in cooperation with the International Managers, to qualify the
Securities for offering and sale under the applicable securities laws
of such states and other jurisdictions (domestic or foreign) as the
Global Coordinator may designate and to maintain such qualifications in
effect for a period of not less than one year from the later of the
effective date of the Registration Statement and any Rule 462(b)
Registration Statement; provided, however, that the Company shall not
be obligated to file any general consent to service of process or to
qualify as a foreign corporation or as a dealer in securities in any
jurisdiction in which it is not so qualified or to subject itself to
taxation in respect of doing business in any jurisdiction in which it
is not otherwise so subject. In each jurisdiction in which the
Securities have been so qualified, the Company will file such
statements and reports as may be required by the laws of such
jurisdiction to continue such qualification in effect for a period of
not less than one year from the effective date of the Registration
Statement and any Rule 462(b) Registration Statement.
(g) RULE 158. The Company will timely file such reports
pursuant to the 1934 Act as are necessary in order to make generally
available to its securityholders as soon as practicable an earnings
statement for the purposes of, and to provide the benefits contemplated
by, the last paragraph of Section 11(a) of the 1933 Act.
(h) LISTING. The Company will use its best efforts to effect
the listing of the Securities on the New York Stock Exchange (the
"NYSE").
(i) RESTRICTION ON SALE OF SECURITIES. During a period of 90
days from the date of the Prospectuses, the Company will not, without
the prior written consent of the Global Coordinator, (i) directly or
indirectly, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or
dispose of any share of Common Stock or the Company's Class B Common
Stock, par value $0.01 per share (the "Class B Common Stock") or any
securities convertible into or exercisable or exchangeable for Common
Stock and/or Class B Common Stock or file any registration statement
under the 1933 Act with respect to any of the foregoing or (ii) enter
into any swap or any other agreement or any transaction that transfers,
in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock and/or the Class B Common Stock,
whether any such swap or transaction described in clause (i) or (ii)
above is to be settled by delivery of such Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not
apply to (a) shares of Common Stock issued to a third party as
consideration for the Company's acquisition from such third party of a
non-hazardous
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<PAGE> 23
solid waste business and (b) options to purchase shares of Common Stock
granted under the Company's 1998 Stock Option Plan.
(j) REPORTING REQUIREMENTS. The Company, during the period
when the Prospectuses are required to be delivered under the 1933 Act
or the 1934 Act, will file all documents required to be filed with the
Commission pursuant to the 1934 Act within the time periods required by
the 1934 Act and the rules and regulations of the Commission
thereunder.
SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company, AutoNation
and the Selling Shareholder will pay or cause to be paid all expenses incident
to the performance of their obligations under this Agreement, including (i) the
preparation, printing and filing of the Registration Statement (including
financial statements and exhibits) as originally filed and of each amendment
thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Agreement, any Agreement among Underwriters and such other documents as may be
required in connection with the offering, purchase, sale, issuance or delivery
of the Securities, (iii) the preparation, issuance and delivery of the
certificates for the Securities to the Underwriters, including any stock or
other transfer taxes and any stamp or other duties payable upon the sale,
issuance or delivery of the Securities to the Underwriters and the transfer of
the Securities between the International Managers and the U.S. Underwriters,
(iv) the fees and disbursements of the Company's counsel, accountants and other
advisors, (v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f) hereof, including filing fees and
the reasonable fees and disbursements of counsel for the Underwriters in
connection therewith and in connection with the preparation of the Blue Sky
Survey and any supplement thereto, (vi) the printing and delivery to the
Underwriters of copies of each preliminary prospectus, any Term Sheets and of
the Prospectuses and any amendments or supplements thereto, (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky
Survey and any supplement thereto, (viii) the fees and expenses of any transfer
agent or registrar for the Securities, (ix) the filing fees incident to, and the
reasonable fees and disbursements of counsel to the Underwriters in connection
with, the review by the NASD of the terms of the sale of the Securities and (x)
the fees and expenses incurred in connection with the listing of the Securities
on the NYSE.
(b) EXPENSES OF AUTONATION AND THE SELLING SHAREHOLDER. AutoNation and
the Selling Shareholder will pay or cause to be paid all expenses incident to
the performance of their obligations under, and the consummation of the
transactions contemplated by, this Agreement, including (i) any stamp duties,
capital duties and stock transfer taxes, if any, payable upon the sale of the
Securities to the Underwriters, and their transfer between the Underwriters
pursuant to an agreement between such Underwriters, and (ii) the fees and
disbursements of its counsel and accountants.
(c) TERMINATION OF AGREEMENT. If this Agreement is terminated by the
Lead Managers in accordance with the provisions of Section 5 or Section 9(a)(i)
hereof, the Company, AutoNation and the Selling Shareholder shall reimburse the
International Managers for all of
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their reasonable out-of-pocket expenses, including the reasonable fees and
disbursements of counsel for the International Managers.
(d) ALLOCATION OF EXPENSES. The provisions of this Section shall not
affect any agreement that the Company, AutoNation and the Selling Shareholder
may make for the sharing of such costs and expenses.
SECTION 5. CONDITIONS OF INTERNATIONAL MANAGERS' OBLIGATIONS. The
obligations of the several International Managers hereunder are subject to the
accuracy of the representations and warranties of the Company, AutoNation and
the Selling Shareholder contained in Section 1 hereof or in certificates of any
officer of the Company or any subsidiary of the Company or on behalf of
AutoNation or the Selling Shareholder delivered pursuant to the provisions
hereof, to the performance by the Company of its covenants and other obligations
hereunder, and to the following further conditions:
(a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the
effectiveness of the Registration Statement shall have been issued
under the 1933 Act or proceedings therefor initiated or threatened by
the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of counsel to the International Managers. A prospectus
containing the Rule 430A Information shall have been filed with the
Commission in accordance with Rule 424(b) (or a post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A) or, if the
Company has elected to rely upon Rule 434, a Term Sheet shall have been
filed with the Commission in accordance with Rule 424(b).
(b) OPINION OF COUNSEL FOR COMPANY. At Closing Time, the Lead
Managers shall have received the opinion, dated as of Closing Time, of
Akerman, Senterfitt & Eidson, P.A., counsel for the Company, in form
and substance reasonably satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letter for
each of the other International Managers to the effect set forth in
Exhibit A-1 hereto and to such further effect as counsel to the
International Managers may reasonably request, based upon events
occurring or information discovered after the date hereof.
(c) OPINION OF COUNSEL FOR AUTONATION AND THE SELLING
SHAREHOLDER. At Closing Time, the Lead Managers shall have received the
favorable opinion, dated as of Closing Time, of Akerman, Senterfitt &
Eidson, P.A., counsel for AutoNation and the Selling Shareholder and of
Primmer & Piper, P.C., Vermont counsel for the Selling Shareholder, in
form and substance satisfactory to counsel for the International
Managers, together with signed or reproduced copies of such letter for
each of the other International Managers to the effect set forth in
Exhibits A-1 and A-2, respectively, hereto and to such further effect
as counsel to the International Managers may reasonably request.
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<PAGE> 25
(d) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. At Closing
Time, the Lead Managers shall have received the favorable opinion,
dated as of Closing Time, of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the International Managers, together with signed or
reproduced copies of such letter for each of the other International
Managers with respect to the matters pertaining to the Company set
forth in clauses (i), (ii), (vi) through (viii), inclusive, (ix), (xi)
(solely as to the information in the Prospectus under "Description of
Capital Stock--Common Stock") and (xviii) and the matters set forth in
the penultimate paragraph of Exhibit A hereto. In giving such opinion
such counsel may rely, as to all matters governed by the laws of
jurisdictions other than the law of the State of New York and the
federal law of the United States and the General Corporation Law of the
State of Delaware, upon the opinions of counsel satisfactory to the
Lead Managers which may include counsel to the Company. Such counsel
may also state that, insofar as such opinion involves factual matters,
they have relied, to the extent they deem proper, upon certificates of
officers of the Company and its subsidiaries and certificates of public
officials.
(e) COMPANY OFFICERS' CERTIFICATE. At Closing Time, there
shall not have been, since the date hereof or since the respective
dates as of which information is given in the Prospectuses, any
material adverse change in the condition, financial or otherwise, or in
the earnings, business affairs or business prospects of the Company and
its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business, and the Lead Managers shall have
received a certificate of the Chief Executive Officer, the President or
a Vice President of the Company and of the chief financial or chief
accounting officer of the Company, dated as of Closing Time, to the
effect that (i) there has been no such material adverse change, (ii)
the representations and warranties in Section 1(a) hereof are true and
correct with the same force and effect as though expressly made at and
as of Closing Time, (iii) the Company has complied with all agreements
and satisfied all conditions on its part to be performed or satisfied
at or prior to Closing Time, and (iv) no stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending or, to
the knowledge of such officers, are contemplated by the Commission.
(f) AUTONATION AND SELLING SHAREHOLDER OFFICERS' CERTIFICATES.
At Closing Time the Lead Managers shall have received a certificate of
a Co-Chief Executive Officer, the President or a Vice President of each
of AutoNation and the Selling Shareholder, each dated as of Closing
Time, to the effect that (i) the representations and warranties in
Section 1(b) hereof are true and correct with the same force and effect
as though expressly made at and as of Closing Time, and (ii) AutoNation
or the Selling Shareholder, as the case may be, has complied with all
agreements and satisfied all conditions on its part to be performed or
satisfied at or prior to Closing Time.
(g) ACCOUNTANT'S COMFORT LETTER. At the time of the execution
of this Agreement, the Lead Managers shall have received from Arthur
Andersen LLP a letter
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dated such date, in form and substance satisfactory to the Lead
Managers, together with signed or reproduced copies of such letter for
each of the other International Managers containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement
and the Prospectuses.
(h) BRING-DOWN COMFORT LETTER. At Closing Time, the Lead
Managers shall have received from Arthur Andersen LLP a letter, dated
as of Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (g) of this
Section, except that the specified date referred to shall be a date not
more than three business days prior to Closing Time.
(i) APPROVAL OF LISTING. At Closing Time, the Securities shall
have been approved for listing on the NYSE, subject only to official
notice of issuance.
(j) NO OBJECTION. The NASD has confirmed that it has not
raised any objection with respect to the fairness and reasonableness of
the underwriting terms and arrangements.
