SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For The Transition Period From _________ to ___________
Commission File Number: 1-13107
DELAWARE 73-1105145
------------------------ ---------------------------------
(State of Incorporation) (IRS Employer Identification No.)
110 S.E. 6th Street
Ft. Lauderdale, Florida 33301
--------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
|
Registrant's Telephone Number, Including Area Code: (954) 769-6000
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 [ ]
On August 2, 2000 the registrant had 361,141,829 outstanding shares of common stock, par value $.01 per share.
AUTONATION, INC.
INDEX
PART I. FINANCIAL INFORMATION
PAGE
----
ITEM 1. FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheets as
of June 30, 2000 and December 31, 1999.......................................... 3
Unaudited Condensed Consolidated Statements of Operations
for the Three and Six Months Ended June 30, 2000 and 1999....................... 4
Unaudited Condensed Consolidated Statement of Shareholders'
Equity for the Six Months Ended June 30, 2000................................... 5
Unaudited Condensed Consolidated Statements of Cash Flows
for the Six Months Ended June 30, 2000 and 1999................................. 6
Notes to Unaudited Condensed Consolidated Financial Statements..................... 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS....................................................... 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......................... 27
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................................ 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................... 28
|
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
JUNE 30, DECEMBER 31,
2000 1999
------------------- -----------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 154.8 $ 218.6
Receivables, net.................................................... 1,191.7 1,179.5
Inventory........................................................... 2,799.1 2,706.8
Other current assets................................................ 173.2 165.6
---------- -----------
Total Current Assets.......................................... 4,318.8 4,270.5
INVESTMENTS............................................................ 99.9 175.8
PROPERTY AND EQUIPMENT, NET............................................ 1,404.7 1,360.4
INTANGIBLE ASSETS, NET................................................. 2,923.5 2,831.0
OTHER ASSETS........................................................... 169.4 218.8
NET ASSETS OF DISCONTINUED OPERATIONS.................................. -- 726.6
---------- -----------
$ 8,916.3 $ 9,583.1
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable.................................................... $ 138.8 $ 163.1
Accrued liabilities................................................. 530.0 622.9
Notes payable and current maturities of
long-term debt.................................................... 2,380.1 2,218.3
Other current liabilities........................................... 190.9 129.9
---------- -----------
Total Current Liabilities..................................... 3,239.8 3,134.2
LONG-TERM DEBT, NET OF CURRENT MATURITIES.............................. 984.9 836.1
DEFERRED INCOME TAXES.................................................. 819.6 804.8
OTHER LIABILITIES ..................................................... 107.2 206.8
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;
475,305,538 and 474,965,676 shares
issued including shares held in
treasury, respectively........................................... 4.8 4.7
Additional paid-in capital.......................................... 4,662.1 4,661.5
Retained earnings................................................... 482.6 1,213.8
Accumulated other comprehensive income.............................. 10.6 6.6
Treasury stock, at cost; 114,163,709 and
99,602,444 shares held, respectively............................. (1,395.3) (1,285.4)
---------- -----------
Total Shareholders' Equity........................... 3,764.8 4,601.2
---------- -----------
$ 8,916.3 $ 9,583.1
========== ===========
|
The accompanying notes are an integral part of these statements.
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In millions, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- ---------------------------
2000 1999 2000 1999
-------- ------------ ---------- -------------
REVENUE ........................... $ 5,339.5 $ 5,069.6 $ 10,569.7 $ 9,632.3
COST OF OPERATIONS ................ 4,633.6 4,362.8 9,186.7 8,315.3
---------- ---------- ---------- ----------
GROSS MARGIN ...................... 705.9 706.8 1,383.0 1,317.0
SELLING,GENERAL AND
ADMINISTRATIVE EXPENSES ......... 544.4 551.9 1,095.2 1,069.2
PROPERTY CARRYING COSTS ........... 9.1 -- 19.9 --
---------- ---------- ---------- ----------
OPERATING INCOME .................. 152.4 154.9 267.9 247.8
INTEREST INCOME ................... 4.9 5.3 8.7 8.7
INTEREST EXPENSE .................. (10.4) (9.9) (22.4) (16.6)
OTHER INCOME, NET ................. 7.6 1.4 3.8 3.1
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS..
BEFORE INCOME TAXES ............. 154.5 151.7 258.0 243.0
PROVISION FOR INCOME TAXES ........ 57.9 54.6 96.7 87.5
---------- ---------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS.. 96.6 97.1 161.3 155.5
---------- ---------- ---------- ----------
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES.. 4.2 404.1 1.8 425.8
---------- ---------- ---------- ----------
NET INCOME ........................ $ 100.8 $ 501.2 $ 163.1 $ 581.3
========== ========== ========== ==========
BASIC EARNINGS PER SHARE:
Continuing operations ....... $ .27 $ .22 $ .44 $ .35
Discontinued operations ..... .01 .91 .01 .94
---------- ---------- ---------- ----------
Net income .................. $ .28 $ 1.13 $ .45 $ 1.29
========== ========== ========== ==========
Weighted average common
shares outstanding ........ 361.1 444.3 364.2 450.2
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE:
Continuing operations ....... $ .27 $ .21 $ .44 $ .34
Discontinued operations ..... .01 .90 .01 .93
---------- ---------- ---------- ----------
Net income .................. $ .28 $ 1.11 $ .45 $ 1.27
========== ========== ========== ==========
Weighted average common
and common equivalent
shares outstanding ........ 361.3 453.1 364.4 459.0
========== ========== ========== ==========
|
The accompanying notes are an integral part of these statements.
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(In millions)
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
---------- ------------- ------------ ------------- --------- ---------
BALANCE AT
DECEMBER 31, 1999 ..... $ 4.7 $4,661.5 $1,213.8 $ 6.6 $(1,285.4) $4,601.2
Purchases of
treasury stock ... -- -- -- -- (106.9) (106.9)
Other comprehensive
income ........... -- -- -- 4.0 -- 4.0
Exercise of stock
options .......... .1 .6 -- -- -- .7
Spin-off of ANC
Rental Corporation -- -- (894.3) -- -- (894.3)
Other .............. -- -- -- -- (3.0) (3.0)
Net income ......... -- -- 163.1 -- -- 163.1
-------- -------- -------- -------- -------- --------
BALANCE AT
JUNE 30, 2000 ........ $ 4.8 $4,662.1 $ 482.6 $ 10.6 $(1,395.3) $3,764.8
======== ======== ======== ======== ======== ========
|
The accompanying notes are an integral part of this statement.
AUTONATION, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
SIX MONTHS ENDED
JUNE 30,
---------------------
2000 1999
-------- --------
CASH PROVIDED BY OPERATING ACTIVITIES:
Net income ....................................................... $ 163.1 $ 581.3
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ................................. 66.1 55.9
Income from discontinued operations ........................... (1.8) (425.8)
Changes in assets and liabilities, net of effects from business
combinations:
Receivables ............................................. (3.2) (217.5)
Inventory ............................................... (72.2) (92.7)
Other assets ............................................ (43.8) 15.7
Accounts payable and accrued liabilities ................ (64.3) 78.8
Other liabilities ....................................... 105.9 14.2
-------- --------
149.8 9.9
-------- --------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment .............................. (52.9) (120.1)
Proceeds from sale of property and equipment
and assets held for sale ...................................... 70.8 37.3
Purchases of marketable securities ............................... -- (39.6)
Sales of marketable securities ................................... 53.2 40.3
Cash used in business acquisitions, net of
cash acquired ................................................. (192.3) (551.6)
Cash received from business divestitures ......................... 27.7 83.2
Cash received on disposal of solid waste services
segment ....................................................... -- 1,779.6
Other ............................................................ (47.0) (24.0)
-------- --------
(140.5) 1,205.1
-------- --------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net proceeds under vehicle inventory
financing facilities ........................................... 141.9 174.7
Net proceeds (payments) under revolving credit
facilities ..................................................... 196.0 (500.0)
Purchases of treasury stock ...................................... (106.9) (318.6)
Payments of notes payable and long-term debt ..................... (95.2) (85.7)
Other ............................................................ 0.7 2.8
-------- --------
136.5 (726.8)
-------- --------
CASH PROVIDED BY CONTINUING OPERATIONS .............................. 145.8 488.2
-------- --------
CASH USED IN DISCONTINUED OPERATIONS ................................ (227.0) (631.1)
-------- --------
DECREASE IN CASH AND CASH EQUIVALENTS ............................... (81.2) (142.9)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $17.4 MILLION AND
$590.1 MILLION, RESPECTIVELY ..................................... 236.0 726.0
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD,
INCLUDING CASH AND CASH EQUIVALENTS OF
DISCONTINUED OPERATIONS OF $36.5 MILLION
AT JUNE 30, 1999 ................................................. $ 154.8 $ 583.1
======== ========
|
The accompanying notes are an integral part of these statements.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Tables in Millions, Except Per Share Data)
1. INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements include the accounts of AutoNation, Inc. and its subsidiaries (the "Company" or "AutoNation") and have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. All significant intercompany accounts and transactions have been eliminated. Certain information related to the Company's organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normal recurring adjustments) necessary to fairly state the financial position and the results of operations for the periods presented and the disclosures herein are adequate to make the information presented not misleading in any material respects.
Operating results for interim periods are not necessarily indicative of the results that can be expected for a full year. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in the Company's most recent Annual Report on Form 10-K.
On June 30, 2000, the Company completed the spin-off of its former automotive rental businesses, which have been organized under ANC Rental Corporation ("ANC Rental"), by distributing 100% of ANC Rental's common stock to AutoNation's stockholders as a tax-free dividend. As a result of the spin-off, AutoNation stockholders received one share of ANC Rental common stock for every eight shares of AutoNation common stock owned as of the June 16, 2000 record date. As discussed in Note 18, Discontinued Operations, the Company's former automotive rental segment has been accounted for as discontinued operations and the accompanying unaudited condensed consolidated financial statements presented herein have been restated to report separately the net assets and operating results of these discontinued operations.
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.
2. BUSINESS COMBINATIONS
Businesses acquired through June 30, 2000 and accounted for under the purchase method of accounting are included in the unaudited condensed consolidated financial statements from the date of acquisition.
During the six months ended June 30, 2000, the Company acquired various businesses which have been accounted for under the purchase method of accounting. The Company paid approximately $78.1 million of cash for these acquisitions. During the six months ended June 30, 2000 the Company also paid approximately $114.2 million in purchase price for certain prior year automotive retail acquisitions. As of June 30, 2000, the Company has accrued approximately $27.5 million of additional purchase price due to former owners of acquired businesses.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The following summarizes the preliminary purchase price allocations for business combinations accounted for under the purchase method of accounting consummated during the six months ended June 30 related to continuing operations:
2000 1999
------- -------
Property and equipment ........................ $ 2.1 $ 118.9
Intangible and other assets ................... 80.7 549.6
Working capital ............................... 34.1 256.8
Debt assumed .................................. (36.7) (344.5)
Other liabilities ............................. (2.1) (29.2)
------- -------
Cash used in acquisitions, net of cash acquired $ 78.1 $ 551.6
======= =======
|
The Company's unaudited pro forma consolidated results of continuing operations assuming acquisitions accounted for under the purchase method of accounting had occurred as of the beginning of each period presented are as follows:
2000 1999
---------- ----------
Revenue ....................................... $ 10,634.6 $ 11,014.2
Income from continuing operations ............. 161.2 172.7
Diluted earnings per share from continuing
operations .................................. .44 .38
|
The unaudited pro forma consolidated 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. RECEIVABLES
The components of receivables, net of allowance for doubtful accounts, are as follows:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Vehicle receivables ........................... $ 508.2 $ 498.0
Finance receivables ........................... 409.5 441.5
Trade receivables ............................. 118.7 90.8
Manufacturer receivables ...................... 140.6 134.1
Other ......................................... 55.4 57.6
-------- --------
1,232.4 1,222.0
Less: allowance for doubtful accounts.......... (40.7) (42.5)
-------- --------
$1,191.7 $1,179.5
======== ========
|
Finance receivables consist of the following:
JUNE 30, DECEMBER 31,
2000 1999
---------- ------------
Finance leases ................................ $171.9 $196.3
Installment loans ............................. 61.5 83.8
Retained interests in securitized
installment loans ........................... 176.1 161.4
------ ------
$409.5 $441.5
====== ======
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company securitizes installment loan receivables through a $1.7 billion commercial paper warehouse facility with unrelated financial institutions. During the six months ended June 30, 2000, the Company securitized approximately $324.8 million of receivables under this program, net of retained interests. At June 30, 2000, $1.08 billion was outstanding under this program.
