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These excerpts taken from the AN 10-K filed Feb 17, 2009. Agreements
with Vehicle Manufacturers
Framework
Agreements
We have entered into framework agreements with most major
vehicle manufacturers and distributors. These agreements, which
are in addition to the franchise agreements described below,
contain provisions relating to our management, operation,
advertising and marketing, and acquisition and ownership
structure of automotive stores franchised by such manufacturers.
These agreements contain certain requirements pertaining to our
operating performance (with respect to matters such as sales
volume, sales effectiveness, and customer satisfaction), which,
if we do not satisfy, adversely impact our ability to make
further acquisitions of such manufacturers’ stores or could
result in us being compelled to take certain actions, such as
divesting a significantly underperforming store, subject to
applicable state franchise laws. Additionally, these agreements
set limits (nationally, regionally, and in local markets) on the
number of stores that we may acquire of the particular
manufacturer and contain certain restrictions on our ability to
name and brand our stores. Some of these framework agreements
give the manufacturer or distributor the right to acquire at
fair market value, or the right to compel us to sell, the
automotive stores franchised by that manufacturer or distributor
under specified circumstances in the event of a change in
control of our company (generally including certain material
changes in the composition of our Board of Directors during a
specified time period, the acquisition of 20% or more of the
voting stock of our Company by another vehicle manufacturer or
distributor, or the acquisition of 50% or more of our voting
stock by a person, entity, or group not affiliated with a
vehicle manufacturer or distributor) or other extraordinary
corporate transactions such as a merger or sale of all of our
assets. In addition, we have granted certain manufacturers the
right to acquire, at fair market value, our automotive
dealerships franchised by that manufacturer in specified
circumstances in the event of our default under the indenture
for our floating rate senior unsecured notes due 2013 and
7% senior unsecured notes due 2014 (collectively referred
to herein as the “senior unsecured notes”) or the
amended credit agreement for our revolving credit facility and
term loan facility.
In January 2009, our Board of Directors authorized and approved
letter agreements with certain automotive manufacturers in order
to, among other things, eliminate any potential adverse
consequences under our framework agreements with those
manufacturers in the event that ESL Investments, Inc. and
certain of its investment affiliates (together, “ESL”)
acquires 50% or more of our common stock. The letter agreements
with American Honda Motor Co., Inc. (“Honda”) and
Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also
contain governance-related and other provisions as described
below. Also a party to both the Honda and Toyota Agreements is
ESL, our largest shareholder. As of February 6, 2009, ESL
beneficially owned approximately 45% of the outstanding shares
of our common stock.
Under the terms of the Honda Agreement, Honda has agreed not to
assert its right to purchase our Honda and Acura franchises
and/or
similar remedies under the manufacturer framework agreement
between Honda and the Company in the event that ESL acquires 50%
or more of our common stock. If ESL acquires more than 50% of
our common stock, ESL has agreed to vote all shares in excess of
50% in the same proportion as all non-ESL-owned shares are
voted. In addition, we have agreed to ensure that a majority of
our Board is independent of both the Company and ESL under
existing New York Stock Exchange (“NYSE”) listing
standards. Furthermore, the Honda Agreement provides that
Honda’s consent does not apply to a “going
private” transaction under
Rule 13e-3
of the Securities Exchange Act of 1934. The terms and conditions
of the Honda Agreement will only apply at such time and for so
long as ESL owns more than 50% of our common stock.
Under the terms of the Toyota Agreement, Toyota has agreed not
to assert its right to purchase our Toyota and Lexus franchises
and/or
similar remedies under the manufacturer framework agreement
between
Toyota and the Company in the event that ESL acquires 50% or
more of our common stock. If ESL acquires more than 50% of our
common stock, ESL has agreed to vote all shares in excess of 50%
in the same proportion as all non-ESL-owned shares are voted.