(k) LOCK-UP AGREEMENTS. At the date of this Agreement, the
Lead Managers shall have received an agreement substantially in the
form of Exhibit B hereto signed by AutoNation, the Selling Shareholder
and the persons listed on Schedule C hereto.
(l) PURCHASE OF INITIAL U.S. SECURITIES. Contemporaneously
with the purchase by the International Managers of the Initial
International Securities under this Agreement, the U.S. Underwriters
shall have purchased the Initial U.S. Securities under the U.S.
Purchase Agreement.
(m) ADDITIONAL DOCUMENTS. At Closing Time and at each Date of
Delivery, counsel for the International Managers shall have been
furnished with such documents and opinions as they may require for the
purpose of enabling them to pass upon the issuance and sale of the
Securities as herein contemplated, or in order to evidence the accuracy
of any of the representations or warranties, or the fulfillment of any
of the conditions, herein contained; and all proceedings taken by the
Company, AutoNation and the Selling Shareholder in connection with the
issuance and sale of the Securities as herein contemplated shall be
satisfactory in form and substance to the Lead Managers and counsel for
the International Managers.
(n) CONDITIONS TO PURCHASE OF INTERNATIONAL OPTION SECURITIES.
In the event that the International Managers exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the
International Option Securities, the representations and warranties of
the Company, AutoNation and the Selling Shareholder contained herein
and the statements in any certificates furnished by the Company, any
subsidiary of the Company, AutoNation or the Selling Shareholder
hereunder shall be true and correct as
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<PAGE> 27
of each Date of Delivery and, at the relevant Date of Delivery, the
Lead Managers shall have received:
(i) COMPANY OFFICERS' CERTIFICATE. A certificate, dated
such Date of Delivery, of the Chief Executive
Officer, the President or a Vice President of the
Company and of the chief financial or chief
accounting officer of the Company confirming that the
certificate delivered at the Closing Time pursuant to
Section 5(e) hereof remains true and correct as of
such Date of Delivery.
(ii) AUTONATION AND SELLING SHAREHOLDER OFFICERS'
CERTIFICATES. A certificate, dated such Date of
Delivery, of a Co-Chief Executive Officer, the
President or a Vice President of each of AutoNation
and the Selling Shareholder confirming that the
certificates delivered at the Closing Time pursuant
to Section 5(f) hereof remains true and correct as of
such Date of Delivery.
(iii) OPINION OF COUNSEL FOR COMPANY. The opinion of
Akerman, Senterfitt & Eidson, P.A., counsel for the
Company, in form and substance reasonably
satisfactory to counsel for the International
Managers, dated such Date of Delivery, relating to
the Option Securities to be purchased on such Date of
Delivery and otherwise to the same effect as the
opinion required by Section 5(b) hereof.
(iv) OPINION OF COUNSEL FOR AUTONATION AND THE SELLING
SHAREHOLDER. The opinion of Akerman, Senterfitt &
Eidson, P.A., counsel for AutoNation and the Selling
Shareholder and of Primmer & Piper, P.C., Vermont
counsel for the Selling Shareholder, in form and
substance reasonably satisfactory to counsel for the
International Managers, dated such Date of Delivery,
relating to the Option Securities to be purchased on
such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(c)
hereof.
(v) OPINION OF COUNSEL FOR INTERNATIONAL MANAGERS. The
favorable opinion of Fried, Frank, Harris, Shriver &
Jacobson, counsel for the International Managers,
dated such Date of Delivery, relating to the
International Option Securities to be purchased on
such Date of Delivery and otherwise to the same
effect as the opinion required by Section 5(d)
hereof.
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<PAGE> 28
(vi) BRING-DOWN COMFORT LETTER. A letter from Arthur
Andersen LLP, in form and substance satisfactory to
the Lead Managers and dated such Date of Delivery,
substantially in the same form and substance as the
letter furnished to the Lead Managers pursuant to
Section 5(h) hereof, except that the "specified date"
in the letter furnished pursuant to this paragraph
shall be a date not more than five days prior to such
Date of Delivery.
(o) TERMINATION OF AGREEMENT. If any condition specified in
this Section shall not have been fulfilled when and as required to be
fulfilled, this Agreement, or, in the case of any condition to the
purchase of International Option Securities on a Date of Delivery which
is after the Closing Time, the obligations of the several International
Managers to purchase the relevant Option Securities, may be terminated
by the Lead Managers by notice to the Company at any time at or prior
to Closing Time or such Date of Delivery, as the case may be, and such
termination shall be without liability of any party to any other party
except as provided in Section 4 and except that Sections 1, 6, 7 and 8
shall survive any such termination and remain in full force and effect.
SECTION 6. INDEMNIFICATION.
(a) INDEMNIFICATION OF INTERNATIONAL MANAGERS. The Company, AutoNation
and the Selling Shareholder, jointly and severally, agree to indemnify and hold
harmless each International Manager and each person, if any, who controls any
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment thereto), including the Rule
430A Information and the Rule 434 Information, if applicable, or the
omission or alleged omission therefrom of a material fact required to
be stated therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or alleged untrue
statement of a material fact included in any preliminary prospectus or
the Prospectuses (or any amendment or supplement thereto), or the
omission or alleged omission therefrom of a material fact necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate amount
paid in settlement of any litigation, or any investigation or
proceeding by any governmental agency or body, commenced or threatened,
or of any claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission; provided
that (subject to Section 6(d) below) any such settlement is effected
with the written consent of the Company; and
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<PAGE> 29
(iii) against any and all expense whatsoever, as incurred
(including the fees and disbursements of counsel chosen by Merrill
Lynch), reasonably incurred in investigating, preparing or defending
against any litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened, or any claim
whatsoever based upon any such untrue statement or omission or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss,
liability, claim, damage or expense to the extent arising out of any untrue
statement or omission or alleged untrue statement or omission made in reliance
upon and in conformity with written information furnished to the Company by any
International Manager through the Lead Managers expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto).
(b) INDEMNIFICATION OF COMPANY, DIRECTORS AND OFFICERS AND THE SELLING
SHAREHOLDER. Each International Manager severally agrees to indemnify and hold
harmless the Company, its directors, each of its officers who signed the
Registration Statement, each person, if any, who controls the Company within the
meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, AutoNation,
each person, if any, who controls AutoNation within the meaning of Section 15 of
the 1933 Act or Section 20 of the 1934 Act, and the Selling Shareholder and each
person, if any, who controls the Selling Shareholder within the meaning of
Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all
loss, liability, claim, damage and expense described in the indemnity contained
in subsection (a) of this Section, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto), including the Rule 430A
Information and the Rule 434 Information, if applicable, or any preliminary
prospectus or the International Prospectus (or any amendment or supplement
thereto) in reliance upon and in conformity with written information furnished
to the Company by such International Manager through the Lead Managers expressly
for use in the Registration Statement (or any amendment thereto) or such
preliminary prospectus or the International Prospectus (or any amendment or
supplement thereto).
(c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall
give notice as promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may be sought
hereunder, but failure to so notify an indemnifying party shall not relieve such
indemnifying party from any liability hereunder to the extent it is not
materially prejudiced as a result thereof and in any event shall not relieve it
from any liability which it may have otherwise than on account of this indemnity
agreement. In the case of parties indemnified pursuant to Section 6(a) above,
counsel to the indemnified parties shall be selected by Merrill Lynch, and, in
the case of parties indemnified pursuant to Section 6(b) above, counsel to the
indemnified parties shall be selected by the Company. An indemnifying party may
participate at its own expense in the defense of any such action;
-25-
<PAGE> 30
provided, however, that counsel to the indemnifying party shall not (except with
the consent of the indemnified party) also be counsel to the indemnified party.
In no event shall the indemnifying parties be liable for fees and expenses of
more than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential parties
thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation, investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, such indemnifying party
agrees that it shall be liable for any settlement of the nature contemplated by
Section 6(a) (ii) or (iii) effected without its written consent if (i) such
settlement is entered into more than 45 days after receipt by such indemnifying
party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement
being entered into and (iii) such indemnifying party shall not have reimbursed
such indemnified party in accordance with such request prior to the date of such
settlement.
(e) OTHER AGREEMENTS WITH RESPECT TO INDEMNIFICATION. The provisions of
this Section shall not affect any agreement among the Company, AutoNation and
the Selling Shareholder with respect to indemnification.
-26-
<PAGE> 31
SECTION 7. CONTRIBUTION. If the indemnification provided for in Section
6 hereof is for any reason unavailable to or insufficient to hold harmless an
indemnified party in respect of any losses, liabilities, claims, damages or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount of such losses, liabilities, claims, damages and expenses
incurred by such indemnified party, as incurred, (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company, AutoNation
and the Selling Shareholder on the one hand and the International Managers on
the other hand from the offering of the Securities pursuant to this Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company, AutoNation and the Selling Shareholder on the one hand and of the
International Managers on the other hand in connection with the statements or
omissions, which resulted in such losses, liabilities, claims, damages or
expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company, AutoNation and the
Selling Shareholder on the one hand and the International Managers on the other
hand in connection with the offering of the International Securities pursuant to
this Agreement shall be deemed to be in the same respective proportions as the
total net proceeds from the offering of the International Securities pursuant to
this Agreement (before deducting expenses) received by the Company, AutoNation
and the Selling Shareholder and the total underwriting discount received by the
International Managers, in each case as set forth on the cover of the
International Prospectus, or, if Rule 434 is used, the corresponding location on
the Term Sheet, bear to the aggregate initial public offering price of the
International Securities as set forth on such cover.
The relative fault of the Company, AutoNation and the Selling
Shareholder on the one hand and the International Managers on the other hand
shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission
to state a material fact relates to information supplied by the Company,
AutoNation or the Selling Shareholder or by the International Managers and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company, AutoNation, the Selling Shareholder and the International
Managers agree that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by pro rata allocation (even if the
International Managers were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 7. The aggregate amount of
losses, liabilities, claims, damages and expenses incurred by an indemnified
party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in
investigating, preparing or defending against any litigation, or any
investigation or proceeding by any governmental agency or body, commenced or
threatened, or any claim whatsoever based upon any such untrue or alleged untrue
statement or omission or alleged omission.