The Company also securitizes installment loan receivables through the issuance of asset-backed notes through a non-consolidated special purpose entity under a $2.0 billion shelf registration statement. Proceeds from these notes are 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. At June 30, 2000, $580.1 million was outstanding under this program. In August 2000, a non-consolidated subsidiary of the Company issued approximately $691.7 million in additional asset-backed notes under this program. Following this transaction, the Company had approximately $1.26 billion of capacity under its $1.7 billion commercial paper warehouse facility.
4. INVENTORY
Inventory consists of the following:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
New vehicles ................... $2,280.5 $2,085.0
Used vehicles .................. 367.5 470.1
Parts, accessories and other.... 151.1 151.7
-------- --------
$2,799.1 $2,706.8
======== ========
|
5. OTHER CURRENT ASSETS
Other current assets consists primarily of restricted cash deposits related to insurance programs totaling $119.0 million and $91.9 million at June 30, 2000 and December 31, 1999, respectively.
6.INVESTMENTS
Investments consist of the following:
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
Marketable securities .......... $ 31.0 $ 106.2
Equity method investments....... 68.9 69.6
------- --------
$ 99.9 $ 175.8
======= ========
|
In June 2000, the Company sold 1.4 million shares of common stock of the Company's former solid waste subsidiary, Republic Services, Inc., resulting in a pre-tax gain of $9.9 million included in other income. As of June 30, 2000, the Company had approximately 1.7 million remaining shares of Republic Services, Inc. with a fair value of $27.5 million. These securities are classified as available for sale and are stated at fair value with unrealized gains or losses included in other comprehensive income.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
7. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
Land ...................................... $ 545.4 $ 529.7
Buildings and improvements ................ 697.0 670.9
Furniture, fixtures and equipment ......... 327.9 310.5
-------- --------
1,570.3 1,511.1
Less: accumulated depreciation and
amortization...................... (165.6) (150.7)
-------- --------
$1,404.7 $1,360.4
======== ========
|
8. 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 acquired is amortized primarily over 40 years on a straight-line basis. Accumulated amortization of intangible assets at June 30, 2000 and December 31, 1999 was $160.8 million and $122.5 million, respectively.
9. OTHER ASSETS
Other assets consist primarily of megastore and other properties held for sale, net of impairment reserves, totaling approximately $161.8 million and $212.0 million at June 30, 2000 and December 31, 1999, respectively. As described in Note 13, Restructuring and Impairment Charges, in the fourth quarter of 1999, the Company recorded asset impairment charges related to exiting the used vehicle megastore business.
10. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt consists of the following:
JUNE 30, DECEMBER 31,
2000 1999
-------- --------
Vehicle inventory credit facilities; secured
by the Company's vehicle inventory ........ $2,375.3 $2,210.6
$1.5 billion revolving credit facilities;
interest payable using LIBOR based rates;
unsecured; $500.0 million matures March 2001;
$1.0 billion matures April 2002 ............. 865.0 669.0
Capital leases and other debt ................. 124.7 174.8
-------- --------
3,365.0 3,054.4
Less: current portion ........................ (2,380.1) (2,218.3)
-------- --------
$ 984.9 $ 836.1
======== ========
|
Interest expense related to vehicle inventory credit facilities is included in cost of operations.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. SHAREHOLDERS' EQUITY
During the second quarter of 2000, the Company did not repurchase any shares of its common stock, par value $.01 per share ("Common Stock"), under its Board authorized share repurchase program. During the first quarter of 2000, the Company repurchased 14.3 million shares of Common Stock for an aggregate purchase price of $106.9 million. Through June 30, 2000, an aggregate of 114.4 million shares of Common Stock have been repurchased under the Company's share repurchase program for an aggregate purchase price of $1.4 billion. Repurchases are made pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended.
As discussed in Note 18, Discontinued Operations, on June 30, 2000, the Company completed the tax-free spin-off of ANC Rental. As a result of the spin-off, the Company's retained earnings was reduced by the net assets of ANC Rental totaling $894.3 million as of the June 30, 2000 distribution date. The equity adjustment resulting from the spin-off is subject to further adjustment resulting from changes in estimated shared assets and liabilities of AutoNation and ANC Rental and certain other matters. However, such adjustments, if any, are not expected to be significant.
12. OTHER COMPREHENSIVE INCOME
The changes in components of the other comprehensive income (loss) are
as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- --------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
Net income................................................ $ 100.8 $ 501.2 $ 163.1 $ 581.3
-------- -------- -------- ---------
Other comprehensive income (loss):
Unrealized gain (loss) on marketable
securities and interest-only strip
receivables, net of income taxes............... 7.8 35.7 .7 38.2
Foreign currency translation
adjustments, net of income
taxes.......................................... 1.8 (.7) 3.0 (1.1)
Reclassification of realized losses
(gains), net of income taxes................... (1.7) (.8) .3 (1.5)
-------- -------- ------- --------
7.9 34.2 4.0 35.6
-------- -------- ------- --------
Comprehensive income...................................... $ 108.7 $ 535.4 $167.1 $ 616.9
======== ======== ======= =========
|
13. 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; and (2) reducing the corporate workforce. The restructuring plan also includes divesting of certain non-core franchised automotive dealerships. 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 in the fourth quarter of 1999. These pre-tax charges include $286.9 million of asset impairment charges; $103.3 million of reserves for residual value guarantees for closed leased properties; $26.2 million of severance and other exit costs; and $27.3 million of inventory related costs. The $286.9 million asset impairment charge consists of: $244.9 million of megastore and other property impairments; $26.6 million of goodwill impairment reserves for the divestiture of certain non-core franchised automotive dealerships; and $15.4 million for information systems impairments.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company will dispose of its closed properties and non-core dealerships through sale to third parties. Although the Company intends to aggressively market these properties, the ultimate disposition could exceed one year. During the six months ended June 30, 2000, the Company incurred $19.9 million in carrying costs related to closed properties which are charged to expense as incurred. Revenue for the operations to be disposed was $208.3 million and $782.4 million during the six months ended June 30, 2000 and 1999, respectively. Operating income (loss) for the operations to be disposed was $1.5 million and $(4.1) million for the six months ended June 30, 2000 and 1999, respectively.
The following summarizes activity in the Company's restructuring and impairment reserves for the six months ended June 30, 2000:
DEDUCTIONS
BALANCE AMOUNTS CHARGED ------------------- BALANCE
RESERVE DECEMBER 31, 1999 (CREDITED) TO INCOME CASH NON-CASH JUNE 30, 2000
------- ----------------- -------------------- --------- -------- -------------
Asset reserves:
Asset impairment ...... $263.3 $ (2.7) $ -- $(63.1) $197.5
Inventory ............. 15.0 -- -- (15.0) --
Accrued liabilities:
Lease residual
value guarantees .... 103.3 (.3) (3.6) -- 99.4
Severance and other
exit costs .......... 17.3 3.0 (15.3) -- 5.0
------ ------ ------ ------ ------
$398.9 $ -- $(18.9) $(78.1) $301.9
====== ====== ====== ====== ======
|
During the six months ended June 30, 2000, the Company recognized gross gains of $4.6 million and gross losses of $1.6 million related to the disposition of closed properties. In addition, the Company recorded $3.0 million of additional charges related to exiting the used vehicle megastore business.
14. INCOME TAXES
Income taxes have been provided for based upon the Company's anticipated annual effective income tax rate.
15. STOCK OPTIONS
The Company has various stock option plans under which options to purchase 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 closing market price of the Common Stock on the trading day immediately preceding the date of grant. Generally, options granted have a term of ten years from the date of grant, and vest in increments of 25% per year over a four year period on the yearly anniversary of the grant date.
A summary of stock option transactions for the six months ended June 30, 2000 is as follows:
WEIGHTED-AVERAGE
SHARES EXERCISE PRICE
------ --------------
Options outstanding at
beginning of year................................... 50.9 $ 15.84
Granted................................................ .5 9.13
Exercised.............................................. (.3) 2.08
Canceled............................................... (8.6) 14.34
------
Options outstanding at June 30, 2000................... 42.5 16.14
======
Options exercisable at June 30, 2000................... 29.3 16.69
Options available for future
grants at June 30, 2000........................... 32.2
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
On June 30, 2000, options to purchase approximately 2.8 million shares of Common Stock held by employees of ANC Rental were canceled. In May 2000, in accordance with the terms of the Company's stock option plans, the Company's Board of Directors authorized the Company to adjust employee stock options to take into account the market adjustments to AutoNation's Common Stock as a result of the ANC Rental spin-off. The Company adjusted employee stock options for the spin-off effective July 3, 2000, the first trading day following completion of the spin-off. Following the adjustments, there were approximately 47.1 million outstanding options to purchase shares of Common Stock at a weighted average exercise price of $14.57 per share.
The Company's Board of Directors authorized the grant of options to purchase approximately 11.3 million shares of Common Stock to employees pursuant to the Company's stock option plans on August 1, 2000 at an exercise price per share equal to the closing market price of the Common Stock on July 31, 2000 of $6.875 per share.
16. LEGAL MATTERS
The Company is a party to numerous 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 or operations, financial condition and/or cash flows.
17. EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings 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.
The computation of weighted average common and common equivalent shares used in the calculation of basic and diluted earnings per share is shown below:
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------- -------------------------
2000 1999 2000 1999
------ ------ -------- -------
Weighted average common
shares outstanding used in
calculating basic earnings
per share .................. 361.1 444.3 364.2 450.2
Effect of dilutive options
and warrants ............... .2 8.8 .2 8.8
----- ----- ----- -----
Weighted average common
and common equivalent shares
used in calculating diluted
earnings per share ......... 361.3 453.1 364.4 459.0
===== ===== ===== =====
|
At June 30, 2000 and 1999, the Company had approximately 42.2 million and 25.0 million stock options outstanding, respectively, which have been excluded from the computation of diluted earnings per share since they are anti-dilutive.
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
18. DISCONTINUED OPERATIONS
On June 30, 2000, the Company completed the tax free spin-off of ANC Rental. Accordingly, the net assets and operating results of ANC Rental have been classified as discontinued operations for all periods presented in the accompanying unaudited condensed consolidated financial statements. Income from discontinued operations during the six months ended June 30, 2000 is net of previously estimated losses of $22.1 million which were accrued in the fourth quarter of 1999 and additional costs associated with the spin-off totaling $11.3 million recorded in the second quarter of 2000.
In connection with the spin-off, the Company made certain capital contributions to ANC Rental during the six months ended June 30, 2000. These contributions include cash of approximately $200.0 million and the net assets of an insurance subsidiary. The Company also entered into various agreements with ANC Rental which set forth the terms of the distribution and other agreements governing the Company's relationship with ANC Rental after the spin-off. As a result of the spin-off, the Company's equity as of June 30, 2000 was reduced by the net assets of ANC Rental totaling $894.3 million.
In connection with the spin-off, the Company agreed to continue to provide ANC Rental with guarantees and other credit enhancements with respect to $60.0 million of letters of credit, $10.3 million of indebtedness owed to the former owners of an acquired business and certain property and vehicle lease obligations. The Company will receive fees for providing these guarantees commensurate with market rates.
In July 1998, the Company's former solid waste services subsidiary, Republic Services, Inc. ("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 $379.3 million in the second quarter of 1999. Accordingly, operating results of RSG for the period prior to disposition have been classified as discontinued operations in the accompanying unaudited condensed consolidated financial statements.
Selected statement of operations data for the Company's discontinued operations is as follows:
THREE MONTHS ENDED
JUNE 30,
-----------------------------------------------------------------------
2000 1999
-------------- ------------------------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
-------------- ---------- --------- --------
Revenue .................... $ 910.6 $ 892.8 $ 149.0 $1,041.8
======== ======== ======== ========
Pre-tax income ............. $ 25.4 $ 21.5 $ 27.5 $ 49.0
Provision for income taxes 9.9 7.7 10.6 18.3
Minority interest in RSG ... -- -- 5.9 5.9
-------- -------- -------- --------
Net income ................. 15.5 13.8 11.0 24.8
Gain/(loss) on disposal of
segment, net of income
taxes ................... (11.3) -- 379.3 379.3
-------- -------- -------- --------
Income from discontinued
operations, net of
income taxes ............ $ 4.2 $ 13.8 $ 390.3 $ 404.1
======== ======== ======== ========
|
AUTONATION, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
SIX MONTHS ENDED
JUNE 30,
-----------------------------------------------------------------------
2000 1999
-------------- ------------------------------------------------
AUTOMOTIVE AUTOMOTIVE SOLID
RENTAL RENTAL WASTE TOTAL
-------------- ---------- --------- --------
Revenue ...................... $1,721.2 $1,683.7 $ 552.5 $2,236.2
======== ======== ======== ========
Pre-tax income ............... $ (14.8) $ 9.5 $ 100.8 $ 110.3
Provision (benefit) for
income taxes .............. (5.8) 3.4 38.8 42.2
Minority interest in RSG ..... -- -- 21.6 21.6
-------- -------- -------- --------
Net income (loss) ............ (9.0) 6.1 40.4 46.5
Previously estimated and
accrued losses, net
of income taxes ......... 22.1 -- -- --
Gain/(loss) on disposal of
segment, net of income
taxes ..................... (11.3) -- 379.3 379.3
-------- -------- -------- --------
Income from discontinued
operations, net of
income taxes .............. $ 1.8 $ 6.1 $ 419.7 $ 425.8
======== ======== ======== ========
|
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included under Item 1. In addition, reference should be made to the Company's audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's most recent Annual Report on Form 10-K.