Furthermore, we have agreed that a majority of our Board will be
independent from both the Company and from ESL under existing
NYSE listing standards. We have also agreed not to merge,
consolidate, or combine with any entity owned or controlled by
ESL unless Toyota consents thereto. In addition, the Toyota
Agreement provides that in the event that we appoint a Chief
Operating Officer who, in the good faith judgment of our Board,
does not have sufficient breadth and depth of experience, a
relevant, successful automotive track record, and extensive
successful automotive experience, ESL shall be required to
divest its shares in excess of 50% within nine (9) months
or its voting interest will be limited to 25%, and if ESL does
not divest such shares within eighteen (18) months, it will
lose all voting rights until it divests such shares. The terms
and conditions of the Toyota Agreement will only apply at such
time and for so long as ESL owns more than 50% of our common
stock and will terminate on December 31, 2009 with respect
to future stock acquisitions by ESL, provided that ESL may seek
successive annual one-year extensions, and Toyota may not
unreasonably withhold or delay its consent thereto.
In connection with the Toyota and Honda agreements described
above, in January 2009, our Board authorized and approved a
separate letter agreement between the Company and ESL in which
ESL has agreed to vote shares of our common stock owned by ESL
in excess of 45% in the same proportion as all non-ESL-owned
shares are voted. The ESL Agreement expires on January 28,
2010, unless extended by mutual agreement of the parties.
We have also entered into separate letter agreements with
certain other manufacturers that eliminate any potential adverse
consequences under our framework agreements with those
manufacturers in the event that ESL acquires 50% or more of our
common stock. ESL is not a party to any of those agreements.
Franchise
Agreements
We operate each of our new vehicle stores under a franchise
agreement with a vehicle manufacturer or distributor. The
franchise agreements grant the franchised automotive store a
non-exclusive right to sell the manufacturer’s or
distributor’s brand of vehicles and offer related parts and
service within a specified market area. These franchise
agreements grant our stores the right to use the relevant
manufacturer’s or distributor’s trademarks in
connection with their operations, and they also impose numerous
operational requirements and restrictions relating to inventory
levels, working capital levels, the sales process, marketing and
branding, showroom and service facilities, signage, personnel,
changes in management, and monthly financial reporting, among
other things. The contractual terms of our stores’
franchise agreements provide for various durations, ranging from
one year to no expiration date, and in certain cases
manufacturers have undertaken to renew such franchises upon
expiration so long as the store is in compliance with the terms
of the agreement. We generally expect our franchise agreements
to survive for the foreseeable future and, when the agreements
do not have indefinite terms, anticipate routine renewals of the
agreements without substantial cost or modification. Our
stores’ franchise agreements provide for termination of the
agreement by the manufacturer or non-renewal for a variety of
causes (including performance deficiencies in such areas as
sales volume, sales effectiveness, and customer satisfaction).
However, in general, the states in which we operate have
automotive dealership franchise laws that provide that,
notwithstanding the terms of any franchise agreement, it is
unlawful for a manufacturer to terminate or not renew a
franchise unless “good cause” exists. It generally is
difficult for a manufacturer to terminate, or not renew, a
franchise under these laws, which were designed to protect
dealers. In addition, in our experience and historically in the
automotive retail industry, dealership franchise agreements are
rarely involuntarily terminated or not renewed by the
manufacturer. From time to time, certain manufacturers assert
sales and customer satisfaction performance deficiencies under
the terms of our framework and franchise agreements. We
generally work with these manufacturers to address the asserted
performance issues. For additional information, please refer to
the risk factor captioned “We are subject to
restrictions imposed by, and significant influence from, vehicle
manufacturers that may adversely impact our business, financial
condition, results of operations, cash flows, and prospects,
including our ability to acquire additional stores” in
the “Risk Factors” section of this document.
