AutoNation 2001 Annual Report Download - page 18

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precluded under these agreements from acquiring additional franchises to the
extent we are not meeting certain performance criteria at our existing
dealerships until our performance improves in accordance with the agreements.
While we believe that we will be able to renew all of our franchise agreements,
we cannot guarantee that all of our franchise agreements will be renewed or that
the terms of the renewal will be favorable to us. In addition, some of our
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
dealerships 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 our voting
stock 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. The restrictions in
our franchise and framework agreements also may prevent or deter prospective
acquirors from acquiring control of us, which may adversely impact our equity
value. 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 upon the exercise of remedies under the indenture for
our senior unsecured notes and the credit agreements for our two revolving
credit facilities.
WE ARE SUBJECT TO NUMEROUS LEGAL AND ADMINISTRATIVE PROCEEDINGS, WHICH, IF THE
OUTCOMES ARE ADVERSE TO US, COULD MATERIALLY ADVERSELY AFFECT OUR BUSINESS,
OPERATING RESULTS AND PROSPECTS.
We are involved, and will continue to be involved, in numerous legal
proceedings arising out of the conduct of our business, including litigation
with customers, employment related lawsuits, class actions, purported class
actions and actions brought by governmental authorities.
In October 2000, the California Department of Motor Vehicles ("California
DMV") brought an action against one of our subsidiaries' dealerships for alleged
customer fraud as well as several other claims. In April 2001, we settled the
California DMV action and a related action by the State of California. We have
reached a preliminary settlement of three purported civil class actions (which
have been consolidated) relating to this matter, subject to certain conditions.
Other lawsuits and claims have also been filed or made against the dealership
based on the allegations underlying the California DMV case.
14
In an action filed in Florida state court in 1999, one of our subsidiaries
was accused of violating, among other things, the Florida Motor Vehicle Retail
Sales Finance Act and the Florida Deceptive and Unfair Trade Practices Act by
allegedly failing to deliver executed copies of retail installment contracts to
customers of our former used vehicle megastores. On October 31, 2000, the court
certified the class of customers on whose behalf the action would proceed. In
July 2001, Florida's Fourth District Court of Appeals upheld the certification
of the class.
Many of our Texas dealership subsidiaries have been named in three class
actions brought against the Texas Automobile Dealer's Association ("TADA") and
new vehicle dealerships in Texas that are members of the TADA. The actions
allege that since January 1994 Texas dealers have deceived customers with
respect to a vehicle inventory tax and violated federal antitrust and other laws
as well. Two of the cases are currently pending in Texas state court and the
third is pending in the federal district court for the Eastern District of
Texas.
In addition to the foregoing cases, we are also a party to numerous other
legal proceedings that arose in the conduct of our business. The results of
these matters and any matters brought against us in the future cannot be
predicted with certainty, and an unfavorable resolution of one or more of these
matters could have a material adverse effect on our business, financial