DISCONTINUED BUSINESS SEGMENTS
On June 30, 2000, the Company completed the spin-off of its former automotive rental businesses, which have been organized under ANC Rental Corporation ("ANC Rental"), by distributing 100% of ANC Rental's common stock to AutoNation's stockholders as a tax-free dividend. As a result of the spin-off, AutoNation stockholders received one share of ANC Rental common stock for every eight shares of AutoNation common stock owned as of the June 16, 2000 record date. As discussed in Note 18, Discontinued Operations, of notes to unaudited condensed consolidated financial statements, ANC Rental has been accounted for as discontinued operations and the accompanying unaudited condensed 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 18, Discontinued Operations, the Company's former solid waste services segment has been accounted for as discontinued operations and accordingly, the operating results of RSG for the period prior to disposition have been classified as discontinued operations in the accompanying unaudited condensed consolidated financial statements presented herein.
BUSINESS COMBINATIONS
The Company has entered into framework agreements with various automotive manufacturers that allow the Company to acquire franchised automotive dealerships subject to various limits and conditions. Since 1996, the Company has aggressively expanded its automotive retail operations through the acquisition of franchised automotive dealerships. The Company has continued to complete acquisitions of franchised automotive dealerships during 2000. However, the Company has not completed and does not expect to complete acquisitions at the same pace as in prior years. Acquisitions completed in 2000 have been and will continue to be single dealerships or small dealership groups focused in key existing markets, or strategic acquisitions to enhance the Company's e-commerce business.
Businesses acquired through June 30, 2000 and accounted for under the purchase method of accounting are included in the unaudited condensed consolidated financial statements from the date of acquisition.
During the six months ended June 30, 2000, the Company acquired various businesses which have been accounted for under the purchase method of accounting. The Company paid approximately $78.1 million of cash for these acquisitions. During the six months ended June 30, 2000 the Company also paid approximately $114.2 million in purchase price for certain prior year automotive retail acquisitions. As of June 30, 2000, the Company has accrued approximately $27.5 million of additional purchase price due to former owners of acquired businesses.
SHARE REPURCHASES
During the second quarter of 2000, the Company did not repurchase any shares of its common stock, par value $.01 per share ("Common Stock"), under the Company's Board authorized share repurchase program. During the first quarter of 2000, the Company repurchased 14.3 million shares of Common Stock, for an aggregate purchase price of $106.9 million. On a cumulative basis, through June 30, 2000, the Company has acquired an aggregate of 114.4 million shares of Common Stock for an aggregate purchase price of $1.4 billion. As of June 30, 2000, the Company has $349.0 million remaining for share repurchases under its share repurchase program.
CONSOLIDATED RESULTS OF OPERATIONS
The following is a summary of the Company's 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):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------------ --------------------------------------------
2000 1999 2000 1999
------------------ ------------------ ------------------- ---------------------
DILUTED DILUTED DILUTED DILUTED
PER PER PER PER
GROSS SHARE GROSS SHARE GROSS SHARE GROSS SHARE
------- ------- ------- ------- ------- ------- ------- -------
Income from continuing
operations .............. $ 96.6 $ .27 $ 97.1 $ .21 $ 161.3 $ .44 $ 155.5 $ .34
Income from discontinued
operations:
Automotive rental ..... 4.2 .01 13.8 .03 1.8 .01 6.1 .01
Solid waste services... -- -- 390.3 .87 -- -- 419.7 .92
-------- ----- ------- ------- -------- ------ -------- ------
4.2 .01 404.1 .90 1.8 .01 425.8 .93
-------- ----- ------- ------- -------- ------ -------- ------
Net income ................ $100.8 $ .28 $ 501.2 $ 1.11 $ 163.1 $ .45 $ 581.3 $ 1.27
======== ===== ======= ======= ======== ====== ======== ======
|
CONTINUING OPERATIONS
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 acquisitions, year over year comparisons of reported operating results do not provide a meaningful representation of internal performance. Accordingly, presented below are operating results for the three and six months ended June 30, 2000 and 1999 on a same store basis to better represent 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 ("S,G & A"), and same store performance margin, with percentages of total same store revenue and with the percentage change between periods, for the periods indicated (in millions):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------------- ----------------------------------------
2000 1999 % CHANGE 2000 1999 % CHANGE
---------- --------- -------- ---------- --------- ---------
Revenue:
New vehicle................... $2,720.2 $2,588.0 5.1 $5,092.3 $4,672.3 9.0
Used vehicle.................. 839.7 878.1 (4.4) 1,561.1 1,610.7 (3.1)
Fixed operations.............. 473.6 458.0 3.4 892.3 851.4 4.8
Other......................... 302.3 302.9 (0.2) 568.5 587.5 (3.2)
--------- --------- --------- ---------
$4,335.8 $4,227.0 2.6 $8,114.2 $7,721.9 5.1
========= ========= ========= =========
Gross Margin.................... $ 574.3 $ 577.3 (0.5) $1,058.5 $1,033.5 2.4
%............................... 13.2% 13.6% (0.4) 13.0% 13.4% (0.4)
S, G & A........................ $ 407.6 $ 410.4 (0.7) $ 757.4 $ 746.4 1.5
%............................... 9.4% 9.7% (0.3) 9.3% 9.7% (0.4)
Store Performance Margin........ $ 166.7 $ 166.9 (0.1) $ 301.1 $ 287.1 4.9
%............................... 3.8% 3.9% (0.1) 3.7% 3.7% --
|
Overall, the Company's same store performance margins during the second quarter of 2000 in aggregate dollars were consistent with the prior year period. However, same store performance margins as a percentage of same store revenue decreased 10 basis points to 3.8% during the three months ended June 30, 2000. The margin percentage decline during the three months ended June 30, 2000 is primarily due to gross margin compression largely offset by S, G & A reductions.
Same store sales were $4.34 billion for the three months ended June 30, 2000 versus $4.23 billion for the comparable 1999 period, an increase of 2.6%. Same store sales were $8.11 billion for the six months ended June 30, 2000 versus $7.72 billion for the comparable 1999 period, an increase of 5.1%. The primary components of these same store sales increases are described below.
During the second quarter, the automotive retail industry continued to experience strong new vehicle unit sales volume, although not as strong as the record pace experienced during the first quarter. The Company's new vehicle same store sales increased 5.1% to $2.72 billion during the three months ended June 30, 2000. The increase is due to price of 4.6% and volume of .5%. Same store new vehicle sales increased 9.0% to $5.09 billion during the six months ended June 30, 2000. The increase is due to increases in volume of 4.5% and price of 4.5%.
The used vehicle market has been less robust due, in part, to strong manufacturer incentives for new vehicles. Used vehicle same store sales decreased 4.4% to $839.7 million during the three months ended June 30, 2000. The decrease is due to lower volume of 8.9% partially offset by price increases of 4.5%. Same store used vehicle sales decreased 3.1% to $1.56 billion during the six months ended June 30, 2000. The decrease is attributed to lower volume of 7.9% partially offset by price increases of 4.8%.
Fixed operations same store sales increased 3.4% to $473.6 million during the three months ended June 30, 2000 and 4.8% to $892.3 million during the six months ended June 30, 2000. The increases are primarily due to volume.
Same store other sales consist primarily of wholesale revenue. Same store other sales were consistent with the prior year at $302.3 million for the three months ended June 30, 2000. Same store other sales decreased 3.2% to $568.5 million during the six months ended June 30, 2000. The decline during the six months ended June 30, 2000 is primarily due to a decline in wholesale volume and pricing during the period.
Same store gross margins were $574.3 million and $1.06 billion for the three and six months ended June 30, 2000, respectively, versus $577.3 million and $1.03 billion for the comparable 1999 periods. Same store gross margins as a percentage of same store revenue were 13.2% and 13.0% for the three and six months ended June 30, 2000, respectively, versus 13.6% and 13.4% for the comparable 1999 periods. The decreases in same store gross margins as percentages of same store total revenue are primarily due to a shift in mix as a result of stronger new versus used vehicle sales and compression in new vehicle margins resulting from higher floorplan interest due to increased inventory levels and increased pricing competition in new truck sales.
Same store selling, general and administrative expenses were $407.6 million and $757.4 million during the three and six months ended June 30, 2000, respectively, versus $410.4 million and $746.4 million for the comparable 1999 periods. The increase in aggregate dollars during the six months ended June 30, 2000 is primarily due to higher selling expenses associated with increased same store sales. Same store selling, general and administrative expenses as a percentage of same store total revenue were 9.4% and 9.3% for the three and six months ended June 30, 2000 respectively, versus 9.7% for both comparable 1999 periods. The decreases in same store selling, general and administrative expenses as percentages of same store sales are primarily due to the Company's cost cutting initiatives.
Same store performance margins were $166.7 million and $301.1 million for the three and six months ended June 30, 2000, respectively, versus $166.9 million and $287.1 million for the comparable 1999 periods. Same store performance margins as a percentage of same store total revenue were 3.8% and 3.7% for the three and six months ended June 30, 2000 and 1999, respectively, versus 3.9% and 3.7% for comparable 1999 periods. The decrease in same store performance margin as a percentage of same store revenue during the three months ended June 30, 2000 is the result of gross margin compression largely offset by decreases in selling, general and administrative expenses.
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, overhead, property carrying costs and operating income, with
percentages of total revenue, on a reported basis for the periods indicated (in
millions):
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
---------------------------------------- -----------------------------------------
2000 % 1999 % 2000 % 1999 %
-------- ------ --------- ------ -------- ----- -------- ------
Revenue:
New vehicle................... $3,308.2 62.0 $2,906.3 57.3 $ 6,527.8 61.8 $5,455.2 56.6
Used vehicle.................. 1,053.6 19.7 1,235.3 24.4 2,101.5 19.9 2,358.2 24.5
Fixed operations.............. 588.8 11.0 549.6 10.8 1,176.7 11.1 1,058.3 11.0
Other......................... 388.9 7.3 378.4 7.5 763.7 7.2 760.6 7.9
--------- ------ --------- ----- --------- ------ -------- -----
$5,339.5 100.0 $5,069.6 100.0 $10,569.7 100.0 $9,632.3 100.0
========= ====== ========= ===== ========== ====== ======== =====
Gross Margin.................... $ 705.9 13.2 $ 706.8 14.0 $ 1,383.0 13.1 $1,317.0 13.7
Store S, G & A.................. 512.7 9.6 514.3 10.2 1,024.0 9.7 985.6 10.3
Store Performance Margin........ 193.2 3.6 192.5 3.8 359.0 3.4 331.4 3.4
Overhead........................ 31.7 0.6 37.6 0.7 71.2 0.7 83.6 0.8
Property carrying costs......... 9.1 0.1 -- -- 19.9 0.2 -- --
Operating Income................ 152.4 2.9 154.9 3.1 267.9 2.5 247.8 2.6
|
Revenue was $5.34 billion for the three months ended June 30, 2000 versus $5.07 billion for the comparable 1999 period, an increase of 5.3%. Revenue was $10.57 billion for the six months ended June 30, 2000 versus $9.63 billion for the comparable 1999 period, an increase of 9.7%. The primary components of these increases are described below.
New vehicle sales increased 13.8% to $3.31 billion during the three months ended June 30, 2000 and 19.7% to $6.53 billion during the six months ended June 30, 2000. During the quarter, the Company sold approximately 127,000 new vehicles versus 119,000 new vehicles last year, an increase of 6.7%. During the six months ended June 30, 2000, the Company sold 253,000 new vehicles versus 224,000 new vehicles last year, an increase of 12.9%. The increases in new vehicle revenue during the three and six months ended June 30, 2000 are attributed to acquisitions, higher pricing and unit growth.