Agreements with Vehicle Manufacturers Framework Agreements We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements, which are in addition to the franchise agreements described below, contain provisions relating to our management, operation, advertising and marketing, and acquisition and ownership structure of automotive stores franchised by such manufacturers. These agreements contain certain requirements pertaining to our operating performance (with respect to matters such as sales volume, sales effectiveness, and customer satisfaction), which, if we do not satisfy, adversely impact our ability to make further acquisitions of such manufacturers’ stores or could result in us being compelled to take certain actions, such as divesting a significantly underperforming store, subject to applicable state franchise laws. Additionally, these agreements set limits (nationally, regionally, and in local markets) on the number of stores that we may acquire of the particular manufacturer and contain certain restrictions on our ability to name and brand our stores. Some of these framework agreements give the manufacturer or distributor the right to acquire at fair market value, or the right to compel us to sell, the automotive stores franchised by that manufacturer or distributor under specified circumstances in the event of a change in control of our company (generally including certain material changes in the composition of our Board of Directors during a specified time period, the acquisition of 20% or more of the voting stock of our Company by another vehicle manufacturer or distributor, or the acquisition of 50% or more of our voting stock by a person, entity, or group not affiliated with a vehicle manufacturer or distributor) or other extraordinary corporate transactions such as a merger or sale of all of our assets. In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by that manufacturer in specified circumstances in the event of our default under the indenture for our floating rate senior unsecured notes due 2013 and 7% senior unsecured notes due 2014 (collectively referred to herein as the “senior unsecured notes”) or the amended credit agreement for our revolving credit facility and term loan facility. In January 2009, our Board of Directors authorized and approved letter agreements with certain automotive manufacturers in order to, among other things, eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL Investments, Inc. and certain of its investment affiliates (together, “ESL”) acquires 50% or more of our common stock. The letter agreements with American Honda Motor Co., Inc. (“Honda”) and Toyota Motor Sales, U.S.A., Inc. (“Toyota”) also contain governance-related and other provisions as described below. Also a party to both the Honda and Toyota Agreements is ESL, our largest shareholder. As of February 6, 2009, ESL beneficially owned approximately 45% of the outstanding shares of our common stock. Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase our Honda and Acura franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. In addition, we have agreed to ensure that a majority of our Board is independent of both the Company and ESL under existing New York Stock Exchange (“NYSE”) listing standards. Furthermore, the Honda Agreement provides that Honda’s consent does not apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934. The terms and conditions of the Honda Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock. Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase our Toyota and Lexus franchises and/or similar remedies under the manufacturer framework agreement between
Toyota and the Company in the event that ESL acquires 50% or more of our common stock. If ESL acquires more than 50% of our common stock, ESL has agreed to vote all shares in excess of 50% in the same proportion as all non-ESL-owned shares are voted. Furthermore, we have agreed that a majority of our Board will be independent from both the Company and from ESL under existing NYSE listing standards. We have also agreed not to merge, consolidate, or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the Toyota Agreement provides that in the event that we appoint a Chief Operating Officer who, in the good faith judgment of our Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record, and extensive successful automotive experience, ESL shall be required to divest its shares in excess of 50% within nine (9) months or its voting interest will be limited to 25%, and if ESL does not divest such shares within eighteen (18) months, it will lose all voting rights until it divests such shares. The terms and conditions of the Toyota Agreement will only apply at such time and for so long as ESL owns more than 50% of our common stock and will terminate on December 31, 2009 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-year extensions, and Toyota may not unreasonably withhold or delay its consent thereto. In connection with the Toyota and Honda agreements described above, in January 2009, our Board authorized and approved a separate letter agreement between the Company and ESL in which ESL has agreed to vote shares of our common stock owned by ESL in excess of 45% in the same proportion as all non-ESL-owned shares are voted. The ESL Agreement expires on January 28, 2010, unless extended by mutual agreement of the parties. We have also entered into separate letter agreements with certain other manufacturers that eliminate any potential adverse consequences under our framework agreements with those manufacturers in the event that ESL acquires 50% or more of our common stock. ESL is not a party to any of those agreements. Franchise Agreements We operate each of our new vehicle stores under a franchise agreement with a vehicle manufacturer or distributor. The franchise agreements grant the franchised automotive store a non-exclusive right to sell the manufacturer’s or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements grant our stores the right to use the relevant manufacturer’s or distributor’s trademarks in connection with their operations, and they also impose numerous operational requirements and restrictions relating to inventory levels, working capital levels, the sales process, marketing and branding, showroom and service facilities, signage, personnel, changes in management, and monthly financial reporting, among other things. The contractual terms of our stores’ franchise agreements provide for various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to renew such franchises upon expiration so long as the store is in compliance with the terms of the agreement. We generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost or modification. Our stores’ franchise agreements provide for termination of the agreement by the manufacturer or non-renewal for a variety of causes (including performance deficiencies in such areas as sales volume, sales effectiveness, and customer satisfaction). However, in general, the states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. In addition, in our experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the manufacturer. From time to time, certain manufacturers assert sales and customer satisfaction performance deficiencies under the terms of our framework and franchise agreements. We generally work with these manufacturers to address the asserted performance issues. For additional information, please refer to the risk factor captioned “We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores” in the “Risk Factors” section of this document.