-27-
<PAGE> 32
Notwithstanding the provisions of this Section 7, no International
Manager shall be required to contribute any amount in excess of the amount by
which the total price at which the International Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages which such International Manager has otherwise been required to pay
by reason of any such untrue or alleged untrue statement or omission or alleged
omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
International Manager within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act shall have the same rights to contribution as such
International Manager, and each director of the Company, each officer of the
Company who signed the Registration Statement, and each person, if any, who
controls the Company, AutoNation or the Selling Shareholder within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same
rights to contribution as the Company, AutoNation or the Selling Shareholder, as
the case may be. The International Managers' respective obligations to
contribute pursuant to this Section 7 are several in proportion to the number of
Initial International Securities set forth opposite their respective names in
Schedule A hereto and not joint.
The provisions of this Section shall not affect any agreement among the
Company, AutoNation and the Selling Shareholder with respect to contribution.
SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties and agreements contained in this
Agreement or in certificates of officers of the Company or any of its
subsidiaries, AutoNation or the Selling Shareholder submitted pursuant hereto,
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of any International Manager or controlling
person, or by or on behalf of the Company, AutoNation or the Selling
Shareholder, and shall survive delivery of the Securities to the International
Managers.
SECTION 9. TERMINATION OF AGREEMENT.
(a) TERMINATION; GENERAL. The Lead Managers may terminate this
Agreement, by notice to the Company, AutoNation and the Selling Shareholder, at
any time at or prior to Closing Time (i) if there has been, since the time of
execution of this Agreement or since the respective dates as of which
information is given in the International Prospectus, any material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any material adverse change in the financial markets
in the United States or the international financial markets, any outbreak of
hostilities or escalation thereof or other calamity or crisis or any change or
-28-
<PAGE> 33
development involving a prospective change in national or international
political, financial or economic conditions, in each case the effect of which is
such as to make it, in the judgment of the Lead Managers, impracticable to
market the Securities or to enforce contracts for the sale of the Securities, or
(iii) if trading in any securities of the Company has been suspended or
materially limited by the Commission, or the NYSE, or if trading generally on
the American Stock Exchange or the NYSE or in the Nasdaq National Market has
been suspended or materially limited, or minimum or maximum prices for trading
have been fixed, or maximum ranges for prices have been required, by any of said
exchanges or by such system or by order of the Commission, the National
Association of Securities Dealers, Inc. or any other governmental authority, or
(iv) if a banking moratorium has been declared by either Federal or New York
authorities.
(b) LIABILITIES. If this Agreement is terminated pursuant to this
Section, such termination shall be without liability of any party to any other
party except as provided in Section 4 hereof, and provided further that Sections
1, 6, 7 and 8 shall survive such termination and remain in full force and
effect.
SECTION 10. DEFAULT BY ONE OR MORE OF THE INTERNATIONAL MANAGERS. If
one or more of the International Managers shall fail at Closing Time or a Date
of Delivery to purchase the Securities which it or they are obligated to
purchase under this Agreement (the "Defaulted Securities"), the Lead Managers
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting International Managers, or any other underwriters,
to purchase all, but not less than all, of the Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Lead Managers shall not have completed such arrangements within such 24-hour
period, then:
(a) if the number of Defaulted Securities does not exceed 10%
of the number of International Securities to be purchased on such date,
each of the non-defaulting International Managers shall be obligated,
severally and not jointly, to purchase the full amount thereof in the
proportions that their respective underwriting obligations hereunder
bear to the underwriting obligations of all non-defaulting
International Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the
number of International Securities to be purchased on such date, this
Agreement or, with respect to any Date of Delivery which occurs after
the Closing Time, the obligation of the International Managers to
purchase and of the Company to sell the Option Securities to be
purchased and sold on such Date of Delivery shall terminate without
liability on the part of any non-defaulting International Manager.
No action taken pursuant to this Section shall relieve any defaulting
International Manager from liability in respect of its default.
In the event of any such default which does not result in a termination
of this Agreement or, in the case of a Date of Delivery which is after the
Closing Time, which does not result in a
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<PAGE> 34
termination of the obligation of the International Managers to purchase and the
Selling Shareholder to sell the relevant International Option Securities, as the
case may be, either the Lead Managers or the Selling Shareholder shall have the
right to postpone Closing Time or the relevant Date of Delivery, as the case may
be, for a period not exceeding seven days in order to effect any required
changes in the Registration Statement or Prospectus or in any other documents or
arrangements. As used herein, the term "International Manager" includes any
person substituted for a International Manager under this Section 10.
SECTION 11. NOTICES. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
International Managers shall be directed to the Lead Managers at Ropemaker
Place, 25 Ropemaker Street, London EC2Y 9LY, attention of the Lead Managers;
with a copy to Valerie Ford Jacob, Esq., Fried, Frank, Harris, Shriver &
Jacobson, One New York Plaza, New York, New York 10004; and notices to the
Company shall be directed to it at Republic Services, Inc., 110 S.E. Sixth
Street, Fort Lauderdale, Florida 33301, attention of David A. Barclay, General
Counsel; with a copy to Jonathan L. Awner, Esq., Akerman, Senterfitt & Eidson,
P.A., One S.E. Third Avenue, Miami, Florida 33131; notices to AutoNation shall
be directed to it at AutoNation, Inc., 110 S.E. Sixth Street, Fort Lauderdale,
Florida 33301, attention of James O. Cole with a copy to Jonathan L. Awner,
Esq., Akerman, Senterfitt & Eidson, P.A.; and notices to the Selling Shareholder
shall be directed to it at AutoNation Insurance Company, Inc., 76 St. Paul
Street, Suite 501, Burlington, Vermont 05401, attention of Guy F. Ragosta with a
copy to Jonathan L. Awner, Esq., Akerman, Senterfitt & Eidson, P.A.
SECTION 12. PARTIES. This Agreement shall each inure to the benefit of
and be binding upon the International Managers, the Company, AutoNation and the
Selling Shareholder and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the International Managers, the Company,
AutoNation and the Selling Shareholder and their respective successors and the
controlling persons and officers and directors referred to in Sections 6 and 7
and their heirs and legal representatives, any legal or equitable right, remedy
or claim under or in respect of this Agreement or any provision herein
contained. This Agreement and all conditions and provisions hereof are intended
to be for the sole and exclusive benefit of the International Managers and the
Company, AutoNation and the Selling Shareholder and their respective successors,
and said controlling persons and officers and directors and their heirs and
legal representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any International Manager shall be
deemed to be a successor by reason merely of such purchase.
SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED
TIMES OF DAY REFER TO NEW YORK CITY TIME.
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<PAGE> 35
SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein
and the Table of Contents are for convenience only and shall not affect the
construction hereof.
-31-
<PAGE> 36
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company, AutoNation and the Selling
Shareholder a counterpart hereof, whereupon this instrument, along with all
counterparts, will become a binding agreement among the International Managers,
the Company, AutoNation and the Selling Shareholder in accordance with its
terms.
Very truly yours,
AUTONATION, INC.
By /s/ James O. Cole
---------------------------------
Title: Senior Vice President
General Counsel
AUTONATION INSURANCE
COMPANY, INC.
By /s/ Gui F. Ragosta
---------------------------------
Title: Vice President
REPUBLIC SERVICES, INC.
By /s/ David M. Barclay
---------------------------------
Title: Senior Vice President
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<PAGE> 37
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH INTERNATIONAL
DONALDSON, LUFKIN & JENRETTE INTERNATIONAL
DEUTSCHE BANK AG LONDON
BEAR, STEARNS INTERNATIONAL LIMITED
CIBC OPPENHEIMER INTERNATIONAL LTD.
CREDIT SUISSE FIRST BOSTON (EUROPE) LIMITED
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
SALOMON BROTHERS INTERNATIONAL LIMITED
By: MERRILL LYNCH INTERNATIONAL
By /s/ Michael Santini
-----------------------------------
Authorized Signatory
For themselves and as Lead Managers of the other International Managers named in
Schedule A hereto
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<PAGE> 1
EXHIBIT 10.10
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement"), is dated as of this 31st day
of December, 1999, by and between AutoNation, Inc., a Delaware corporation
("AutoNation"), and James O. Cole, a Florida resident ("Cole").
W I T N E S S E T H :
WHEREAS, Cole has served AutoNation as Senior Vice President, General
Counsel and Secretary since June 2, 1997.
WHEREAS, in accordance with this Agreement, Cole's employment as an
executive officer of AutoNation will be terminated by mutual agreement of the
parties.
WHEREAS, Cole and AutoNation desire to set forth herein certain agreements
between them with respect to Cole's termination as an executive officer and
employee of AutoNation.
NOW, THEREFORE, in consideration of the mutual promises and the covenants
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. RESIGNATION OF EMPLOYMENT. The foregoing recitals are true and correct
and are part of this Agreement. The terms and conditions of this Agreement have
been approved by the Board of Directors of AutoNation, and this Agreement is
enforceable in accordance with its terms against the parties. For purposes of
this Agreement, the termination of Cole's employment by AutoNation shall be
effective (the "Effective Date") on December 31, 1999.
2. SEVERANCE COMPENSATION AND BENEFITS. Cole shall receive the following
severance compensation and benefits:
(a) So long as Cole is in compliance in all material respects with
the terms of paragraph 7 of this Agreement, as severance compensation,
AutoNation shall continue to pay Cole his current base salary at the rate of
$450,000 per year until June 30, 2001 (the "Severance Period"), payable in
biweekly or such other installments as is in accordance with AutoNation's normal
payroll practices, and subject to all applicable tax withholding requirements
and other deductions. Cole shall have no obligation to mitigate the severance
compensation by seeking other employment, and no amount of any other
compensation earned by Cole in any other capacity during the Severance Period
shall offset or reduce AutoNation's obligation to pay the severance compensation
to him.
(b) So long as Cole is in compliance in all material respects with
the terms of paragraph 7 of this Agreement, Cole shall not be entitled to any
bonuses during the Severance Period, except that he shall be eligible to receive
the portion of his bonus for 1999 to the extent it is related to his individual
<PAGE> 2
performance (i.e. 75% of his bonus), but the portion of his bonus related to
AutoNation's performance against its financial and/or business objectives (i.e.,
25% of his bonus) will be adjusted depending on AutoNation's success in meeting
its financial and/or business objectives in 1999. Cole's total bonus eligibility
will be 35% of his 1999 salary of $450,000. This bonus will be paid in the
course of AutoNation's regular payout schedule in the year 2000.