Used vehicle sales decreased 14.7% to $1.05 billion during the three months ended June 30, 2000 and 10.9% to $2.10 billion during the six months ended June 30, 2000. During the quarter, the Company sold approximately 67,000 used vehicles versus 84,000 used vehicles last year, a decrease of 20.2%. During the six months ended June 30, 2000, the Company sold 134,000 used vehicles versus 163,000 used vehicles last year, a decrease of 17.8%. The decline in revenue and unit volume for both periods is primarily attributable to volume associated with the used vehicle megastores that were closed in connection with the restructuring activities in the fourth quarter of 1999. Excluding the closed megastores, used vehicle revenue increased approximately 2.5% and 7.1% during the three and six months ended June 30, 2000, respectively. The increases are primarily due to acquisitions which more than offset decreases in used vehicle same store sales.
Fixed operations revenue increased 7.1% to $588.8 million during the three months ended June 30, 2000 and 11.2% to $1.18 billion during the six months ended June 30, 2000. The increase is primarily due to acquisitions and internal growth.
Gross margins were $705.9 million and $1.38 billion for the three and six months ended June 30, 2000, respectively, versus $706.8 million and $1.32 billion for the comparable 1999 periods. Gross margins as a percentage of revenue were 13.2% and 13.1% for the three and six months ended June 30, 2000, respectively, versus 14.0% and 13.7% for the comparable 1999 periods. The decreases in gross margins as percentages of revenue are due to the same factors which resulted in the decreases in same store gross margin percentages previously described.
Store level selling, general and administrative expenses were $512.7 million and $1.02 billion for the three and six months ended June 30, 2000, respectively, versus $514.3 million and $985.6 million for the comparable 1999 periods. Store level selling, general and administrative expenses as a percentage of revenue were 9.6% and 9.7% for the three and six months ended June 30, 2000, respectively, versus 10.2% and 10.3% for the comparable 1999 periods. The decreases in these costs as a percentage of revenue are due to the Company's cost cutting initiatives.
Store performance margins were $193.2 million and $359.0 million for the three and six months ended June 30, 2000, respectively, versus $192.5 million and $331.4 million for the comparable 1999 periods. Store performance margins as percentages of revenue were 3.6% and 3.4% for the three and six months ended June 30, 2000, respectively, versus 3.8% and 3.4% for the comparable 1999 periods. The decrease in store performance margins for the three months ended June 30, 2000 is a result of gross margin compression partially offset by lower selling, general and administrative expenses.
Overhead was $31.7 million and $71.2 million for the three and six months ended June 30, 2000, respectively, versus $37.6 million and $83.6 million for the comparable 1999 periods. Overhead as a percentage of revenue was .6% and .7% for the three and six months ended June 30, 2000, respectively, versus .7% and .8% for the comparable 1999 periods. The overhead decreases in aggregate dollars and as percentages of revenue are a result of the Company's cost cutting initiatives. Corporate expenses which will no longer be incurred following the spin-off of ANC Rental have been allocated to income from discontinued operations. These allocated costs totaled approximately $4.0 million and $8.0 million for the three and six months ended June 30, 1999. Due to the establishment of ANC Rental's corporate infrastructure and decreasing reliance on AutoNation, allocations of corporate overhead were discontinued in 2000.
Property carrying costs represent costs associated with megastore and other properties held for sale by the Company. The Company incurred $9.1 million and $19.9 million of property carrying costs during the three and six months ended June 30, 2000, respectively. Expected annual carrying costs associated with closed properties total approximately $40.0 million and are charged to expense as incurred.
NON-OPERATING INCOME (EXPENSE)
Interest Income
Interest income was $4.9 million and $8.7 million for the three and six months ended June 30, 2000, respectively, versus $5.3 million and $8.7 million for the comparable 1999 periods. The decrease during the three months ended June 30, 2000 is primarily the result of lower cash balances on hand during the periods.
Interest Expense
Interest expense was incurred primarily on borrowings under the Company's revolving credit facilities. Interest expense was $10.4 million and $22.4 million for the three and six months ended June 30, 2000, respectively, versus $9.9 million and $16.6 million for the comparable 1999 periods. The increases are primarily due to higher average borrowings and higher interest rates. Interest expense related to vehicle inventory credit facilities is included in cost of operations.
Other Income, Net
Other income for the three months ended June 30, 2000 includes a gain of approximately $9.9 million on the sale of approximately 1.4 million shares of common stock of the Company's former solid waste subsidiary, Republic Services, Inc. As of June 30, 2000, the Company had approximately 1.7 million remaining shares of Republic Services, Inc. with a fair value of $27.5 million included in marketable securities.
Income Taxes
The provision for income taxes from continuing operations was $57.9 million and $96.7 million for the three and six months ended June 30, 2000, respectively, versus $54.6 million and $87.5 million for the comparable 1999 periods. Income taxes have been provided based upon the Company's anticipated annual effective income tax rate.
Restructuring Activities
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; and (2) reducing the corporate workforce. The restructuring plan also includes divesting of certain non-core franchised automotive dealerships. 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 in the fourth quarter of 1999. These pre-tax charges include $286.9 million of asset impairment charges; $103.3 million of reserves for residual value guarantees for closed leased properties; $26.2 million of severance and other exit costs; and $27.3 million of inventory related costs. The $286.9 million asset impairment charge consists of: $244.9 million of megastore and other property impairments; $26.6 million of goodwill impairment reserves for the divestiture of certain non-core franchised automotive dealerships; and $15.4 million for information systems impairments.
The Company will dispose of its closed properties and non-core dealerships through sale to third parties. Although the Company intends to aggressively market these properties, the ultimate disposition could exceed one year. Revenue for the operations to be disposed was $208.3 million and $782.4 million during the six months ended June 30, 2000 and 1999, respectively. Operating income (loss) for the operations to be disposed was $1.5 million and $(4.1) million during the six months ended June 30, 2000 and 1999, respectively.
The following summarizes activity in the Company's restructuring and impairment reserves for the six months ended June 30, 2000:
DEDUCTIONS
BALANCE AMOUNTS CHARGED ------------------- Balance
RESERVE DECEMBER 31, 1999 (CREDITED) TO INCOME CASH NON-CASH JUNE 30, 2000
------- ----------------- -------------------- --------- -------- -------------
Asset reserves:
Asset impairment .... $263.3 $ (2.7) $ -- $(63.1) $197.5
Inventory ........... 15.0 -- -- (15.0) --
Accrued liabilities:
Lease residual
value guarantees... 103.3 (.3) (3.6) -- 99.4
Severance and other
exit costs ........ 17.3 3.0 (15.3) -- 5.0
------ ------ ------ ------ ------
$398.9 $ -- $(18.9) $(78.1) $301.9
====== ====== ====== ====== ======
|
During the six months ended June 30, 2000, the Company recognized gross gains of $4.6 million and gross losses of $1.6 million related to the disposition of closed properties. In addition, the Company recorded $3.0 million of additional charges related to exiting the used vehicle megastore business.
Financial Condition
At June 30, 2000, the Company had $154.8 million of unrestricted cash and $613.6 million available under its $1.5 billion unsecured revolving credit facilities which may be used for general corporate purposes. In March 2000, the Company entered into a new $500.0 million 364-day unsecured bank revolving credit facility to replace the $500.0 million 364-day facility which matured in March 2000. This facility complements the $1.0 billion unsecured bank revolving credit facility maturing in April 2002.
The Company finances its vehicle inventory through secured financings including floor plan facilities with manufacturer captive finance companies as well as a $500.0 million bank-sponsored multi-seller commercial paper conduit facility. At June 30, 2000, the Company had approximately $230.1 million of availability under the commercial paper conduit facility. This facility supplements the new and used vehicle inventory finance facilities provided by vehicle manufacturer finance companies.
The Company is the lessee under a $500.0 million lease facility that was established to acquire and develop the used vehicle megastores and other properties. At June 30, 2000, $366.5 million was funded under this facility of which $110.8 million has been accounted for as capital leases and $255.7 has been accounted for as operating leases. The Company has guaranteed the residual value of the properties under this facility which guarantee totaled approximately $322.5 million at June 30, 2000. In connection with the Company's 1999 restructuring activities previously described, the Company accrued an estimate of its liability under the residual value guaranty totaling approximately $103.3 million. As of June 30, 2000, $99.4 million remained accrued for this liability. The Company intends to fund the residual value guarantee obligation primarily using proceeds from the sale of owned properties.
The Company securitizes installment loan receivables through a $1.7 billion commercial paper warehouse facility with certain financial institutions, as amended. During the six months ended June 30, 2000, the Company securitized approximately $324.8 million of loan receivables under this program, net of retained interests. At June 30, 2000, the Company had approximately $615.3 million of capacity under this program. The Company has entered into certain interest rate derivative transactions with certain financial institutions to manage the impact of interest rate changes on securitized installment loan receivables. Installment loans sold under this program are nonrecourse beyond the Company's retained interests. Proceeds from securitizations are primarily used to repay borrowings under the Company's revolving credit facilities and to invest in the Company's business. The Company expects to continue to securitize receivables under this facility and/or other programs.
The Company also securitizes installment loan receivables through the issuance of asset-backed notes through a non-consolidated special purpose entity under a $2.0 billion shelf registration statement. Proceeds from these notes are 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. At June 30, 2000, $580.1 million was outstanding under this program. In August 2000, a non-consolidated subsidiary of the Company issued approximately $691.7 million in additional asset-backed notes under this program. Following this transaction, the Company had approximately $1.26 billion of capacity under its $1.7 billion commercial paper warehouse facility.
Since the 1998 inception of the Company's Board authorized $1.75 billion cumulative share repurchase programs through June 30, 2000, the Company has repurchased 114.4 million shares of Common Stock for an aggregate purchase price of $1.4 billion. The Company did not repurchase any shares of its Common Stock during the second quarter of 2000. During the first quarter of 2000, 14.3 million shares of Common Stock were acquired under the $500.0 million share repurchase program authorized in December 1999 for an aggregate purchase price of $106.9 million. Repurchases are made pursuant to Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Company will continue to evaluate share repurchases based upon financial and other investment considerations.
In connection with the ANC Rental spin-off, the Company made certain capital contributions to ANC Rental during the six months ended June 30, 2000. These contributions include cash of approximately $200.0 million and the net assets of an insurance subsidiary. The Company also entered into various agreements with ANC Rental which set forth the terms of the distribution and other agreements governing the Company's relationship with ANC Rental after the spin-off. As a result of the spin-off, the Company's equity as of June 30, 2000 was reduced by the net assets of ANC Rental totaling $894.3 million. The equity adjustment resulting from the spin-off is subject to further adjustment resulting from changes in estimated shared assets and liabilities of AutoNation and ANC Rental and certain other matters. However, such adjustments, if any, are not expected to be significant.
In connection with the spin-off, the Company agreed to continue to provide ANC Rental with guarantees and other credit enhancements with respect to $60.0 million of letters of credit, $10.3 million of indebtedness owed to the former owners of an acquired business and certain property and vehicle lease obligations. The Company will receive fees for providing these guarantees commensurate with market rates.
The Company believes that it has sufficient operating cash flow and other financial resources available to meet its anticipated capital requirements and obligations as they come due.
CASH FLOWS
Cash and cash equivalents decreased by $81.2 million and $142.9 million during the six months ended June 30, 2000 and 1999, respectively. The major components of these changes are discussed below.
CASH FLOWS FROM OPERATING ACTIVITIES
Cash provided by operating activities was $149.8 million and $9.9 million during the six months ended June 30, 2000 and 1999, respectively.
Cash flows from operating activities include purchases of vehicle inventory which are separately financed through secured vehicle financings. Accordingly, the Company measures its operating cash flow including net proceeds under these secured vehicle financings which totaled $141.9 million and $174.7 million during the six months ended June 30, 2000 and 1999, respectively. Including net proceeds under these secured vehicle financings, the Company generated operating cash flow of $291.7 million and $184.6 million during the six months ended June 30, 2000 and 1999, respectively.
CASH FLOWS FROM INVESTING ACTIVITIES
Cash flows from investing activities include business acquisitions and divestitures, capital additions and other transactions as further described below.
Cash used in business acquisitions was $192.3 million and $551.6 million for the six months ended June 30, 2000 and 1999, respectively. The decrease in cash used in business acquisitions was primarily due to the Company's shift in 2000 to acquire single dealerships or small dealership groups focused in key markets in which business is already conducted as well as strategic e-commerce acquisitions. Cash used in business acquisitions during the six months ended June 30, 2000 includes $114.2 million in purchase price for certain prior year automotive retail acquisitions. See "Business Combinations" of Management's Discussion and Analysis of Financial Condition and Results of Operations and Note 2, Business Combinations, of notes to unaudited condensed consolidated financial statements for a further discussion of businesses acquired.