These excerpts taken from the AN 10-K filed Feb 28, 2008. Agreements
with Vehicle Manufacturers
We have entered into framework agreements with most major
vehicle manufacturers and distributors. These agreements, which
are in addition to the franchise agreements described in the
following paragraph, contain provisions relating to our
management, operation, advertising and marketing, and
acquisition and ownership structure of automotive stores
franchised by such manufacturers. These agreements contain
certain requirements pertaining to our operating performance
(with respect to matters such as sales volume, sales
effectiveness, and customer satisfaction), which, if we do not
satisfy, adversely impact our ability to make further
acquisitions of such manufacturer’s stores or could result
in us being compelled to take certain actions, such as divesting
a significantly underperforming store, subject to applicable
state franchise laws. Additionally, these agreements set limits
(nationally, regionally, and in local markets) on the number of
stores that we may acquire of the particular manufacturer and
contain certain restrictions on our ability to name and brand
our stores. Some of these framework agreements give the
manufacturer or distributor the right to acquire at fair market
value, or the right to compel us to sell, the automotive stores
franchised by that manufacturer or distributor under specified
circumstances in the event of a change in control of our company
(generally including certain material changes in the composition
of our board of directors during a specified time period, the
acquisition of 20% or more of the voting stock of our company by
another vehicle manufacturer or distributor, or the acquisition
of 50% or more of our voting stock by a person, entity, or group
not affiliated with a vehicle manufacturer or distributor) or
other extraordinary corporate transactions such as a merger or
sale of all of our assets. In addition, we have granted certain
manufacturers the right to acquire, at fair market value, our
automotive dealerships franchised by that manufacturer in
specified circumstances in the event of our default under the
indenture for our $300 million aggregate principal amount
of floating rate senior unsecured notes due 2013 and
$300 million aggregate principal amount of 7% senior
unsecured notes due 2014 (collectively referred to herein as the
“senior unsecured notes”) or the amended credit
agreement for our revolving credit facility and term loan
facility.
We operate each of our new vehicle stores under a franchise
agreement with a vehicle manufacturer or distributor. The
franchise agreements grant the franchised automotive store a
non-exclusive right to sell the manufacturer or
distributor’s brand of vehicles and offer related parts and
service within a specified market area. These franchise
agreements grant our stores the right to use the manufacturer or
distributor’s trademarks in connection with their
operations, and they also impose numerous operational
requirements and restrictions relating to inventory levels,
working capital levels, the sales process, marketing and
branding, showroom and service facilities and signage,
personnel, changes in management, and monthly financial
reporting, among other things. The contractual terms of our
stores’ franchise agreements provide for various durations,
ranging from one year to no expiration date, and in certain
cases manufacturers have undertaken to renew such franchises
upon expiration so long as the store is in compliance with the
terms of the agreement. We generally expect our franchise
agreements to survive for the foreseeable future and, when the
agreements do not have indefinite terms, anticipate routine
renewals of the agreements without substantial cost or
modification. Our stores’ franchise agreements provide for
termination of the agreement by the manufacturer or non-renewal
for a variety of causes (including performance deficiencies in
such areas as sales volume, sales effectiveness, and customer
satisfaction). However, in general, the states in which we
operate have automotive dealership franchise laws that provide
that, notwithstanding the terms of any franchise agreement, it
is unlawful for a manufacturer to terminate or not renew a
franchise unless “good cause” exists. It generally is
difficult for a manufacturer to terminate, or not renew, a
franchise under these laws, which were designed to protect
dealers. In addition, in our experience and historically in the
automotive retail industry, dealership franchise agreements are
rarely involuntarily terminated or not renewed by the
manufacturer. From time to time, certain manufacturers assert
sales and customer satisfaction performance deficiencies under
the terms of our framework and franchise agreements. We
generally work with these manufacturers to address the asserted
performance issues. For additional information, please refer to
the risk factor captioned “We are subject to
restrictions imposed by, and significant influence from, vehicle
manufacturers that may adversely impact our business, financial
condition, results of operations, cash flows, and prospects,
including our ability to acquire additional stores” in
the “Risk Factors” section of this document.
