AutoNation 2015 Annual Report Download - page 7

Table of Contents
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Framework Agreements
We have entered into framework and related 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 or substantially all of our
assets. In addition, we have granted certain manufacturers the right to acquire, at fair market value, our automotive dealerships franchised by such
manufacturers in specified circumstances in the event of our default under certain of our debt 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, outside of
bankruptcy, 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
outside of bankruptcy. 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 
 in Part I,
Item 1A of this Form 10-K.
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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, finance and insurance,
advertising, and employment
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