Capital expenditures were $52.9 million and $120.1 million during the six months ended June 30, 2000 and 1999, respectively. The decrease is due to the megastore closures and fewer acquisitions. The Company expects capital expenditures in 2000 to be less than 1999 due to the megastore closures, fewer acquisitions and other factors.
Proceeds from the sale of property and equipment and assets held for sale were $70.8 million and $37.3 million during the six months ended June 30, 2000 and 1999, respectively. The increase is primarily due to sales of megastore and other properties held for sale.
The Company intends to finance capital expenditures and business acquisitions through cash flow from operations, revolving credit facilities and other financings.
CASH FLOWS FROM FINANCING ACTIVITIES
Cash flows from financing activities during the six months ended June 30, 2000 and 1999 consisted of revolving credit and vehicle floorplan financings, repayments of debt and share repurchases.
During the six months ended June 30, 2000 and 1999, the Company spent approximately $106.9 million and $318.6 million, respectively to repurchase shares of Common Stock under the Company's Board approved share repurchase programs.
CASH FLOWS FROM DISCONTINUED OPERATIONS
Cash used in discontinued operations was as follows during the six months ended June 30:
2000 1999
------- -------
Automotive rental ....... $ 227.0 $ 85.1
Solid waste services..... -- 546.0
------- -------
$ 227.0 $ 631.1
======= =======
|
Cash used in the Company's former automotive rental business during the six months ended June 30, 2000 consists primarily of cash used to replace maturing letters of credit which provide credit enhancement for ANC Rental's vehicle financing. Cash used in the Company's former discontinued solid waste operations during the six months ended June 30, 1999 primarily consists of cash used by RSG for acquisitions.
SEASONALITY
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 its revenue and operating results to be generally lower in the first and fourth quarters as compared to the second and third quarters.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). 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. In June 2000, the FASB issued Statement of Financial Accounting Standards No. 138 ("SFAS 138") which amends SFAS 133 for certain derivative instruments and certain hedging activities. SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. The Company will adopt SFAS 133 beginning January 1, 2001. The Company has not yet quantified the impact of adopting SFAS 133, as amended, on the Company's consolidated financial statements. However, SFAS 133 could increase volatility in earnings and other comprehensive income.
DISCONTINUED OPERATIONS
AUTOMOTIVE RENTAL
On June 30, 2000, the Company completed the tax-free spin-off of ANC Rental. Accordingly, the net assets and operating results of the Company's former automotive rental segment have been classified as discontinued operations for all periods presented in the accompanying unaudited condensed consolidated financial statements. Revenue for these discontinued operations was $910.6 million and $1.72 billion for the three and six months ended June 30, 2000, respectively. Income from these discontinued operations was $4.2 million and $1.8 million for the three and six months ended June 30, 2000, respectively. Income from discontinued operations during the six months ended June 30, 2000 is net of previously estimated losses of $22.1 million which were accrued in the fourth quarter of 1999 and $11.3 million of additional costs associated with the spin-off recorded in the second quarter of 2000.
SOLID WASTE SERVICES
In July 1998, the Company completed an initial public offering of 36.1% of RSG resulting in net proceeds of $1.43 billion. The Company sold substantially all of its remaining interest in RSG in May 1999 resulting in an after tax gain of approximately $379.3 million in the second quarter of 1999. Accordingly, operating results of the Company's former solid waste services segment have been classified as discontinued operations for the six months ended June 30, 1999 in the accompanying unaudited condensed consolidated financial statements. Revenue from these discontinued operations was $552.5 million in 1999 for the period prior to disposition. Income from these discontinued operations, net of minority interest, was $40.4 million in 1999 for the period prior to disposition.
FORWARD-LOOKING STATEMENTS
The Company's financial condition, results of operations, cash flows and future prospects, and the prevailing market price and performance of the Company's common stock, may be adversely affected by a number of factors, including the matters discussed below. Some of the statements and information contained herein constitute "forward-looking statements" within the meaning of the Federal Private Securities litigation Reform Act of 1995. Such forward-looking statements describe known and unknown risks, uncertainties and other factors which may cause the Company's actual results, performance, or achievements to be materially different from any future results, performance, or achievements, expressed or implied, by the forward-looking statements. Such factors include, among other things, competition in the automotive retail industry; the need for substantial additional capital; significant indebtedness outstanding; the cyclical and highly seasonal nature of the automobile retail industry and its sensitivity to changing economic conditions; consumer demand for vehicles, automotive service and parts and other Company products and services; the successful rollout of the Company's strategy to existing markets; the dependence on vehicle manufacturers to approve franchised automotive dealership acquisitions and the restrictions imposed by vehicle manufacturers on franchised automotive dealership acquisitions and operations; the ability to integrate and successfully operate acquired businesses and the risks associated with such businesses; the dependence on vehicle manufacturers for inventory supply; the level of manufacturer incentives on new vehicle sales; the ability to retain key personnel; extensive governmental and environmental regulation; various legal and administrative proceedings; and matters relating to imported products.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The following information about the Company's market sensitive financial instruments constitutes a "forward-looking statement." The Company's major market risk exposure is changing interest rates. Following the spin-off of ANC Rental, the Company does not have any foreign operations and therefore has no material market risk exposures relative to changes in foreign exchange rates. The Company's policy is to manage interest rates through 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.
Reference is made to the Company's quantitative disclosures about market risk as of December 31, 1999 included in the Company's Annual Report on Form 10-K.
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 June 30, 2000, notional principal amounts related to interest rate swaps (variable to fixed rate) were $50.0 million maturing in December 2000. At June 30, 2000 the weighted average fixed rate payment on variable to fixed rate swaps was 6.11%. Variable rates are indexed to LIBOR.
The Company has entered into certain 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 $1.15 billion contractually maturing through 2006 which effectuate a variable to fixed rate swap at a weighted average rate of 6.34%. Variable rates on the underlying portfolio are indexed to the Commercial Paper Nonfinancial rate.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's 2000 Annual Meeting of Stockholders on May 16, 2000, the stockholders of the Company voted upon and elected the following directors and approved and adopted the following proposal:
(A) DIRECTOR NOMINEE VOTES CAST FOR VOTES WITHHELD
---------------- -------------- --------------
H. Wayne Huizenga 289,315,380 3,022,929
Michael J. Jackson 289,933,605 2,404,704
Harris W. Hudson 289,547,509 2,790,800
Robert J. Brown 289,881,810 2,456,499
J.P. Bryan 288,523,932 3,814,377
Rick L. Burdick 288,219,170 4,119,139
Michael G. DeGroote 289,330,061 3,008,248
George D. Johnson, Jr. 289,826,022 2,512,287
John J. Melk 289,874,832 2,463,477
Irene B. Rosenfeld 289,919,605 2,418,704
|
(B) To ratify the appointment of Arthur Andersen LLP as the Company's independent public accountants for 2000 (291,513,998 votes were cast for this matter, 640,549 votes were cast against this matter, there were 183,762 abstentions and there were no broker non-votes).
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
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 Separation and Distribution Agreement dated June 30, 2000, between
AutoNation, Inc. and ANC Rental Corporation (incorporated by
reference to Exhibit 2.1 to AutoNation's Report on Form 8-K dated
June 30, 2000).
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).
10.1* AutoNation, Inc. 1991 Stock Option Plan (as amended and restated on
April 17, 2000).
10.2* AutoNation, Inc. 1995 Employee Stock Option Plan (as amended and
restated on April 17, 2000).
10.3* AutoNation Enterprises Incorporated 1995 Employee Stock Option Plan
(as amended and restated on April 17,
2000).
10.4* AutoNation, Inc. 1997 Employee Stock Option Plan (as amended and
restated on April 17, 2000).
|
10.5* AutoNation, Inc. 1998 Employee Stock Option Plan (as amended and
restated on April 17, 2000).
10.6* Letter Agreement dated April 18, 2000 between AutoNation, Inc. and
Craig T. Monaghan, Chief Operating Officer.
10.7 Tax Sharing Agreement dated June 30, 2000 between AutoNation, Inc.
and ANC Rental Corporation (incorporated by reference to Exhibit
10.1 to AutoNation's Report on Form 8-K dated June 30, 2000).
10.8 Benefits Agreement dated June 30, 2000 between AutoNation, Inc. and
ANC Rental Corporation (incorporated by reference to Exhibit 10.2 to
AutoNation's Report on Form 8-K dated June 30, 2000).
10.9 Reimbursement Agreement dated June 30, 2000 between AutoNation, Inc.
and ANC Rental Corporation (incorporated by reference to Exhibit
10.3 to AutoNation's Report on Form 8-K dated June 30, 2000).
27.1* Financial Data Schedule for the Six Months Ended June 30, 2000 (for
SEC use only).
(b) Reports on Form 8-K:
Form 8-K, dated May 31, 2000 (filed June 1, 2000), Item 5, reporting
that on May 31, 2000 the Board of Directors of AutoNation, Inc.
granted final approval of the spin-off of ANC Rental Corporation
("ANC Rental"). AutoNation also announced a record date for the
spin-off of June 16, 2000 and a distribution date of June 30, 2000
based upon the ratio of one share of ANC Rental common stock for
every eight shares of AutoNation common stock owned on the record
date.
-------------------------------
|
*Filed herewith
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, AutoNation, Inc., has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AUTONATION, INC.
By: /s/ Ronald L. Rubin
----------------------------------
Ronald L. Rubin
VICE PRESIDENT, CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
Date: August 14, 2000
|
EXHIBIT 10.1
AUTONATION, INC.
1991 STOCK OPTION PLAN
(Effective as of October 29, 1991)
(As Amended and Restated as of April 17, 2000)
1. PURPOSE. The purpose of this 1991 Stock Option Plan (hereinafter referred to as the "Plan") is to further the success of AutoNation, Inc., a Delaware corporation (the "Company"), by replacing, as of the Effective Date, the Republic Waste Industries, Inc. 1990 Stock Option and Stock Purchase Plan (the "Prior Plan) and by making available Common Stock of the Company for purchase by Participants (as defined below), and thus to provide an additional incentive to such Participants to continue in the service of the Company or its affiliates and to give them a greater interest as shareholders in the success of the Company. Accordingly, the Committee is hereby authorized to designate those Participants who are to receive Options under this Plan, and upon the due execution of the Option Agreement, to grant options to such Participants.
2. DEFINITIONS. As used in this Plan, the terms set forth below shall have the following meanings:
"BOARD" means the board of directors of the Company.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMMITTEE" shall have the meaning ascribed thereto in Paragraph 3 hereof.
"COMMON STOCK" means the Company's common stock, par value $0.01 per share.
"COMPANY" shall have the meaning ascribed thereto in Paragraph 1 hereof.
"DATE OF GRANT" means the date on which an Option is granted hereunder.
"EFFECTIVE DATE" shall have the meaning ascribed thereto in Paragraph 12 hereof.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"OPTION" means an Option granted pursuant to this Plan.
"OPTION AGREEMENT" means a written agreement between the Company and a Participant pursuant to which an Option or Options are granted to a Participant under this Plan.
"OPTION PRICE" means the price per share of Common Stock, determined under Paragraph 7(a) hereof, for which an Option may be exercised.
"OPTIONEE" shall mean the person who is entitled to exercise an Option.
"PARENT" means a parent corporation of the Company as defined
in
Section 424(c) of the Code.
"PARTICIPANTS" means the employees and officers of the Company or of any of its Subsidiaries or Parent and the directors serving on the Board.
"PLAN" shall have the meaning ascribed thereto in Paragraph 1 hereof.
"PRIOR PLAN" shall have the meaning ascribed thereto in Paragraph 1 hereof.
"SUBSIDIARY" means a subsidiary corporation of the Company as defined in Section 424(f) of the Code.
3. ADMINISTRATION OF PLAN. The Board of Directors of the Company shall appoint a committee (the "Committee") composed of not less than two persons to administer the Plan. Only directors who qualify as "outside directors" under Rule 16b-3 promulgated under the Exchange Act shall be eligible to serve as members of the Committee. The Committee shall report all action taken by it to the Board, which shall review and, if thought appropriate, ratify or approve those actions that are by law required to be so reviewed and ratified or approved by the Board. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the Participants to whom, and the time or times at which, Options shall be granted and the number of shares and exercise price in respect of each Option; to construe and interpret the Plan and any agreements made pursuant to the Plan; to determine the terms and provisions (which need not be identical or consistent with respect to each Participant) of the respective Option Agreements and agreements ancillary thereto, including, without limitation, terms covering the payment of the Option Price; and to make all other determinations and take all other actions the Committee may think necessary or advisable for the proper administration of this Plan. All such actions and determinations shall be conclusively binding for all purposes and upon all persons.