Table of Contents
Agreements with Vehicle Manufacturers We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements, which are in addition to the franchise agreements described in the following paragraph, contain provisions relating to our management, operation, advertising and marketing, and acquisition and ownership structure of automotive stores franchised by such manufacturers. These agreements contain certain requirements pertaining to our operating performance (with respect to matters such as sales volume, sales effectiveness, and customer satisfaction), which, if we do not satisfy, adversely impact our ability to make further acquisitions of such manufacturer’s stores or could result in us being compelled to take certain actions, such as divesting a significantly underperforming store, subject to applicable state franchise laws. Additionally, these agreements set limits (nationally, regionally, and in local markets) on the number of stores that we may acquire of the particular manufacturer and contain certain restrictions on our ability to name and brand our stores. Some of these framework agreements give the manufacturer or distributor the right to acquire at fair market value, or the right to compel us to sell, the automotive stores franchised by that manufacturer or distributor under specified circumstances in the event of a change in control of our company (generally including certain material changes in the composition of our board of directors during a specified time period, the acquisition of 20% or more of the voting stock of our company by another vehicle manufacturer or distributor, or the acquisition of 50% or more of our voting stock by a person, entity, or group not affiliated with a vehicle manufacturer or distributor) or other extraordinary corporate transactions such as a merger or sale of all of our assets. In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by that manufacturer in specified circumstances in the event of our default under the indenture for our $300 million aggregate principal amount of floating rate senior unsecured notes due 2013 and $300 million aggregate principal amount of 7% senior unsecured notes due 2014 (collectively referred to herein as the “senior unsecured notes”) or the amended credit agreement for our revolving credit facility and term loan facility. We operate each of our new vehicle stores under a franchise agreement with a vehicle manufacturer or distributor. The franchise agreements grant the franchised automotive store a non-exclusive right to sell the manufacturer or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements grant our stores the right to use the manufacturer or distributor’s trademarks in connection with their operations, and they also impose numerous operational requirements and restrictions relating to inventory levels, working capital levels, the sales process, marketing and branding, showroom and service facilities and signage, personnel, changes in management, and monthly financial reporting, among other things. The contractual terms of our stores’ franchise agreements provide for various durations, ranging from one year to no expiration date, and in certain cases manufacturers have undertaken to renew such franchises upon expiration so long as the store is in compliance with the terms of the agreement. We generally expect our franchise agreements to survive for the foreseeable future and, when the agreements do not have indefinite terms, anticipate routine renewals of the agreements without substantial cost or modification. Our stores’ franchise agreements provide for termination of the agreement by the manufacturer or non-renewal for a variety of causes (including performance deficiencies in such areas as sales volume, sales effectiveness, and customer satisfaction). However, in general, the states in which we operate have automotive dealership franchise laws that provide that, notwithstanding the terms of any franchise agreement, it is unlawful for a manufacturer to terminate or not renew a franchise unless “good cause” exists. It generally is difficult for a manufacturer to terminate, or not renew, a franchise under these laws, which were designed to protect dealers. In addition, in our experience and historically in the automotive retail industry, dealership franchise agreements are rarely involuntarily terminated or not renewed by the manufacturer. From time to time, certain manufacturers assert sales and customer satisfaction performance deficiencies under the terms of our framework and franchise agreements. We generally work with these manufacturers to address the asserted performance issues. For additional information, please refer to the risk factor captioned “We are subject to restrictions imposed by, and significant influence from, vehicle manufacturers that may adversely impact our business, financial condition, results of operations, cash flows, and prospects, including our ability to acquire additional stores” in the “Risk Factors” section of this document.