(c) Cole shall be eligible for continuation of AutoNation's group
medical and dental coverage as set forth in the Consolidated Omnibus Budget
Reconciliation Act of 1985. As of the Effective Date, Cole will no longer be
eligible to participate in the following associate benefit programs offered by
AutoNation: (i) vacation benefits, (ii) 401(k), (iii) short term or long term
disability benefits, (iv) travel and accident benefits, or life or dependent
life insurance.
(d) Cole has been granted options to purchase a total of 348,385
shares of common stock under AutoNation's various Stock Option Plans
(collectively, the "Plans"), 102,097 of which have previously vested, 87,096 of
which will vest between the Effective Date and June 30, 2000 in accordance with
their original vesting schedules (the "vested options"), and the balance of
159,192 will be canceled and not vest or be exercisable, as set forth below,
notwithstanding anything to the contrary in any of the Plans or stock option
agreements entered into by Cole at the time of the grants:
<TABLE>
<CAPTION>
AS OF NEXT
NUMBER OF AS OF APPLICABLE AS OF
SHARES THE DATE VESTING EFFECTIVE
UNDER- HEREOF, DATE; TOTAL DATE,
LYING PER SHARE NUMBER OF NUMBER OF NUMBER OF
OPTIONS EXERCISE OPTIONS OPTIONS OPTIONS EXPIRATION
GRANT DATE GRANTED PRICE($) VESTED CANCELED CANCELED DATE
- ---------- ------------ ---------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
06/02/97 160,000 12.75 80,000 120,000 40,000 06/02/07
01/02/98 88,385 12.75 20,097 44,293 44,292 01/02/08
01/06/99 100,000 15.9375 -0- 25,000 75,000 01/06/09
</TABLE>
Notwithstanding Cole's termination of employment as provided hereunder, the
vested options as set forth above shall be eligible to be exercised by Cole for
the duration of their respective original terms (in each case, 10 years from the
date of grant thereof as set forth above), and shall not expire or be terminated
earlier as a result of the termination of Cole's employment with AutoNation
hereunder. During the Severance Period, Cole shall have the same rights with
regard to the vested options that active, then current executive officers as a
class have with respect to their outstanding stock options, including with
respect to any repricing of outstanding options. At all times, the vested
options shall be adjusted appropriately and automatically for any changes in the
securities underlying the vested options, including stock splits, dividends and
other reclassifications of any nature. Cole acknowledges that he has no further
claim or entitlement to be awarded any future additional grant of options under
the Plans or any other stock option plan of AutoNation. Cole also acknowledges
that the 159,192 options being canceled as of the Effective Date shall be
2
<PAGE> 3
forfeited. AutoNation agrees that it will not set off its obligations under the
Plans or this Agreement against any obligation which Cole may have under this
Agreement or otherwise to AutoNation, and AutoNation further agrees that it will
not cancel, forfeit or otherwise refuse to allow Cole to duly exercise his stock
options. Upon exercise by Cole of any of the vested stock options and payment in
full for the underlying shares, AutoNation shall deliver certificates for such
shares to Cole within five days to the address which he specifies in the
exercise notice.
(e) In the event of Cole's death or incapacity during the Severance
Period, the severance compensation, benefits and the vested stock options
described above shall be paid or provided to, or be exercisable by, as the case
may be, Ada C. Cole, his wife, his estate, personal representative or guardian.
3. COOPERATION; RECORDS; CONFIDENTIALITY. During the Severance Period,
Cole agrees to make himself available to AutoNation and its officers for
consultation on a reasonable basis from time to time as to any and all matters
which he worked on while an officer of AutoNation, provided that AutoNation
shall reimburse Cole for his reasonable expenses incurred in providing such
consultation and making himself available, including attorney's fees and costs,
if necessary (e.g., if Cole is required to be deposed as a witness in any
litigation involving AutoNation). AutoNation acknowledges that Cole may engage
in other full-time employment and AutoNation agrees that it will use its best
efforts to attempt to minimize the amount of time which it shall require of him.
Cole agrees that all records, files, documents, books, security/access badge(s),
and other property of AutoNation (including, without limitation, any cellular
telephone, pager and/or laptop computer, etc.) shall remain in AutoNation's
possession and that he shall not remove any of the same from AutoNation's
premises, without the prior consent of AutoNation. The foregoing
notwithstanding, it is agreed that Cole may retain the computer installed in
Cole's home. At all times hereafter, Cole agrees to maintain the confidentiality
of all proprietary, secret, confidential and other non-public information
concerning AutoNation, including without limitation, any management, sales,
promotional or marketing plans, programs, techniques, practices or strategies,
any expansion plans in existing or new markets or for new or expanded products,
services or lines of business, and any financial statements, monthly operating
reports, budgets, projections and other financial information. Neither Cole nor
AutoNation shall publicly disclose the contents of this Agreement, except to the
extent required under applicable law.
4. NO RIGHT TO GIVE INTERVIEWS OR WRITE BOOKS, ETC. During the Severance
Period and the one year period thereafter, except as authorized by AutoNation,
Cole shall not give any interviews or speeches primarily concerning AutoNation,
nor shall Cole, directly or indirectly, prepare or assist any person or entity
in the preparation of any books, articles, television or motion picture
productions or other creations concerning AutoNation, including, without
limitation, any material concerning any person, whether or not fictional, whom
any member of the public might associate with AutoNation (regardless of whether
or not there shall appear any disclaimer purporting to disassociate such
3
<PAGE> 4
fictitious person from AutoNation). Notwithstanding the foregoing, Cole may
publicly state factual information about his employment with AutoNation in
providing others with background and resume information about himself, in public
filings with the SEC when required with respect to other issuers for which such
disclosure about him is required, and in similar contexts. During the Severance
Period and thereafter, Cole agrees that he shall not, in any communications with
any third party, criticize, ridicule or make any statement which disparages or
is derogatory of AutoNation or any of AutoNation's affiliates or any of its or
their officers, directors, agents or employees, and AutoNation agrees that it
shall not, in any communications with any third party, criticize, ridicule or
make any statement which disparages or is derogatory of Cole.
5. FULL SATISFACTION AND RELEASES. The parties agree that, except as
otherwise provided in this Agreement, this Agreement severs all relationships
between them and shall act as a mutual release of all claims of any nature which
each party may have against the other party as of the Effective Date, except
that the following claims shall not be released hereby: (i) claims by either
party against the other under or pursuant to this Agreement, (ii) claims by Cole
under applicable law in respect of statutory employment benefit rights (such as
COBRA or ERISA claims), and (iii) claims or rights of Cole under law or
AutoNation's certificate of incorporation and bylaws to indemnification against
third party claims arising with respect to his service as an officer and/or
director of AutoNation or any of its subsidiaries, affiliates and related
companies prior to the Effective Date. AutoNation agrees to maintain its
existing or substantially comparable directors and officers insurance coverage
in place for at least five years following the Effective Date, to the extent the
premiums therefor are not more than 200% of the cost of existing premiums, and
agrees to keep the same or broader indemnification rights in place under its
bylaws for at least five years following the Effective Date, to the extent
allowed by applicable law.
6. SEC FILING. Cole shall timely file a Form 4 with the Securities and
Exchange Commission reporting that he is no longer an executive officer of
AutoNation as of the Effective Date. After the Effective Date, AutoNation shall
cease to refer to or include Cole as an executive officer in any of its SEC
filings or press releases.
7. NON-COMPETE AND NON-SOLICITATION. Cole agrees that for a period of one
(1) year immediately following the Effective Date, except with the prior written
consent of AutoNation, Cole shall not directly or indirectly (whether
individually or as a partner, joint venturer, officer, director, employee,
consultant, agent, independent contractor or stockholder of or lender to any
company or business entity or otherwise), for any reason:
(a) engage in any retail automotive consumer business in any market
in the United States (collectively, the "Automotive Business"); or
4
<PAGE> 5
(b) request, advise or induce any material customer or material
vendor of AutoNation, its subsidiaries and related companies (collectively,
the "AutoNation Group") to withdraw, curtail or cancel any such customer's
or vendor's business with the AutoNation Group; or
(c)(i) solicit for employment, or knowingly permit any company or
business directly or indirectly controlled by him to solicit for
employment, any person who is employed in Fort Lauderdale, Florida by the
AutoNation Group at that time, or in any manner seek to induce any such
person to leave his or her employment with the AutoNation Group, or (ii)
employ, or permit any company or business directly or indirectly controlled
by him to employ, any person who is employed in Fort Lauderdale, Florida by
the AutoNation Group at that time or who was so employed within one year
prior to that time, provided, however, that Cole, or any company or
business directly or indirectly controlled by him, may employ any person at
any time after such person has been terminated (with or without cause) by
AutoNation. For purposes hereof, "controlled by or affiliated with" shall
mean any company or business, for which and so long as Cole both (i)
beneficially owns more than 50% of the outstanding equity, including for
purposes of such calculation the underlying shares of all options,
warrants, convertible securities and other rights to purchase securities
held by Cole, AND (ii) is a general partner, director or executive officer.
Cole agrees to have written policies in place at companies or businesses
that are controlled by him that such companies or businesses are not to
solicit or employ persons in contravention of this paragraph 7(c). In the
event Cole or a company or business controlled by him hires a current or
former employee of AutoNation in violation of this paragraph 7(c),
AutoNation shall provide prompt written notice to Cole, and if such
employee is not terminated by the company or business controlled by Cole
within thirty (30) days following the date of such notice, then AutoNation
shall have the right to seek injunctive and other relief, but shall not
have the right to cause forfeiture of any of Cole's vested options
hereunder or to cease payment of severance compensation hereunder.
Notwithstanding the foregoing, (i) Cole's beneficial ownership of less than
five percent (5%) of the outstanding shares of stock of any corporation having a
class of equity securities actively traded on a national securities exchange or
over-the-counter market, including for purposes of such calculation the
underlying shares of all options, warrants, convertible securities and other
rights to purchase securities held by Cole, shall not be deemed, in and of
itself, to violate the prohibitions of paragraph 7(a), and (ii) if any business
or company (on a consolidated basis with all of its majority-owned subsidiaries)
derives less than five percent (5%) of its annual revenue from the Automotive
Business as defined above, such business or company shall not be deemed for
purposes of paragraph 7(a) to be engaged in the Automotive Business. Also,
Cole's representation as a lawyer of any entity or person engaged in the
Automotive Business shall not be deemed a violation of paragraph 7(a).
5
<PAGE> 6
8. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof. It
supersedes all prior negotiations, letters, agreements and understandings
relating to the subject matter hereof.