4. OPTIONS AUTHORIZED. The Committee shall have the full power and authority, in its sole discretion, to grant to an Optionee, in exchange for the surrender and cancellation of an Option, a new Option having a purchase
price lower than that provided in the Option so surrendered and cancelled and containing such other terms and conditions as the Committee may prescribe in accordance with the provisions of this Plan.
5. COMMON STOCK SUBJECT TO OPTIONS. The aggregate number of shares of Common Stock that may be issued upon the exercise of Options under the Plan and stock options under the Prior Plan shall not exceed 5,000,000 shares, subject to adjustment under the provisions of Paragraph 8; provided, however that (a) the number of shares of Common Stock that may be issued upon the exercise of Options on or after the Effective Date shall be the difference between 5,000,000 and the total number of shares either issued, or subject to issue upon the exercise of stock options granted, pursuant to the Prior Plan as of the Effective Date; (b) the aggregate number of shares of Common Stock which may be reserved for issuance under the Plan shall not exceed ten percent (10%) of the number of shares of Common Stock issued and outstanding (on a non-diluted basis) on such particular date; provided that no decrease in the number of shares of Common Stock of the Company shall cause the number of shares of Common Stock reserved for issuance the Plan to be less than that number required to be issued upon the exercise of all outstanding and unexercised options issued prior to such date; and (c) the number of shares of Common Stock reserved for issuance at any one time to any one person shall not exceed five percent (5%) of the Common Stock issued and outstanding (on a non-diluted basis). The shares of Common Stock to be issued upon the exercise of Options may be authorized but unissued shares or shares issued and reacquired by the Company. In the event and to the extent any Option shall, for any reason, terminate expire or be surrendered without having been exercised in full, the shares subject to such Options shall again be available for Options to be granted under the Plan or be used by the Company for any other purpose.
6. PARTICIPANTS. Except as herein otherwise provided, Options may be granted under the Plan to any Participant. In determining the Participants to whom Options shall be granted and the number of shares to be covered by such Option, the Committee may take into account the nature of the services rendered by the respective Participants, their present and potential contributions to the Company's success, and such other factors as the Committee in its discretion shall deem relevant. A Participant who has been granted an Option under the Plan may be granted an additional Option or Options under the Plan, in the Committee's discretion.
7. TERMS AND CONDITIONS OF OPTIONS. The grant of an Option under the Plan shall be evidenced by an Option Agreement executed by the Company and the applicable Participant and shall contain such terms and be in such form as the Committee may from time to time approve, subject to the following limitations and conditions:
(a) OPTION PRICE. The Option Price per share with respect to each Option shall be determined by the Committee, but shall in no instance be less than the greater of (i) the par value of the shares subject to the Option and (ii) the fair market value of the shares subject to the Option as of the Date of Grant. The Committee may permit the Option Price to be payable in Common Stock owned by the holder of an Option. For purposes of this Paragraph
7(a), fair market value shall be, where applicable, the closing price of the Common Stock on the most recent trading date immediately preceding the Date of Grant as reported on the New York Stock Exchange composite tape or, if the Common Stock is not traded on such exchange, as quoted on NASDAQ, or if the Common Stock is not traded on such exchange or quoted on NASDAQ, then as reported on any other securities exchange on which the Common Stock may be traded.
(b) PERIOD OF OPTION. The expiration date of each Option shall be fixed by the Committee, but, notwithstanding any provision of the Plan to the contrary, such expiration date shall not be more than 9 years from the Date of Grant.
(c) VESTING OF SHAREHOLDER RIGHTS. Neither an Optionee nor his successor in interest shall have any of the rights of a shareholder of the Company solely by virtue of the ownership of such Option until the Option is exercised and the certificates relating to the shares for which the Option is exercised are properly delivered to such Optionee or successor.
(d) EXERCISE OF OPTION. Each Option shall be exercisable from time to time over such period and upon such terms and conditions as the Committee shall determine, but not at any time as to less than 25 shares unless the remaining shares that have become so purchasable are less than 25 shares.
(e) NONTRANSFERABILITY OF OPTION. Options shall be transferable only (i) by will or the laws of descent and distribution or (ii) as otherwise expressly authorized by the Committee. Each Option shall be exercisable during the Optionee's lifetime only by him or her or, during periods of legal disability, by his or her legal representative or, to the extent the Committee permits an assignment of an Option, by the assignee of the Optionee. No Option shall be subject to execution, set-off, attachment or similar process, other than by the Company. Following the Optionee's death, Options held by such Optionee, to the extent exercisable, may be exercised by the executors or administrators or legatees or distributees of such Optionee's estate.
8. ADJUSTMENTS. The Committee in its discretion, may make such adjustments in the Option Price and the number of shares covered by outstanding Options if such adjustments are required to prevent dilution or enlargement of the rights of the holders of such Options that would otherwise result from any reorganization. recapitalization, stock split, stock dividend, combination of shares, merger, consolidation, issuance or rights, or other change in the capital structure of the Company. The Committee, its discretion, also may make such adjustments in the aggregate number of shares that may be subject to the future grant of Options if such adjustments are appropriate to reflect any transaction or event described in the preceding sentence.
9. RESTRICTIONS ON ISSUING SHARES. The exercise of each Option shall be subject to the condition that if at any time the Company shall determine in its discretion that the satisfaction of withholding tax or other withholding liabilities, or that the listing, registration, or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or that the consent or approval of any regulatory body, is necessary, or desirable as a condition of or in connection with, such exercise or the delivery or purchase of shares pursuant thereto, then in any such event, such exercise shall not be effective unless such withholding, listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
10. AMENDMENTS, SUSPENSION, AND TERMINATION OF PLAN. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable in order that the Options granted thereunder may conform to any changes in the law, or in any other respect which the Board may deem to be in the best interest of the Company, provided, however, that without approval by the shareholders of the Company voting the proper percentage of its voting power, no such amendment shall make any change in the Plan for which shareholder approval is required of the Company by (a) Rule 16b-3, promulgated under the Exchange Act; (b) any rules for listed companies promulgated by any stock exchange on which the Company's stock is traded; or (c) any other applicable rule or law. Unless sooner terminated hereunder, the Plan shall terminate 10 years after the Effective Date. No Option may be granted during any suspension or after the termination of the Plan. No amendment, suspension, or termination. of the Plan shall, without an Optionee's consent, impair or negate any of the rights or obligations under any Option theretofore granted to such Optionee under the Plan.
11. TAX WITHHOLDING. The Committee may, in its sole discretion, (a) require an Optionee to remit to the Company a cash amount sufficient to satisfy, in whole or in part, any federal. state, provincial and local withholding tax requirements prior to the delivery of any certificate for shares pursuant to the exercise of an Option hereunder; (b) grant to an Optionee the right to satisfy, in whole or in part, any such withholding tax requirements by electing to require that the Company, upon any exercise of the Option, withhold from the shares of Common Stock issuable to the Optionee upon the exercise of the Option, that number of full shares of Common Stock having a fair market value equal to the amount or portion of the amount required to be withheld or (c) satisfy such withholding requirements through another lawful method, including through additional withholdings against the Optionee's other wages with the Company.
12. EFFECTIVE DATE OF PLAN. This Plan shall become effective
on the date (the "Effective Date") on which it is adopted by the Board:
provided, however, the Plan shall be null and void and no Options granted under
the Plan shall be effective unless the Plan is approved within twelve (12)
months of its adoption by the Board by a majority (or such other proportion as
may be required by state law or the Articles of Incorporation of the Company) of
the outstanding voting shares of stock of the Company, voted either in person or by proxy, at a duly held stockholders meeting. Any Optionee granted an Option prior to such approval at a duly held stockholders meeting shall have no rights to or interest in such Option until such approval has been given.
13. TERMINATION OF EMPLOYMENT. Except as otherwise provided in
Section 14 or as may otherwise be provided by the Committee, upon the
termination of employment or other service of an Optionee with the Company, a
Subsidiary, or a Parent for any reason, all Options held by such Optionee at the
time of such termination shall immediately terminate and such Optionee shall
have no further right to purchase shares of Common Stock pursuant to such
Option; provided, however, that, unless such termination is by the Company for
"Cause," all such Options, to the extent exercisable on the date of such
termination, shall remain exercisable until the earlier of (a) the expiration
date of such Option as fixed by the Committee pursuant to Section 7(b) and (b)
the first anniversary of the date of such termination. For purposes of the
foregoing, "Cause" shall mean (1) the Optionee's conviction for commission of a
felony or other crime; (2) the commission by the Optionee of any act against the
Company constituting willful misconduct, dishonesty, fraud, theft or
embezzlement; (3) the Optionee's failure, inability or refusal to perform any of
the material services, duties or responsibilities required of him by the
Company, or to materially comply with the policies or procedures established
from time to time by the Company, for any reason other than his illness or
physical or mental incapacity; (4) the Optionee's dependence, as determined in
good faith by the Company, on any addictive substance, including, but not
limited to, alcohol or any illegal or narcotic drugs; (5) the destruction of or
material damage to Company property caused by the Optionee's willful or grossly
negligent conduct; and (6) the willful engaging by the Optionee in any other
conduct which is demonstrably injurious to the Company or its subsidiaries,
monetarily or otherwise. Determination of Cause shall be made by the Committee
in its sole discretion. Notwithstanding the foregoing, if the Optionee is a
party to an employment agreement with the Company, "Cause" with respect to such
Optionee shall have the meaning set forth therein.
14. EXERCISE OF OPTION AFTER DEATH, DISABILITY OR RETIREMENT.
Except as otherwise provided by the Committee and notwithstanding anything in
Section 13 to the contrary, if an Optionee's termination of employment is by
reason of the death, "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) or "Retirement"of such Optionee, all Options held
by such Optionee at the time of such termination shall become immediately vested
and exercisable in full and shall remain exercisable until the earlier of (a)
the expiration date of such Option as fixed by the Committee pursuant to Section
7(b) and (b) the 3rd anniversary of the date of such termination. Whether a
termination of employment or service is to be considered by reason of "permanent
and total disability" for purposes of this Plan shall be determined by the
Committee, which determination shall be final and conclusive. For purposes of
the foregoing, "Retirement" shall mean the Optionee's termination of employment
or other service from the Company or a Subsidiary after attainment of age 55 and
completion of at least 6 years of service with the Company or a Subsidiary. For purposes of the preceding sentence, employment or other service with an entity prior to its becoming a Subsidiary or after its ceasing to be a Subsidiary shall be disregarded.
15. APPLICABLE PLAN. All Options granted by the Company pursuant to the Prior Plan shall be governed by the terms and conditions of the Prior Plan and shall be unaffected by the terms and conditions of this Plan.
16. CHANGE IN CONTROL. Should Michael G. DeGroote, MGD Holdings Ltd. or any other entity, holding the common voting shares of the Company on his behalf (collectively referred to as "MGD") lose control of the Company, as decided by the Board in good faith, and if the Participant within two (2) years of the date of that event be dismissed, otherwise than for cause, death or disability, then all rights of the Participant to purchase shares under the Plan, granted but unvested will vest immediately and the prescribed time limits for exercise will run from such vesting. MGD will be deemed to have lost control of the Company should MGD's effective holdings of the Company voting shares drop below twenty percent (20%) of the outstanding voting shares.
17. DISTRIBUTION. Pursuant to that certain Employee Benefits Agreement dated as of February 14, 1995 between the Company and Republic Environmental Systems, Inc. ("RESI"), Options (hereinafter referred to as "Affected Options") granted pursuant to the Plan on or before the record date (the "Distribution Record Date"), as determined by the Board, for the distribution by the Company to the Company's stockholders of all of its stock in RESI (such distribution being hereinafter referred to as the "Distribution" and the date of the Distribution being hereinafter referred to as the "Distribution Date"), were adjusted, effective as of the. Distribution Date, such that (i) the Option Price of each Affected Option or such portion thereof was adjusted by multiplying said Option Price by a fraction, the numerator of which is the Trading Price Per Share (as hereinafter defined) of the Common Stock and the denominator of which is the sum of the Trading Price Per Share of the Common Stock and 0.2 times the Trading Price Per Share of the common stock of RESI (for this purpose, the "Trading Price Per Share" of the Common Stock or the common stock of RESI, as the case may be, shall be the closing price of such security as reported on the National Association of Securities Dealers Automated Quotation Market on the Distribution Date), (ii) no Affected Option shall be terminated pursuant to Paragraph 13 of the Plan for the reason that the Optionee holding such Option is no longer an employee of the Company or of any Subsidiary or Parent, provided that the Optionee remains an employee of RESI or any subsidiary or parent of RESI and the Optionee shall be treated for all purposes of said Paragraph 13 as if the Optionee instead had been employed by the Company and (iii) an Affected Option shall continue to vest even though the Optionee holding such Option is no longer an employee of the Company or of any Subsidiary or Parent, provided that the Optionee remains an employee of RESI or of any subsidiary or parent of RESI.
