AutoNation 2006 Annual Report Download - page 8

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.
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Automotive and Other 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 dealer, sales and finance and insurance
licenses issued by state regulatory authorities. Numerous laws and regulations govern our conduct of business, including those relating to
our sales, operations, financing, insurance, advertising and employment practices. These laws and regulations include state franchise
laws and regulations, consumer protection laws, privacy laws, escheatment laws, anti-money laundering laws 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.
Our financing activities with customers are subject to federal truth-in-lending, consumer leasing and equal credit opportunity laws
and regulations as well as state and local motor vehicle finance laws, leasing laws, installment finance laws, usury laws and other
installment sales and leasing laws and regulations, some of which regulate finance and other fees and charges that may be imposed or
received in connection with motor vehicle retail installment sales and leasing. Claims arising out of actual or alleged violations of law may
be asserted against us or
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