(b) CHOICE OF LAW. This Agreement will be interpreted, construed and
enforced in accordance with the laws of the State of Florida.
(c) EFFECT OF WAIVER. The failure of any party at any time or times
to require performance of any provision of this Agreement will in no manner
affect the right to enforce the same. The waiver by any party of any breach of
any provision of this Agreement will not be construed to be a waiver by any such
party of any succeeding breach of that provision or a waiver by such party of
any breach of any other provision.
(d) SEVERABILITY. The invalidity, illegality or unenforceability of
any provision or provisions of this Agreement will not affect any other
provision of this Agreement, which will remain in full force and effect, nor
will the invalidity, illegality or unenforceability of a portion of any
provision of this Agreement affect the balance of such provision. In the event
that any one or more of the provisions contained in this Agreement or any
portion thereof shall for any reason be held to be invalid, illegal or
unenforceable in any respect, this Agreement shall be reformed, construed and
enforced as if such invalid, illegal or unenforceable provision had never been
contained herein.
(e) EXCLUSIVE VENUE AND JURISDICTION. In the event of a claimed
breach by either party, the non-breaching party may seek injunctive or other
relief from a court of law, but AutoNation shall not have the right to cause
forfeiture of the vested options or to cease payment of severance compensation,
except in accordance with a judgment entered by a court of competent
jurisdiction. Any suit, action or proceeding with respect to this Agreement
shall be brought in the courts of Broward County in the State of Florida or in
the U.S. District Court for the Southern District of Florida. The parties hereto
hereby accept the exclusive jurisdiction of those courts for the purpose of any
such suit, action or proceeding.
(f) BINDING NATURE. This Agreement will be binding upon the parties
and will inure to the benefit of any successor or successors of AutoNation. This
Agreement is not assignable by Cole.
(g) COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed an original and all of which together
will constitute one and the same instrument.
6
<PAGE> 7
(h) NOTICES. All notices which either party shall be required or
permitted to make or give under this Agreement shall be in writing and shall be
sufficiently made or given if sent by personally delivery, by certified mail,
return receipt requested or by nationally recognized overnight courier service,
addressed as set forth below, unless a notice of a change of address has been
previously given in accordance with the foregoing:
If to Cole: James O. Cole
10 Nurmi Drive
Fort Lauderdale, FL 33301
If to AutoNation: AutoNation, Inc.
110 S.E. 6th Street
Fort Lauderdale, FL 33301
Attn: Chief Executive Officer
(i) PRESS RELEASE. Cole and AutoNation shall mutually agree on the
text of any press release to be issued regarding the termination of Cole's
employment but Cole acknowledges that AutoNation shall have final control over
the time of any press release and comment. All subsequent press releases and
public comment shall be consistent with the mutually agreed upon language of the
initial press release.
(j) ARM'S LENGTH NEGOTIATIONS. Each party herein expressly represents
and warrants to the other that (a) before executing this Agreement, said party
has fully informed itself of the terms, contents, conditions and effects of this
Agreement; (b) said party has relied solely and completely upon its own judgment
in executing this Agreement; (c) said party has had the opportunity to seek and
has obtained the advice of its own counsel before executing this Agreement; (d)
said party has acted voluntarily and of its own free will in executing this
Agreement; (e) said party is not acting under duress, whether economic or
physical, in executing this Agreement; and (f) this Agreement is the result of
arm's length negotiations conducted by and among the parties and their
respective counsel.
[signatures on next page]
7
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
AUTONATION, INC.
By: /s/ MICHAEL J. JACKSON
----------------------------------------
Michael J. Jackson,
Chief Executive Officer
/s/ JAMES O. COLE
------------------------------------------
JAMES O. COLE
8
<PAGE> 1
Exhibit 21.1
LIST OF SUBSIDIARIES
Set forth below are certain subsidiaries of the continuing operations
of AutoNation.
<TABLE>
<CAPTION>
State of
Legal Entity Organization D/B/A Name
- ------------ ------------ ----------
<S> <C> <C>
Abraham Chevrolet-Miami, Inc. DE Abraham Chevrolet (Miami); Maroone Collision Repair Center
Abraham Chevrolet-Tampa, Inc. DE Abraham Chevrolet (Tampa); AutoWay Chevrolet - Tampa;
AutoWay Chevrolet
Al Maroone Ford, LLC DE Al Maroone Ford
Albert Berry Motors, Inc. TX (Shell)
Allison Bavarian CA Allison BMW
American Way Motors, Inc. TN Courtesy Honda
AN/CF Acquisition Corp. DE Courtesy Ford
AN/FGJE Acquisition Corp. DE Mike Shad Chrysler Jeep/Mike Shad Chrysler Jeep at Southpoint
AN/FMK Acquisition Corp. DE Autowest Mitsubishi; Autowest Kia
AN/MF Acquisition Corp.
(f/k/a AN/MCP Acquisition Corp.) DE Joe Madden Ford
AN/PF Acquisition Corp. DE Prestige Ford
AN/STD Acquisition Corp. DE AutoNation Dodge of Stone Mountain
Anderson Cadillac, Inc. CA Anderson Cadillac - Oldsmobile
Anderson Chevrolet CA Anderson Chevrolet - Menlo Park
Anderson Chevrolet - Los Gatos, Inc. CA Anderson Chevrolet - Los Gatos
Anderson Cupertino, Inc.
(f/k/a RI/AC Merger Corp.) CA Anderson Chrysler-Plymouth
Anderson Isuzu, Inc.
(f/k/a RI/DBI Merger Corp.) CA Anderson Isuzu
Appleway Chevrolet, Inc. WA Appleway Mitsubishi
Auto Car, Inc. CA Autowest Honda-Roseville
Auto Mission Ltd. CA Hayward Toyota
Auto West, Inc. CA Autowest Dodge-Fremont
AutoNation Chrysler Plymouth Jeep of
Frisco, Inc. DE Chrysler Plymouth Jeep
AutoNation Chrysler Plymouth Jeep of
North Houston, L.P. TX AutoNation Chrysler-Plymouth & AutoNation Chrysler-Plymouth-Jeep
AutoNation Dodge of Pembroke Pines, Inc. DE AutoNation Dodge of Pembroke Pines
</TABLE>
Page 1 of 17
<PAGE> 2
<TABLE>
<S> <C> <C>
AutoNation Dodge of San Antonio, L.P. TX AutoNation Dodge
AutoNation Imports Northwest, Inc. DE Northwest Nissan
AutoNation USA Corporation FL AutoNation USA Tampa; AutoWay Used Vehicle Megastore;
AutoWay AutoNation USA Used Vehicle Megastore
AutoNation USA of Perrine, Inc. DE AutoNation Nissan of Perrine; AutoNation USA Nissan
of Perrine
AutoNation USA of Virginia Beach, LLC DE AutoNation USA of Virginia Beach
Bankston Ford of Frisco, Ltd. Co TX Bankston Ford of Frisco
Bankston Nissan in Irving, Inc. TX Bankston Nissan-Irving
Bankston Nissan Lewisville, Inc. DE Bankston Nissan Lewisville
Bargain Rent-A-Car CA Lexus of Cerritos
Beach City Chevrolet Company, Inc. CA Beach City Chevrolet
Beacon Motors, Inc. FL Maroone Chevrolet; Maroone Chevrolet-Miami
Bell Dodge, LLC DE AutoNation Dodge of North Phoenix & AutoNation Dodge
Bengal Motor Company, Ltd FL Miami Honda/Central Kia/Sunshine Honda
Bill Ayares Chevrolet, Inc. MD Fox Chevrolet of Laurel
Bill Wallace Enterprises, Inc. FL (Shell)
Bledsoe Dodge, LLC DE Bledsoe Dodge (Arlington)
Bob Townsend Ford, Inc. DE Bob Townsend Ford
Body Shop Holding Corp. DE
Brown & Brown Chevrolet, Inc. AZ Brown & Brown Chevrolet
Brown & Brown Nissan Mesa, LLC AZ Brown & Brown Nissan Mesa
Brown & Brown Nissan, Inc. AZ Brown & Brown Nissan
Buick Mart, Inc. CA (Shell)
Bull Motors, LLC DE Sunshine Ford
Carlisle Motors, LLC DE Carlisle Ford; AutoWay Ford; AutoWay Ford -
St. Petersburg; Carlisle Lincoln-Mercury; AutoWay
Lincoln-Mercury; AutoWay Lincoln-Mercury - Clearwater
Carwell, LLC DE South Bay Autohaus (Mercedes); Land Rover South Bay
Central Motor Company, Ltd FL Central Hyundai
</TABLE>
Page 2 of 17
<PAGE> 3
<TABLE>
<S> <C> <C>
Cerritos Body Works, Inc. CA Irvine Volvo; Irvine Auto Body
Cerritos Imports, Inc. DE Volvo of Cerritos
Champion Chevrolet, LLC DE Champion Chevrolet/Oldsmobile
Champion Ford, Inc. TX Champion Ford
Charlie Hillard, Inc. TX Charlie Hillard Mazda Buick; Charlie Hillard Ford;
Preferred Leasing
Charlie Thomas Chevrolet, Inc. TX Charlie Thomas Chevrolet/Mitsubishi
Charlie Thomas Chrysler-Plymouth, Inc. TX Charlie Thomas Chrysler-Plymouth-Jeep-Eagle-Huynda-Isuzu
Charlie Thomas Ford, Inc. TX Charlie Thomas Ford
Charlie Thomas' Courtesy Ford, Inc. TX Padre Ford/Mazda
Chesrown Auto, LLC DE John Elway Ford Boulder; John Elway AutoNation USA-2
Chesrown Chevrolet, LLC DE John Elway Chevrolet; John Elway AutoNation USA-1
Chesrown Collision Center, Inc. CO
Chesrown Ford, Inc. CO John Elway Ford West
Chevrolet World, Inc. FL World Chevrolet
Chuck Clancy Ford of Marietta, Inc. GA Marietta Ford (fka Chuck Clancy Ford of Marietta)
Circle Buick/GMC, LLC DE Flemington Buick-Chevrolet-Pontiac-GMC
Cleburne Motor Company, Inc. TX Cleburne Ford
Coastal Cadillac, Inc. FL Coastal Cadillac
Colonial Imports, Ltd. FL Don Mealey Mitsubishi
Contemporary Cars, Inc. FL Mercedes-Benz of Orlando; Porsche of North Orlando
Cook-Whitehead Ford, Inc. FL Cook-Whitehead Ford
Cook-Whitehead Ford, LLC DE (Shell)
Costa Mesa Cars, Inc. CA Costa Mesa Honda
Courtesy Auto Group, Inc. FL Courtesy Buick; Courtesy Auto Group; Courtesy Magic
Isuzu/Suzuki/Kia; Courtesy Pontiac/GMC
Covington Pike Motors, Inc. TN Covington Pike Honda
CT Intercontinental, Inc. TX Charlie Thomas Intercontinental BMW
CT Motors, Inc. TX Charlie Thomas Acura
</TABLE>
Page 3 of 17
<PAGE> 4
<TABLE>
<S> <C> <C>
D/L Motor Company FL AutoWay Isuzu; AutoWay Honda; Lokey Imports; Lokey
Honda; Lokey Isuzu
D/L Motor-HO, Inc. FL (Shell)
Deal Dodge of Des Plaines, Inc. IL Dodge World of Des Plaines
Desert Buick-GMC Trucks, LLC DE Desert Buick GMC Trucks
Desert Dodge, Inc. (f/k/a Wilden's Pride Dodge) NV Desert Dodge
Desert GMC, LLC DE Desert Pontiac GMC Buick
Desert Lincoln-Mercury, Inc. NV Desert Lincoln-Mercury
Ditschman/Flemington Ford-Lincoln-Mercury, LLC DE Ditschman/Flemington Ford Lincoln-Mercury
Ditschman/Flemington Pontiac, Inc. NJ Flemington Pontiac/Subaru
Dobbs Brothers Buick-Pontiac, Inc. TN Dobbs Bros. Mazda; Dobbs Bros. Mitsubishi; Dobbs Bros.