EXHIBIT 10.2
AUTONATION, INC.
1995 EMPLOYEE STOCK OPTION PLAN
(As Amended and Restated on April 17, 2000)
1. STATEMENT OF PURPOSE. This Amended and Restated 1995 Employee Stock Option Plan (the "Plan") is to benefit AutoNation, Inc., a Delaware corporation (the "Company"), and its subsidiaries through the maintenance and development of their respective businesses by offering certain present and future key employees and officers, and independent contractors providing services to the Company, a favorable opportunity to become holders of stock in the Company over a period of years, thereby giving them a permanent stake in the growth and prosperity of the Company and encouraging the continuance of their involvement with the Company or its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee"), consisting of two or more outside directors (as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
appointed by the Board of Directors, whose interpretation of the terms and
provisions of the Plan shall be final and conclusive. The selection of
employees, officers and consultants for participation in the Plan and all
decisions concerning the timing, pricing and amount of any grant or award under
the Plan shall be made solely by the Committee.
3. ELIGIBILITY. Options shall be granted only to key employees of the Company and its subsidiaries (including officers of the Company and its subsidiaries but excluding non-employee directors of the Company and its subsidiaries) and independent contractors performing services for the Company and its subsidiaries selected initially and from time to time by the Committee on the basis of their importance to the business of the Company and its subsidiaries.
4. GRANTING OF OPTIONS. The Committee may grant options under which a total of not in excess of 20,000,000 shares of the $.01 par value common stock of the Company ("Common Stock") may be purchased from the Company, subject to adjustment as provided in Section 10. In the event that an option expires or is terminated or canceled unexercised as to any shares, such released shares may again be optioned (including a grant in substitution for a canceled option). Shares subject to options may be made available from unissued or reacquired shares of Common Stock. Nothing contained in the Plan or in any option granted pursuant thereto shall confer upon any optionee any right to be continued in the employment of the Company or any subsidiary of the Company or as a consultant to the Company or any subsidiary of the Company, or interfere in any way with the
right of the Company or its subsidiaries to terminate his employment or consulting relationship at any time. The maximum number of shares of Common Stock subject to options that may be granted during any calendar year under the Plan to any executive officer or other employee of the Company or any subsidiary whose compensation is or may be subject to Section 162(m) of the Code is 2,000,000 shares (subject to adjustment as provided in Section 10 hereof).
5. OPTION PRICE. The option price shall be determined by the Committee and, subject to the provisions of Section 10 hereof, shall be not less than the fair market value, at the time the option is granted, of the shares of Common Stock subject to the option.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the
provisions of Section 8 hereof, each option shall be for such a term of not less
than five years nor more than ten years, as shall be determined by the Committee
at the time the option is granted. Each option shall become exercisable with
respect to 25% of the total number of shares subject to the option twelve months
after the date of its grant and with respect to each additional 25% at the end
of each twelve-month period thereafter during the succeeding three years.
Notwithstanding the foregoing, the Committee may in its discretion (i)
specifically provide for another time or times of exercise at the time the
option is granted; (ii) accelerate the exercisability of any option subject to
such terms and conditions as the Committee deems necessary and appropriate; or
(iii) at any time prior to the expiration or termination of any option
previously granted, extend the term of any option (including such options held
by officers) for such additional period as the Committee in its discretion shall
determine. In no event, however, shall the aggregate option period with respect
to any option, including the original term of the option and any extensions
thereof, exceed ten years. Subject to the foregoing, all or any part of the
shares to which the right to purchase has accrued may be purchased at the time
of such accrual or at any time or times thereafter during the option period.
In the event of a Change of Control (as defined below), all outstanding
options shall become immediately exercisable. Notwithstanding any other
provision in the Plan during the period of thirty (30) days after such Change of
Control, each optionee who is an officer or a director (and also an employee or
consultant) of the Company shall have the right to require the Company to
purchase for him any option granted under the Plan at a purchase price equal to
(i) the excess of fair market value per share over the option price (ii)
multiplied by the number of option shares specified by such individual for
purchase in a written notice to the Company, attention of the Secretary. For
purposes of this Plan, a "Change in Control" shall be deemed to occur if any
person shall (a) acquire direct or indirect beneficial ownership of at least 50%
of the issued and outstanding Common Stock of the Company, or (b) has the power (whether such power arises as a result of the ownership of capital stock, by contract or otherwise), or ability to elect or cause the election of directors consisting at the time of such election of a majority of the board of directors of the Company. As used herein, "person" shall mean any person, corporation, partnership, joint venture or other entity or any group (as such term is defined in Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder). For purposes of this paragraph, "fair market value per share" shall mean the average of the highest sales price per share of the Company's Common Stock as quoted on The Nasdaq Stock Market or by the principal exchange upon which the Company's Common Stock is listed on each of the five trading days immediately preceding the date on which such individual so notifies the Company. The amount payable to each such individual by the Company shall be in cash or by certified check and shall be reduced by any taxes required to be withheld.
7. EXERCISE OF OPTION. As a condition to the exercise of any option, the "Quoted Price" (as defined below) per share of Common Stock on the date of exercise must be equal or exceed the option price referred to in Section 5 hereof. An option may be exercised by giving written notice to the Company, attention of the Secretary, specifying the number of shares to be purchased, accompanied by the full purchase price for the shares to be purchased either (i) in cash, (ii) by check, (iii) by a promissory note in a form specified by the Company and payable to the Company no later than fifteen business days after the date of exercise of the option, (iv) if so approved by the Committee, by shares of the Common Stock of the Company or (v) by a combination of these methods of payment. The "Quoted Price" and the per share value of Common Stock for purposes of paying the option price in accordance with the immediately preceding sentence shall equal the closing selling price per share of Common Stock on the date in question on The Nasdaq Stock Market or the principal stock exchange upon which the Company's Common Stock is listed (the "Exchange").
At the time of any exercise of an option, the Company may, if it shall determine it necessary or desirable for any reason, require the optionee (or his or her heirs, legatees, or legal representatives, as the case may be), as a condition upon the exercise thereof, to deliver to the Company a written representation of present intention to purchase the shares for investment and not for distribution. In the event such representation is required to be delivered, an appropriate legend may be placed upon each certificate delivered to the optionee upon his or her exercise of part or all of the option and a stop transfer order may be placed with the transfer agent. Each option shall also be subject to the requirement that, if at any time the Company determines, in its discretion, that the listing, registration or qualification of the shares
subject to the option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of or in connection with, the issue or purchase of shares thereunder, the option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Company.
At the time of the exercise of any option the Committee may require, as a condition of the exercise of such option, the optionee to (x) pay the Company an amount equal to the amount of tax the Company may be required to withhold to obtain a deduction for federal income tax purposes as a result of the exercise of such option by the optionee or (y) make such other arrangements with the Company which would enable the Company to pay such withholding tax, including, without limitation, holding back a number of shares issuable upon exercise of the option equal to the amount of such withholding tax, or permitting the optionee to deliver a promissory note in a form specified by the Committee or withhold taxes from other compensation payable to the optionee by the Company, or (z) a combination of the foregoing.
8. TERMINATION OF RELATIONSHIP - EXERCISE THEREAFTER. Except as provided below or as may otherwise be provided by the Committee, upon the termination of employment or other service of an optionholder with the Company for any reason, all options held by such optionholder at the time of such termination shall immediately terminate and such optionholder shall have no further right to purchase shares of Common Stock pursuant to such option; provided, however, that, unless such termination is by the Company for "Cause," all such options, to the extent exercisable on the date of such termination, shall remain exercisable until the earlier of (a) the expiration date of such option as fixed by the Committee pursuant to Section 6 and (b) the 60th day following the date of such termination. For purposes of the foregoing, "Cause" shall mean (1) the optionholder's conviction for commission of a felony or other crime; (2) the commission by the optionholder of any act against the Company constituting willful misconduct, dishonesty, fraud, theft or embezzlement; (3) the optionholder's failure, inability or refusal to perform any of the material services, duties or responsibilities required of him by the Company, or to materially comply with the policies or procedures established from time to time by the Company, for any reason other than his illness or physical or mental incapacity; (4) the optionholder's dependence, as determined in good faith by the Company, on any addictive substance, including, but not limited to, alcohol or any illegal or narcotic drugs; (5) the destruction of or material damage to Company property caused by the optionholder's willful or grossly negligent
conduct; and (6) the willful engaging by the optionholder in any other conduct which is demonstrably injurious to the Company or its subsidiaries, monetarily or otherwise. Determination of Cause shall be made by the Committee in its sole discretion. Notwithstanding the foregoing, if the optionholder is a party to an employment agreement with the Company, "Cause" with respect to such optionholder shall have the meaning set forth therein.
Except as otherwise provided by the Committee and notwithstanding anything in this Section 8 to the contrary, if an optionholder's termination of employment is by reason of the death, "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code) or "Retirement"of such optionholder, all options held by such optionholder at the time of such termination shall become immediately vested and exercisable in full and shall remain exercisable until the earlier of (a) the expiration date of such option as fixed by the Committee pursuant to Section 6 and (b) the 3rd anniversary of the date of such termination. Whether a termination of employment or service is to be considered by reason of "permanent and total disability" for purposes of this Plan shall be determined by the Committee, which determination shall be final and conclusive. For purposes of the foregoing, "Retirement" shall mean the optionholder's termination of employment or other service from the Company after attainment of age 55 and completion of at least 6 years of service with the Company. For purposes of the preceding sentence, employment or other service with an entity prior to its becoming a subsidiary or after its ceasing to be a subsidiary shall be disregarded.
9. TRANSFERABILITY OF OPTIONS. No option shall be assignable or
transferable by the optionee to whom it is granted, other than by will or the
laws of descent and distribution, except that, upon approval by the Board, the
optionee may transfer an option that is not intended to constitute an Incentive
Stock Option (a) pursuant to a qualified domestic relations order as defined for
purposes of the Employee Retirement Income Security Act of 1974, as amended, or
(b) by gift: to a member of the "Family" (as defined below) of the optionee, to
or for the benefit of one or more organizations qualifying under Code
ss.501(c)(3) and 170(c)(2) (a "Charitable Organization") or to a trust for the
exclusive benefit of the optionee, one or more members of the optionee's Family,
one or more Charitable Organizations, or any combination of the foregoing,
provided that any such transferee shall enter into a written agreement to be
bound by the terms of this Plan. For this purpose, "Family" shall mean the
ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses
of lineal descendants of the optionee. During the lifetime of an optionee to
whom an Incentive Stock Option is granted, only such optionee (or, in the event
of legal incapacity of incompetence, the optionee's guardian or legal
representative) may exercise the Incentive Stock Option. Following the optionee's death, options held by such optionee, to the extent exercisable, may be exercised by the executors or administrators or legatees or distributees of such optionee's estate.
10. ADJUSTMENTS. The number of shares subject to this Plan and to options granted under this Plan shall be adjusted as follows: (a) in the event that the outstanding shares of Common Stock of the Company is changed by any stock dividend, stock split or combination of shares, the number of shares subject to the Plan and to options granted hereunder shall be proportionately adjusted; (b) in the event of any merger, consolidation or reorganization of the Company with any other corporation or corporations, these shall be substituted, on an equitable basis as determined by the Committee, for each share of Common Stock then subject to the Plan whether or not at the time subject to outstanding options, the number and kind of shares of stock or other securities to which the holders of shares of Common Stock of the Company will be entitled pursuant to the transaction; and (c) in the event of any other relevant change in the capitalization of the Company, the Committee shall provide for an equitable adjustment in the number of shares of Common Stock then subject to the Plan, whether or not then subject to outstanding options. In the event of any such adjustment, the purchase price per share shall be proportionately adjusted.
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any option granted pursuant to the Plan shall confer upon any optionee any right to be continued in the employment of the Company or any subsidiary of the Company or to be continued as a consultant to the Company or any subsidiary of the Company to interfere in any way with the right of the Company and its subsidiaries to terminate such employment or consulting relationship and/or to remove any optionee who is a director from service on the Board of Directors of the Company at any time in accordance with the provisions of applicable law.
12. AMENDMENT OF PLAN. The Board of Directors of the Company may amend or discontinue the Plan at any time. However, no such amendments or discontinuance shall be made without the requisite stockholder approval of the stockholders of the Company if stockholder approval is required as a condition to the Plan continuing to comply with the provisions of Rule 16b-3 of the 1934 Act or Section 162(m) of the Code.