Table of ContentsThis excerpt taken from the AN 10-K filed Feb 28, 2007. Agreements
with Vehicle Manufacturers
We have entered into framework agreements with most major
vehicle manufacturers and distributors. These agreements, which
are in addition to the franchise agreements described in the
following paragraph, contain provisions relating to our
management, operation, advertising and marketing, and
acquisition and ownership structure of automotive stores
franchised by such manufacturers. These agreements contain
certain requirements pertaining to our operating performance
(with respect to matters such as sales volume, sales
effectiveness and customer satisfaction), which, if we do not
satisfy, adversely impact our ability to make further
acquisitions of such manufacturer’s stores or could result
in us being compelled to take certain actions, such as divesting
a significantly underperforming store, subject to applicable
state franchise laws. Additionally, these agreements set limits
(nationally, regionally and in local markets) on the number of
stores that we may acquire of the particular manufacturer and
contain certain restrictions on our ability to name and brand
our stores. Some of these framework agreements give the
manufacturer or distributor the right to acquire at fair market
value, or the right to compel us to sell, the automotive stores
franchised by that manufacturer or distributor under specified
circumstances in the event
Table of Contents
of a change in control of our company (generally including
certain material changes in the composition of our board of
directors during a specified time period, the acquisition of 20%
or more of the voting stock of our company by another vehicle
manufacturer or distributor or the acquisition of 50% or more of
our voting stock by a person, entity or group not affiliated
with a vehicle manufacturer or distributor) or other
extraordinary corporate transactions such as a merger or sale of
all of our assets. In addition, we have granted certain
manufacturers the right to acquire, at fair market value, our
automotive dealerships franchised by that manufacturer in
specified circumstances in the event of our default under the
indenture for our $300 million aggregate principal amount
of floating rate senior notes due 2013 and $300 million
aggregate principal amount of 7% senior notes due 2014
(collectively referred to herein as the “new senior
unsecured notes”) or the amended credit agreement for our
revolving credit facility and term loan facility.
We operate each of our new vehicle stores under a franchise
agreement with a vehicle manufacturer or distributor. The
franchise agreements grant the franchised automotive store a
non-exclusive right to sell the manufacturer or
distributor’s brand of vehicles and offer related parts and
service within a specified market area. These franchise
agreements grant our stores the right to use the manufacturer or
distributor’s trademarks in connection with their
operations, and they also impose numerous operational
requirements and restrictions relating to inventory levels,
working capital levels, the sales process, marketing and
branding, showroom and service facilities and signage,
personnel, changes in management and monthly financial
reporting, among other things. The contractual terms of our
stores’ franchise agreements provide for various durations,
ranging from one year to no expiration date, and in certain
cases manufacturers have undertaken to renew such franchises
upon expiration so long as the store is in compliance with the
terms of the agreement. We generally expect our franchise
agreements to survive for the foreseeable future and, when the
agreements do not have indefinite terms, anticipate routine
renewals of the agreements without substantial cost or
modification. Our stores’ franchise agreements provide for
termination of the agreement by the manufacturer or non-renewal
for a variety of causes (including performance deficiencies in
such areas as sales volume, sales effectiveness and customer
satisfaction). However, in general, the states in which we
operate have automotive dealership franchise laws that provide
that, notwithstanding the terms of any franchise agreement, it
is unlawful for a manufacturer to terminate or not renew a
franchise unless “good cause” exists. It generally is
difficult for a manufacturer to terminate, or not renew, a
franchise under these laws, which were designed to protect
dealers. In addition, in our experience and historically in the
automotive retail industry, dealership franchise agreements are
rarely involuntarily terminated or not renewed by the
manufacturer. From time to time, certain manufacturers assert
sales and customer satisfaction performance deficiencies under
the terms of our framework and franchise agreements at a limited
number of our stores. We generally work with these manufacturers
to address the asserted performance issues. For a further
discussion, please refer to the risk factor captioned
“We are subject to restrictions imposed by, and
significant influence from, vehicle manufacturers that may
adversely impact our business, financial condition, results of
operations, cash flows and prospects, including our ability to
acquire additional stores” in the “Risk
Factors” section of this document.