Pontiac-GMC
Dobbs Ford, Inc. FL Dobbs Ford
Dobbs Mobile Bay, Inc. AL Treadwell Ford
Dobbs Motors of Arizona, Inc. AZ Dobbs Honda
Dodge of Bellevue, Inc. DE
Don Mealey Chevrolet, Inc. FL Don Mealey Chevrolet Oldsmobile
Don Mealey Imports, Inc. FL Don Mealey Acura
Don Mealey Oldsmobile, Inc. FL Don Mealey Chevrolet/Oldsmobile
Don-A-Vee Jeep Eagle, Inc. CA Don-A-Vee Jeep/Eagle-Kia
Downers Grove Dodge, Inc. DE Downers Grove Dodge
Eastgate Ford, Inc. OH Eastgate Ford
Ed Mullinax Ford, Inc. DE Ed Mullinax Ford
Edgren Motor Company, Inc. CA Autowest Honda-Fremont
El Monte Imports, Inc. DE Gunderson Nissan
El Monte Motors, Inc. DE Gunderson Chevrolet
Elmhurst Auto Mall, Inc. IL Elmhurst Kia
Elmhurst Dodge, Inc. IL Elmhurst Dodge
Emich Chrysler Plymouth, LLC DE John Elway Chrysler-Plymouth on Broadway
Emich Dodge, LLC DE John Elway Dodge on Broadway/ John Elway AutoNation
USA-12
</TABLE>
Page 4 of 17
<PAGE> 5
<TABLE>
<S> <C> <C>
Emich Lincoln-Mercury, Inc. DE (Shell)
Emich Lincoln-Mercury, LLC DE (Shell)
Emich Oldsmobile, LLC DE John Elway Subaru South; John Elway Lamborghini;
John Elway Pontiac Buick GMC West; John Elway Pontiac
Buick GMC South/ John Elway AutoNation USA-13; John
Elway Chrysler-Plymouth Jeep West
Emich Subaru West, LLC DE John Elway Subaru West
First Team Cadillac-Oldsmobile, Ltd FL Don Mealey Cadillac-Oldsmobile
First Team Ford of Manatee, Ltd FL Bill Graham Ford; AutoWay Ford - Bradenton; AutoWay Ford
First Team Ford, Ltd FL Seminole Ford
First Team Jeep Eagle, Chrysler Plymouth, Ltd. FL AutoNation Chrysler Plymouth Jeep of Casselberry;
AutoNation Chrysler Jeep
Fit Kit, Inc. CA Lew Webb's Toyota of Buena Park
Flemington Dodge-Chrysler-Jeep, LLC
(f/k/a Flemington Chrysler-Plymouth-
Dodge-Jeep-Eagles, LLC) DE Flemington Dodge Chrysler Plymouth Jeep
Flemington Infiniti, LLC DE Flemington Infiniti
Flemington Land Rover, Inc. NJ Land Rover Princeton
Flemington Land Rover, LLC DE (Shell)
Flemington Nissan/BMW, LLC DE Flemington Nissan
Flemington Subaru, LLC DE Flemington Subaru
Ford of Kirkland, Inc. WA
Fox Buick Isuzu, Inc. MD Fox Buick-Isuzu-Pontiac-GMC
Fox Chevrolet, Inc. MD Fox Chevrolet & The Chevrolet Auto & Truck
Discount Center
Fox Hyundai, Inc. MD Fox Lincoln-Mercury/Fox Kia
Fox, Inc. MD Fox Mitsubishi
Fred Oakley Motors, Inc. DE Fred Oakley Chrysler Plymouth & AutoNation Dodge
of Irving
Ft. Lauderdale Nissan, Inc. FL L.P. Evans Ft. Lauderdale Nissan
G.B. Import Sales & Service, LLC DE South Bay Volvo
Gene Evans Ford, LLC DE Gene Evans Ford
</TABLE>
Page 5 of 17
<PAGE> 6
<TABLE>
<S> <C> <C>
George Sutherlin Nissan, Inc GA George Sutherlin Nissan of Marietta
Golf Mill Ford, Inc. DE
Government Blvd. Motors, Inc. AL Treadwell Honda
Gulf Management, Inc. FL Lexus of Clearwater; Lexus of Tampa Bay
H's Auto Body, Inc. DE (Shell)
Hayward Dodge, Inc. DE Hayward Dodge/Hyundai
Henry Brown Chevrolet, LLC AZ Chevrolet Add Point
Hollywood Imports Limited, Inc. FL Hollywood Honda
Hollywood Kia, Inc. FL Hollywood Kia/Maroone Kia
House of Imports, Inc. CA House of Imports (Mercedes)
Houston Auto Imports Greenway, Ltd.
(f/k/a AN/PPM South Acquisition
Company Ltd.) TX Mercedes Benz of Houston Greenway (f/k/a Park Place
Motorcars South)
Houston Auto Imports North, Ltd.
(f/k/a AN/PPM North Acquisition
Company Ltd.) TX Mercedes Benz of Houston North (f/k/a Park Place
Motorcars North)
Hub Motor Co. GA Hub Ford
J-R Motors Company Central, LLC CO John Elway Ford Downtown
J-R Motors Company North CO John Elway Honda; John Elway Olds Mazda Hyundai North
J-R Motors Company South CO John Elway Toyota
J-R-M Motors Company Northwest, LLC CO John Elway Nissan North
Jerry Gleason Chevrolet, Inc. IL
Jerry Gleason Dodge, Inc. IL
Jim Quinlan Chevrolet Co. DE Jim Quinlan Chevrolet; AutoWay Chevrolet; AutoWay
Chevrolet - Clearwater
Jim Quinlan, Ford Lincoln-Mercury, Inc. FL Jim Quinlan Ford Lincoln-Mercury; AutoWay Ford
Lincoln-Mercury - Brooksville; AutoWay Ford
Lincoln-Mercury
JJSS, LLC DE Flemington Mazda
Joe MacPherson Ford CA Joe MacPherson Ford
Joe MacPherson Imports No.1 CA Joe MacPherson Mazda
Joe MacPherson Infiniti CA Joe MacPherson Infiniti
Joe MacPherson Oldsmobile CA Joe MacPherson Oldsmobile
</TABLE>
Page 6 of 17
<PAGE> 7
<TABLE>
<S> <C> <C>
John M. Lance Ford, LLC DE John Lance Ford
JRJ Investments, Inc. NV Chaisson BMW; Chaisson Motor Cars; Desert Audi
Kenyon Dodge, Inc. FL AutoNation Dodge; AutoNation USA Dodge; Carlisle Dodge
(Kenyon); AutoWay Dodge - Clearwater; AutoWay Dodge
King's Crown Ford, Inc. DE Mike Shad Ford at the Avenues & King's Crown Ford
Kirkland Pontiac-Buick-GMC, Inc. WA
L.P. Evans Motors WPB, Inc. Florida Mercedes-Benz of Miami
L.P. Evans Motors, Inc. FL L.P. Evans Miami Nissan
Lew Webb's Ford, Inc. CA Lew Webb's Ford of Garden Grove
Lew Webb's Irvine Nissan, Inc. CA Lew Webb's Irvine Nissan
Lew Webb's Irvine Toyota, Inc. CA Lew Webb's Irvine Toyota
Lou Grubb Chevrolet, LLC DE Lou Grubb Chevrolet
Lou Grubb Chevrolet-Arrowhead, Inc. DE New Chevrolet Add Point
Lou Grubb Ford, LLC DE Lou Grubb Ford
M S & S Toyota, Inc. FL Phil Smith Toyota
MacHoward Leasing CA Joe MacPherson Leasing; Joe MacPherson Chevrolet
MacPherson Enterprises, Inc. CA Team MacPherson
Magic Acquisition Corp. DE Magic Ford
Manhattan Beach Motors, Inc. CA Manhattan Toyota
Manhattan Motors, Inc. CA Manhattan Ford
Maroone Chevrolet Ft. Lauderdale, Inc. FL Maroone Chevrolet Fort Lauderdale
Maroone Chevrolet, LLC DE Maroone Chevrolet/ Maroone Auto Plaza
Maroone Dodge Pompano, Inc. FL Maroone Dodge Pompano
Maroone Dodge, LLC DE Maroone Dodge/ Maroone Leasing
Maroone Ford, LLC DE Maroone Ford
Maroone Isuzu, LLC DE Maroone Isuzu
Maroone Jeep Eagle, Inc. DE Maroone Chrysler Plymouth Jeep Eagle
Maroone Oldsmobile II, Inc. DE Maroone Oldsmobile (Miami)
Maroone Oldsmobile, LLC DE Maroone Oldsmobile
Marshall Lincoln-Mercury, Inc. CO Marshall Lincoln-Mercury Mazda
</TABLE>
Page 7 of 17
<PAGE> 8
<TABLE>
<S> <C> <C>
Midway Chevrolet, Inc. TX Midway Chevrolet
Mike Hall Chevrolet, Inc. DE Mike Hall Chevrolet
Mike Shad Chrysler Plymouth Jeep Eagle, Inc. FL Mike Shad Chrysler Plymouth Jeep
Mike Shad Ford, Inc. FL Mike Shad Ford of Orange Park & Mike Shad Ford
Miller-Sutherlin Automotive, LLC DE Miller - Sutherlin Che/Pon/Chr-Ply/J-E/Dod
Mission Blvd. Motors, Inc. CA Hayward Nissan
Mr. Wheels, Inc. CA Toyota of Cerritos
Mullinax East, Inc. DE Mullinax Ford East
Mullinax Ford North Canton, Inc. OH Mullinax Ford North Canton
Mullinax Ford South, Inc. FL Mullinax Ford South
Mullinax Lincoln-Mercury, Inc. DE Mullinax Lincoln-Mercury
Mullinax of Mayfield, Inc. OH Mullinax Jeep Eagle of Mayfield; Mullinax
Lincoln-Mercury of Mayfield
Newport Beach Cars, LLC DE Newport Auto Center; Newport Beach Rolls-Royce;
Newport Beach Chevrolet; Newport Beach Audi; Newport
Beach Porsche; Newport Beach Bentley
Nichols Ford, Inc. TX Nichols Ford
Northpoint Chevrolet, Inc.
(f/k/a, RI/PCR Acquisition Corp.) DE Northpoint Chevrolet
Northpoint Ford, Inc.
(f/k/a AN/SF Acquisition Corp.) DE Northpoint Ford
Northwest Financial Group, Inc. WA BMW of Bellevue
Ontario Dodge, Inc. CA Ontario Dodge Isuzu Kia
Orange County Automotive Imports, LLC DE Anaheim Hyundai; Anaheim Mazda; Anaheim Pontiac Buick
Orlando Imports, Inc. DE Saab of Orlando
Payton-Wright Ford Sales, Inc. TX Payton-Wright Ford
Peyton Cramer Automotive CA Peyton Cramer Acura/Isuzu
Peyton Cramer Ford CA Peyton Cramer Ford
Peyton Cramer Infiniti CA Peyton Cramer Infiniti
Peyton Cramer Jaguar CA Peyton Cramer Jaguar
Peyton Cramer Lincoln-Mercury CA Peyton Cramer Lincoln-Mercury-VW
Pierce, LLC DE Tempe Toyota
</TABLE>
Page 8 of 17
<PAGE> 9
<TABLE>
<S> <C> <C>
Pitre Buick-Pontiac-GMC of Scottsdale, Inc. DE Pitre Buick-Pontiac-GMC of Scottsdale
Pitre Chrysler-Plymouth-Jeep of Scottsdale, Inc. DE Pitre Chrysler-Plymouth-Jeep of Scottsdale
Pitre Chrysler-Plymouth-Jeep on Bell, Inc. DE Pitre Chrysler-Plymouth-Jeep on Bell
Pitre Isuzu-Subaru-Hyundai of Scottsdale, Inc. DE Pitre Isuzu-Subaru-Hyundai of Scottsdale
Pitre Kia of Scottsdale, Inc. DE Pitre Kia Scottsdale
Plains Chevrolet, Inc. TX Plains Chevrolet
Port City Imports, Inc. TX Port City Imports (Honda/Hyundai/Volvo)
Port City Imports-HO, Inc. TX (Shell)
Port City Pontiac-GMC Trucks, Inc. TX Port City Pontiac - GMC Buick & Port City Buick
Princeton's Nassau/Conover Ford
Lincoln-Mercury, Inc. NJ Princeton's Nassau Ford Lincoln Mercury Audi
Prinu, Inc. DE Princeton Audi
Quality Nissan, Inc. TX Quality Nissan
Quinlan Motors, Inc. FL AutoNation USA Nissan and AutoNation Nissan of
Clearwater; AutoWay Nissan; AutoWay Nissan
of Clearwater
RI/ASC Acquisition Corp. DE
RI/BB Acquisition Corp. DE Insurance Collision Specialists
RI/HGMC Acquisition Corp. DE Hendrix GMC Truck
RI/Hollywood Nissan Acquisition Corp. DE Maroone Nissan
RI/LLC Acquisition Corp. CO John Elway Nissan South
RI/PII Acquisition Corp. DE Northpoint Mitsubishi
RI/RMC Acquisition Corp DE Champion Chevrolet
RI/RMP Acquisition Corp. DE Champion Pontiac/GMC; Champion Jeep; Champion Hyundai;
Champion Pontiac/GMC/Jeep/Hyundai; Champion Autoplex;
Champion Chrysler; Champion Chrysler Plymouth Jeep;
Champion Plymouth;
RI/RMT Acquisition Corp. DE Champion Toyota
RI/SBC Acquisition Corp. DE Seabreeze Collision Center
RI/WFI Acquisition Corporation DE Woodfield Ford
Roseville Motor Corporation CA Autowest Dodge-Roseville
SaBeK, Inc. NJ Flemington Mitsubishi
</TABLE>
Page 9 of 17
<PAGE> 10
<TABLE>
<S> <C> <C>
Sahara Imports, Inc. NV Desert Honda; Las Vegas Honda
Sahara Nissan, Inc. NV Nissan West
Santa Ana Auto Center CA Joe MacPherson Auto & Truck Sales
Saul Chevrolet, Inc. CA Corona Motors; Corona Volkswagen; Coronoa Subaru,
Isuzu; Corona Chevrolet-Oldsmobile
Service Station Holding Corp. DE
Shamrock Ford, Inc. CA Shamrock Ford
SMI Motors, Inc. CA Infiniti of Santa Monica; Infiniti of Beverly Hills;
Costa Mesa Infiniti
Smythe European, Inc. CA Smythe European Mercedes Benz/Volvo
SNDK, LLC DE Flemington Porsche/Audi/BMW/VW
Southtown Ford, Inc. TX County Line Ford
Southwest Dodge, LLC DE John Elway Dodge Southwest/ John Elway AutoNation USA-3
Star Motors, LLC DE Mercedes-Benz of Fort Lauderdale/ Star Motors (Mercedes)
Steakley Chevrolet, Inc.
(f/k/a AN/SCI Merger Corp.) TX Steakley Chevrolet
Steeplechase Motor Company TX Charlie Thomas Mazda/Hyundai
Steve Moore Chevrolet Delray, LLC DE Steve Moore Chevrolet Delray
Steve Moore Chevrolet, LLC DE Steve Moore Chevrolet
Steve Moore, LLC DE Steve Moore Chevrolet/Cadillac/Buick/Oldsmobile/Pontiac
Steve Rayman Pontiac-Buick-GMC-Truck, LLC
(f/k/a Steve Rayman Buick/GMC/Pontiac, LLC) DE Steve Rayman Buick/GMC/Pontiac
Stevens Creek Motors, Inc. CA Stevens Creek Acura
Stuart Lincoln-Mercury, Inc. FL Wallace Stuart Lincoln Mercury
Sunrise Nissan of Jacksonville, Inc. FL Sunrise Nissan of Jacksonville
Sunrise Nissan of Orange Park, Inc. FL Sunrise Nissan of Orange Park
Sunset Pontiac-GMC Truck South, Inc. FL Sunset Pontiac-GMC Truck South; AutoWay Pontiac GMC;
AutoWay Pontiac GMC - South
Sunset Pontiac-GMC, Inc. MI Sunset Pontiac-GMC Truck North; AutoWay Pontiac GMC;
AutoWay Pontiac GMC-North
Superior Nissan, Inc. NC Superior Nissan
</TABLE>
Page 10 of 17
<PAGE> 11
<TABLE>
<S> <C> <C>
Sutherlin Chrysler-Plymouth Jeep-Eagle, LLC DE Sutherlin Chrysler-Plymouth Jeep-Eagle; AutoNation
Chrysler Plymouth Jeep
Sutherlin Imports, Inc.
(f/k/a Sutherlin Toyota, Inc.) GA Sutherlin Honda
Sutherlin Imports, LLC
(f/k/a Sutherlin Toyota, LLC) DE Sutherlin Toyota; AutoWay Toyota
Sutherlin Nissan of Town Center, Inc. GA
Sutherlin Nissan, LLC DE Sutherlin Nissan of Lithia Springs
T-West Sales & Service, Inc. NV Toyota West
Tallahassee Chrysler Plymouth, Inc. FL (Shell)
Tallahassee Imports, Inc. FL Tallahassee Mitsubishi
Tallahassee Motors, Inc. FL Tallahassee Ford
Taylor Jeep Eagle, LLC DE Taylor Jeep Eagle/Taylor Chrysler Jeep
Terry York Motor Cars, Ltd. CA Land Rover Encino
Texan Ford Sales, Inc.
(f/k/a Larry Hilcher Ford, Inc.) TX Hilcher Ford and Texan Ford
Texan Ford, Inc. TX Texan Ford
Texan Lincoln-Mercury, Inc. DE Texan Lincoln-Mercury/Isuzu
Torrance Nissan, LLC DE Torrance Nissan; South Bay Volvo
Tousley Ford, Inc. MN Tousley Ford
Town & Country Chrysler Jeep, Inc. DE
Valencia Dodge CA Valencia Chrysler Plymouth Jeep; Valencia Dodge;
Valencia BMW; Valencia Isuzu; Valencia Chrysler
Plymouth Jeep
Valencia Lincoln-Mercury, Inc. DE Magic Lincoln-Mercury
Valley Chevrolet, Inc. MD Fox Chevrolet of Timonium
Village Motors, LLC DE Libertyville Toyota
Vince Wiese Chevrolet, Inc. DE Valencia Chevrolet
W.O. Bankston Lincoln-Mercury, Inc. DE Bankston Lincoln-Mercury, Inc.
W.O. Bankston Nissan, Inc. TX Bankston Nissan of Dallas
W.O. Bankston Paint & Body, Inc. TX Bankston Paint & Body, Inc.