This excerpt taken from the AN 10-K filed Feb 24, 2005. Agreements with Vehicle
Manufacturers
We have entered into framework agreements with most major vehicle manufacturers and distributors. These agreements, which are in addition to the franchise agreements described in the following paragraph, contain provisions relating to our management, operation, advertising and marketing, and acquisition and ownership structure of automotive stores franchised by such manufacturers. These agreements contain certain requirements pertaining to our operating performance (with respect to matters such as sales volume, sales effectiveness and customer satisfaction), which, if we do not satisfy, are likely to adversely impact our ability to make further acquisitions of such manufacturer’s stores or result in us being compelled to take certain actions, such as divesting a significantly underperforming store, subject to applicable state franchise laws. Additionally, these agreements set limits on the number of stores that we may acquire of the particular manufacturer, nationally, regionally and in local markets, and contain certain restrictions on our ability to name and brand our stores. Some of these framework agreements give the manufacturer or distributor the right to acquire at fair market value, or the right to compel us to sell, the automotive stores franchised by that manufacturer or distributor under specified circumstances in the event of a change in control of our company (generally including certain material changes in the composition of our board of directors during a specified time period, the acquisition of 20% or more of the voting stock of our company by another manufacturer or distributor or the acquisition of 50% or more of our voting stock by a person, entity or group not affiliated with a vehicle manufacturer or distributor) or other extraordinary corporate transactions such as a merger or sale of all of our assets. We operate each of our new vehicle stores under a franchise agreement with a vehicle manufacturer or distributor. The franchise agreements grant the franchised automotive store a non-exclusive right to sell the manufacturer or distributor’s brand of vehicles and offer related parts and service within a specified market area. These franchise agreements grant our stores the right to use the manufacturer or distributor’s trademarks in connection with their operations, and they also impose numerous operational requirements and restrictions relating to inventory levels, working capital levels, the sales process, marketing and branding, showroom and service facilities and signage, personnel, changes in management and monthly financial reporting, among other things. The contractual terms of our stores’ franchise agreements provide for various durations, ranging from 6
Table of Contents
one year to no expiration date, and in certain
cases manufacturers have undertaken to renew such franchises
upon expiration so long as the store is in compliance with the
terms of the agreement. We generally expect our franchise
agreements to survive for the foreseeable future and, when the
agreements do not have indefinite terms, anticipate routine
renewals of the agreements without substantial cost or
modification. Our stores’ franchise agreements provide for
termination of the agreement by the manufacturer or non-renewal
for a variety of causes (including performance deficiencies in
such areas as sales volume, sales effectiveness and customer
satisfaction). However, in general, the states in which we
operate have automotive dealership franchise laws that provide
that, notwithstanding the terms of any franchise agreement, it
is unlawful for a manufacturer to terminate or not renew a
franchise unless “good cause” exists. It generally is
difficult for a manufacturer to terminate, or not renew, a
franchise under these laws, which were designed to protect
dealers. In addition, in our experience and historically in the
automotive retail industry, dealership franchise agreements are
rarely involuntarily terminated or not renewed by the
manufacturer. From time to time, certain manufacturers assert
sales and customer satisfaction performance deficiencies under
the terms of our framework and franchise agreements at a limited
number of our stores. We generally work with these manufacturers
to address the asserted performance issues. For a further
discussion, please refer to the risk factor captioned
“We are subject to restrictions imposed by, and
significant influence from, vehicle manufacturers that may
adversely impact our business, financial condition, results of
operations, cash flows and prospects, including our ability to
acquire additional stores” in the “Risk Factors;
Forward Looking Statements May Prove Inaccurate” section of
this document.
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