Wallace Dodge, LLC DE Wallace Dodge
Wallace Ford, LLC DE Wallace Ford
Wallace Lincoln-Mercury, LLC DE Wallace Lincoln-Mercury
</TABLE>
Page 11 of 17
<PAGE> 12
<TABLE>
<S> <C> <C>
Wallace Nissan, LLC DE Wallace Nissan
West Colton Cars, Inc. CA Redlands Ford
West Side Motors, Inc. TN West Side Honda
Westgate Chevrolet, Inc. TX Westgate Chevrolet
York Enterprises South, Inc. CA Terry York Ford & Huntington Beach Ford
NON-DEALERSHIP ENTITIES
7 Rod Real Estate North, A Limited
Liability Company WY
7 Rod Real Estate South, A Limited
Liability Company WY
A&R Insurance Enterprises, Inc. FL
ACER Fiduciary, Inc. DE
All-State Rent A Car, Inc. NV
Allied 2000 Collision Center, Inc. TX
America's Car Stop CA
Anastasia Advertising Art, Inc. FL
Anderson Dealership Group CA
ANFS Texas Insurance Services Corp. TX
Anything on Wheels, Ltd. FL
Atrium Restaurants, Inc. FL
Auto Ad Agency, Inc. MD
Auto By Internet, Inc. FL
Auto Holding Corp. DE
Automart Superstore, Inc. AZ
AutoNation Benefits Company, Inc.
(f/k/a E.M.X. Leasing, Inc.) FL
AutoNation Cayman Insurance Company, Ltd. Cayman Islands
AutoNation Chrysler Plymouth GP, Inc. DE
AutoNation Chrysler Plymouth LP, Inc. DE
AutoNation Corporate Management Company FL
AutoNation Dodge of San Antonio-GP, Inc. DE
AutoNation Dodge of San Antonio-LP, Inc. DE
AutoNation DS Investments, Inc. TX
AutoNation Enterprises Incorporated
(f/k/a AutoNation Incorporated) FL
</TABLE>
Page 12 of 17
<PAGE> 13
<TABLE>
<S> <C> <C>
AutoNation Financial Services Corp. DE
AutoNation Floor Plan Funding Corp. DE
AutoNation Holding Corp. DE
AutoNation Insurance Company, Inc. VT
AutoNation LM Holding Corporation
(f/k/a AutoNation GM Holding Corporation) DE
AutoNation Park Association, Inc. FL
AutoNation Realty Corporation DE
AutoNation Receivables Funding Corp. DE
AutoNation, Inc. DE
AutoNationDirect.com, Inc. DE
B-S-P Automotive, Inc. TX
Bankston Auto, Inc. TX
Batfish, LLC CO
BBCSS, Inc. AZ
Bengal Motors, Inc. FL
BOSC Automotive Realty, Inc. DE
Breton Life Insurance Company AZ
Buick Mart Limited Partnership GA
C-Car Auto Wholesalers, Inc. OK
C. Garrett, Inc. CO
Central Motors, Inc. FL
Champion Planning, Inc. TX
Charlie Thomas Auto Sales, Inc. TX
Charlie Thomas Courtesy Leasing, Inc. TX
Chesrown Automotive Group, Inc. CO
Colonial Imports, Inc. FL
Consumer Car Care Corporation TN
Corporate Properties Holding, Inc. DE
Courtesy Wholesale Corporation FL
Credit Management Acceptance Corporation FL
Cross-Continent Auto Retailers, Inc. DE
Dealership Accounting Services, Inc. FL
Dealership Properties, Inc. NV
Dealership Realty Corporation TX
</TABLE>
Page 13 of 17
<PAGE> 14
<TABLE>
<S> <C> <C>
Desert Buick-GMC Management Group, Inc. NV
Desert GMC-East, Inc. NV
Design Graphic, Inc. FL
Ditschman/Flemington Property Rentals, Inc. NJ
Driver's Mart Worldwide, Inc. VA
Ed Mullinax, Inc. DE
Empire Services Agency, Inc. FL
Empire Warranty Corporation FL
Empire Warranty Holding Company FL
Financial Services, Inc. TX
First Team Automotive Corp. DE
First Team Imports, Ltd. FL
First Team Infiniti, Ltd. FL
First Team Management, Inc. FL
First Team Premier, Ltd. FL
Flemington Equities, Inc. NJ
Florida Auto Corp. DE
Ford of Garden Grove Limited Partnership GA
FRN of Rochester, LLC DE
General Providers Reinsurance Company, Ltd. Turks & Caicos Islands
Golden Communications, Inc. MI
Hillard Auto Group, Inc. TX
Houston Imports Greenway-GP, Inc.
(f/k/a AN/PPM-South GP, Inc.) DE
Houston Imports Greenway-LP, Inc.
(f/k/a AN/PPM-South LP, Inc.) DE
Houston Imports North-GP, Inc.
(f/k/a AN/PPM-North GP, Inc.) DE
Houston Imports North-LP, Inc.
(f/k/a AN/PPM-North LP, Inc.) DE
Irvine Toyota/Nissan/Volvo Limited Partnership GA
J-R Advertising Company CO
Jemautco, Inc. OH
Jerry's Outdoor Advertising, Inc. FL
Jiffy Billboards, Inc. FL
</TABLE>
Page 14 of 17
<PAGE> 15
<TABLE>
<S> <C> <C>
Kelnat Advertising, Ltd. Co. FL
KLJ of Nevada, Inc. NV
Lancaster Alarm Co., Inc. PA (Shell)
Lance Children, Inc. OH
Lexus of Cerritos Limited Partnership GA
LGS Holding Company DE
Lovern, Inc. FL
M.L.F. Insurance Agency OH
Maroone Car and Truck Rental Company FL
Maroone Management Services, Inc FL
Maxmedia, Inc. FL
Mealey Holdings, Inc. FL
Mechanical Warranty Protection, Inc. FL
Mullinax Insurance Agency OH
Mullinax Management, Inc. DE
Mullinax Used Cars, Inc. OH
Outdoor Communication, Inc. FL
Pierce Automotive Corporation AZ
PMWQ, Inc. NV
PMWQ, Ltd. TX
Post Retirement Liability Management, Inc. FL
Premier Auto Finance, L.P. IL
Prime Auto Resources, Inc. CA
Quantum Premium Finance Corporation FL
R. Coop Limited CO
R.I./Triangle, Ltd. Bermuda
R.L. Buscher II, Inc. CO
R.L. Buscher III, Inc. CO
Real Estate Holdings, Inc. FL
Republic Anderson Investment Group, Inc. CA
Republic DM Property Acquisition Corp. DE
Republic of Rochester, Inc. DE
Republic Media, Inc. FL
Republic Media Companies Holding Co. DE
Republic Resources Company DE
</TABLE>
Page 15 of 17
<PAGE> 16
<TABLE>
<S> <C>
Republic Risk Management Services, Inc. FL
Resources Aviation, Inc. FL
Risk Management Reengineering Assurance Group Cayman Islands
RI Merger Corp. CO
RI Shelf Corp. DE
RI/BBNM Acquisition Corp AZ
RI/BRC Real Estate Corp. CA
RI/CC Acquisition Corp. DE
RI/CDI Merger Corp. CA
RI/DM Acquisition Corp. DE
RI/LLC Acquisition Corp. CO
RI/LLC-2 Acquisition Corp. CO
RII Management Company DE
RIVT (a Delaware Business Trust) DE
RIVT I LLC DE
RIVT I LP DE
RIVT II LLC DE
RIVT II LP DE
RIVT Management, Inc. DE
RIVT, Inc. (Trustee of RIVT) DE
RSHC, Inc. DE
RRM Corporation DE
SCM Realty II, Inc. FL
SCM Realty, Inc. FL
Security Insurance Agency, Inc. MD
Seven Rod Life Insurance Company AZ
SGSCP Limited Partnership (UA on 4/16/99) FL
Six Jays LLC CO
Southeast Lease Car, Inc. FL
Spitfire Properties, Inc. FL
Spokane Mitsubishi Dealers Advertising
Association, Inc. WA
Steve Moore's Buy-Right Auto Center, Inc. FL
T-Five, Inc. MI
Tallahassee Automotive Group, Inc. FL
Tartan Advertising, Inc. CA
</TABLE>
Page 16 of 17
<PAGE> 17
<TABLE>
<S> <C>
Tasha Incorporated CA
Tennco Life Insurance Company AZ
The Consulting Source, Inc. FL
The Pierce Corporation II, Inc. AZ
Total Care, Inc. CO
Toyota Cerritos Limited Partnership GA
Triangle Corporation DE
W.O. Bankston Enterprises, Inc. DE
Wallace Imports, Inc. FL
Webb Automotive Group, Inc. CA
Woody Capital Investment Company II CO
Woody Capital Investment Company III CO
Working Man's Credit Plan, Inc. TX
World Wide Warranty Co. FL
</TABLE>
Page 17 of 17
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the previously
filed Registration Statements of AutoNation, Inc. on Forms S-3 (Registration
Nos. 33-61649, 33-62489, 33-63735, 33-65289, 333-01757, 333-04269, 333-08479,
333-18009, 333-20667, 333-23415, 333-29217, 333-35749 and 333-44611), Forms S-4
(Registration Nos. 333-17915 and 333-41505) and Forms S-8 (Registration Nos.
33-93742, 333-07623, 333-19453, 333-20669, 333-29265, 333-42891, 333-56967 and
333-90819).
ARTHUR ANDERSEN LLP
Fort Lauderdale, Florida,
March 27, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 369,300
<SECURITIES> 0
<RECEIVABLES> 1,193,500
<ALLOWANCES> 42,500
<INVENTORY> 2,706,800
<CURRENT-ASSETS> 4,300,900
<PP&E> 1,511,100
<DEPRECIATION> 150,700
<TOTAL-ASSETS> 9,613,400
<CURRENT-LIABILITIES> 3,164,500
<BONDS> 836,100
0
0
<COMMON> 4,700
<OTHER-SE> 4,596,500
<TOTAL-LIABILITY-AND-EQUITY> 9,613,400
<SALES> 20,111,800
<TOTAL-REVENUES> 20,111,800
<CGS> 17,399,600
<TOTAL-COSTS> 17,399,600
<OTHER-EXPENSES> 416,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 34,900
<INCOME-PRETAX> (27,500)
<INCOME-TAX> 4,000
<INCOME-CONTINUING> (31,500)
<DISCONTINUED> 314,400
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,900
<EPS-BASIC> .66
<EPS-DILUTED> .66
</TABLE>