13. GOVERNANCE BY RULE 16B-3. The Plan is intended to and shall be governed by Rule 16b-3 promulgated under the 1934 Act.
14. EFFECTIVE DATE. This Plan is effective as of February 12, 1996.
This Plan was duly approved and adopted by the stockholders of the Company at a meeting held the 10th day of May, 1996.
This Plan was duly amended by the Board of Directors of the Company on the 3rd day of February, 1998, which amendment was duly approved and adopted by the stockholders of the Company at a meeting held the 20th day of May, 1998.
This Plan was duly amended by the Board of Directors of the Company effective as of the 20th day of May, 1998.
This Plan was duly amended and restated by the Board of Directors of the Company effective as of April 17, 2000.
EXHIBIT 10.3
AUTONATION ENTERPRISES INCORPORATED
1995 EMPLOYEE STOCK OPTION PLAN
(As Amended and Restated on April 17, 2000)
1. STATEMENT OF PURPOSE. This Employee Stock Option Plan (the Plan") is to benefit AutoNation Enterprises Incorporated, a Florida corporation (the "Company"), and its subsidiaries through the maintenance and development of their respective businesses by offering certain present and future key employees and officers, and independent contractors providing services to the Company and its subsidiaries, a favorable opportunity to become holders of stock in the Company over a period of years, thereby giving them a permanent stake in the growth and prosperity of the Company and its subsidiaries and encouraging the continuance of their involvement with the Company and its subsidiaries.
2. ADMINISTRATION. The Plan shall be administered by the Board of Directors of the Company (the "Board"), whose construction and interpretation of the terms and provisions of the Plan shall be final and conclusive. The selection of employees, officers and consultants for participation in the Plan and all decisions concerning the timing, pricing and amount of any grant or award under the Plan shall be made by the Board. The Board may in its sole discretion grant options to purchase shares of the Company's $.001 per share par value common stock ("Common Stock") and issue shares upon exercise of such options as provided in the Plan. The Board shall have authority, subject to the express provisions of the Plan, to construe the respective option agreements and the Plan, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of the respective option agreements, which need not be identical, and to make all other determinations in the judgment of the Board necessary or desirable for the administration of the Plan. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any option agreement in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. No director shall be liable for any action or determination made in good faith. The Board may, to the full extent permitted by law, delegate any or all of its powers under the Plan to a committee (the "Committee") appointed by the Board, and if the Committee is so appointed, all references to the Board in the Plan shall mean and relate to such Committee.
From and after the registration of the Common Stock of the Company under Section 12 of the Securities Exchange Act of 1934 (the "Exchange Act"), the selection of an officer or director as a participant in the Plan and the timing, price and number of shares for which an option or options may be granted to such officer or director shall be determined either (i) by the Board or (ii) by a committee of two or more directors having full authority to act in the matter, each of which members shall be a "nonemployee director" (within the
meaning of Rule 16b-3 under the Exchange Act (or any successor rule)) and an "outside director" (as defined under Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code") (or any successor rule)), as such terms are interpreted from time to time.
3. ELIGIBILITY. Options shall be granted only to key employees of the Company and its subsidiaries (including officers and directors of the Company and its subsidiaries) and independent contractors performing services for the Company and its subsidiaries selected initially and from time to time by the Board on the basis of their importance and contribution to the business of the Company or its subsidiaries.
As a condition to the grant of an option under the Plan, each recipient of an option shall execute an option agreement not inconsistent with the Plan as may be determined by the Board.
4. GRANTING OF OPTIONS. The Board may grant options under which a total of not in excess of 3,200,000 shares of the Common Stock may be purchased from the Company, subject to adjustment as provided in Section 10. Options granted under the Plan are intended not to be treated as incentive stock options as defined in Section 422 of the Code. The maximum number of shares subject to options that can be granted under the Plan to any executive officer of the Company or its subsidiaries, or to any other person eligible for a grant of an option under Section 3, is 1,000,000 during the first ten years after the effective date of the Plan and 500,000 shares per year thereafter (in each case, subject to adjustment as provided in Section 10 hereof).
In the event that an option expires or is terminated or canceled unexercised as to any shares, such released shares may again be optioned (including a grant in substitution for a canceled option). With respect to any individual, however, in the case of an option that is terminated or canceled unexercised as to any shares, such released shares shall continue to count against the maximum number of shares that may be offered such individual under the Plan. Shares subject to options may be made available from unissued or reacquired shares of Common Stock.
5. OPTION PRICE. The option price shall be determined by the Board in its sole discretion, subject to the provisions of Section 10 hereof, but shall not be less than the fair market value, at the time the option is granted, of the shares of Common Stock subject to the option.
6. DURATION OF OPTIONS, INCREMENTS AND EXTENSIONS. Subject to the provisions of Section 8 hereof, each option shall be for such term of not less than five (5) years nor more than ten (10) years, as shall be determined by the Board. Each option shall become exercisable with respect to 25% of the total number of shares subject to the option twelve (12) months after the date of its grant and with respect to an additional 25% at the end of each twelve-month period thereafter during the succeeding three (3) years. Notwithstanding the foregoing, the Board may in its discretion (i) specifically provide for another time or times of vesting or exercise; (ii) accelerate the exercisability of any option subject to such terms and conditions as the Board deems necessary and
appropriate; or (iii) at any time prior to the expiration or termination of any option previously granted, extend the term of any option (including such options held by officers or directors) for such additional period as the Board in its discretion shall determine. In no event, however, shall the aggregate option period with respect to any option, including the original term of the option and any extensions thereof, exceed ten (10) years. Subject to the foregoing, all or any part of the option which has become exercisable may be exercised at any time during the option period prior to its expiration.
From and after the registration of the Common Stock under Section 12 of
the Exchange Act, in the event of a Change in Control (as defined below), all
outstanding options shall became immediately exercisable. Notwithstanding any
other provision in the Plan, during the period of thirty (30) days after such
Change of Control each optionee who is an officer or a director (or an employee
or consultant) of the Company shall have the right to require the Company to
purchase from him any option granted under the Plan at a purchase price equal to
(i) the excess of fair market value per share over the option price (ii)
multiplied by the number of option shares specified by such individual for
purchase in a written notice to the Company, attention of the Secretary. For
purposes of this Plan, a "Change in Control" shall be deemed to occur if any
person shall (a) acquire direct or indirect beneficial ownership of at least
50% of the issued and outstanding Common Stock, or (b) has the power (whether
such power arises as a result of the ownership of capital stock, by contract or
otherwise), to elect or cause the election of directors consisting at the time
of such election of a majority of the Board. As used herein, "person" shall mean
any person, corporation, partnership, joint venture or other entity or any group
(as such term is defined in Section 13(d) of the Exchange Act and the rules
promulgated thereunder). For purposes of this paragraph, "fair market value per
share" shall mean the average of the highest sales price per share of the Common
Stock as quoted on the NASD National Market or by the principal exchange upon
which the Common Stock is listed on each of the five trading days immediately
preceding the date on which such individual so notifies the Company. The amount
payable to each such individual by the Company shall be in cash or by certified
check and shall be reduced by any taxes required to be withheld.
7. EXERCISE OF OPTION. From and after the registration of the Common
Stock under Section 12 of the Exchange Act, as a condition to the exercise of
any option, the "Quoted Price" (as defined below) per share of Common Stock on
the date of exercise must equal or exceed the option price referred to in
Section 5 hereof. An option may be exercised by giving written notice to the
Company, attention of the Secretary, specifying the number of shares to be
purchased, accompanied by the full purchase price for the shares to be purchased
either in cash, by check by a promissory note in a form specified by the Company
and payable (or delivered, in the case a note) to the Company no later than ten
business, days after the date of exercise of the option or, if so approved by
the Board, by shares of the Common Stock or by a combination of these methods of
payment. The "Quoted Price" and the per share value of Common Stock for purposes
of paying the option price in accordance with the immediately preceding
sentence shall equal the closing selling price per share of Common Stock on the
date in question on the NASD National Market or the principal stock exchange upon which the Common Stock is listed. From and after the registration of the Common Stock under Section 12 of the Exchange Act., the right to pay the purchase price of shares by delivery of a promissory note shall not be available to any optionee who is a person described in Section 16(a) of the Exchange Act.
At the time of any exercise of any option, the Company may, if it shall determine it necessary or desirable for any reason, require the optionee (or his heirs, legatees, or legal representative, as the case may be), as a condition upon the exercise thereof, to deliver to the Company a written representation of present intention to purchase the shares for investment and not for distribution. In the event such representation is required to be delivered, an appropriate legend may be placed upon each certificate delivered to the optionee upon his exercise of part or all of the option and a stop transfer order may be placed with the transfer agent. Each option shall also be subject to the requirement that, if at any time the Company determines, in its discretion, that the listing, registration or qualification of the shares subject to the option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body is necessary or desirable as a condition of or in connection with, the issuance or purchase of shares thereunder, the option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained, free of any conditions not acceptable to the Company.
At the time of the exercise of any option, the Board may require, as a condition of the exercise of such option, the optionee to (x) pay the Company an amount equal to the amount of tax the Company may be required to withhold in respect of any applicable federal, state or local tax as a result of the exercise of such option by the optionee, or (y) make such other arrangements with the Company which would enable the Company to pay such withholding tax, including, without limitation, holding back a number of shares issuable upon exercise of the option equal to the amount of such withholding tax, or permitting the optionee to deliver a promissory note in a form specified by the Board, or (z) a combination of the foregoing.
8. TERMINATION OF RELATIONSHIP-EXERCISE THEREAFTER. Except as provided below or as may otherwise be provided by the Board, upon the termination of employment or other service of an optionee with the Company for any reason, all options held by such optionee at the time of such termination shall immediately terminate and such optionee shall have no further right to purchase shares of Common Stock pursuant to such option; provided, however, that, unless such termination is by the Company for "Cause," all such options, to the extent exercisable on the date of such termination, shall remain exercisable until the earlier of (a) the expiration date of such option as fixed by the Board pursuant to Section 6 and (b) the 60th day following the date of such termination. For purposes of the foregoing, "Cause" shall mean (1) the optionee's conviction for commission of a felony or other crime; (2) the commission by the optionee of any act against the Company constituting willful misconduct, dishonesty, fraud, theft or embezzlement; (3) the optionee's failure, inability or refusal to
perform any of the material services, duties or responsibilities required of him by the Company, or to materially comply with the policies or procedures established from time to time by the Company, for any reason other than his illness or physical or mental incapacity; (4) the optionee's dependence, as determined in good faith by the Company, on any addictive substance, including, but not limited to, alcohol or any illegal or narcotic drugs; (5) the destruction of or material damage to Company property caused by the optionee's willful or grossly negligent conduct; and (6) the willful engaging by the optionee in any other conduct which is demonstrably injurious to the Company or its subsidiaries, monetarily or otherwise. Determination of Cause shall be made by the Board in its sole discretion. Notwithstanding the foregoing, if the optionee is a party to an employment agreement with the Company, "Cause" with respect to such optionee shall have the meaning set forth therein.
Except as otherwise provided by the Board and notwithstanding anything
in this Section 8 to the contrary, if an optionee's termination of employment is
by reason of the death, "permanent and total disability" (within the meaning of
Section 22(e)(3) of the Code) or "Retirement"of such optionee, all options held
by such optionee at the time of such termination shall become immediately vested
and exercisable in full and shall remain exercisable until the earlier of (a)
the expiration date of such option as fixed by the Board pursuant to Section 6
and (b) the 3rd anniversary of the date of such termination. Whether a
termination of employment or service is to be considered by reason of "permanent
and total disability" for purposes of this Plan shall be determined by the
Board, which determination shall be final and conclusive. For purposes of the
foregoing, "Retirement" shall mean the optionee's termination of employment or
other service from the Company after attainment of age 55 and completion of at
least 6 years of service with the Company. For purposes of the preceding
sentence, employment or other service with an entity prior to its becoming a
subsidiary or after its ceasing to be a subsidiary shall be disregarded.
9. NON-TRANSFERABILITY OF OPTIONS. During the lifetime of the optionee, options shall be exercisable only by the optionee, and options shall not be assignable or transferable by the optionee otherwise than by will or by the laws of descent and distribution. Following the optionee's death, options held by such optionee, to the extent exercisable, may be exercised by the executors or administrators or legatees or distributees of such optionee's estate.
10. ADJUSTMENT. The number of shares subject to the Plan and to options granted under the Plan shall be adjusted as follows: (a) in the event that the number of outstanding shares of Common Stock is changed by any stock dividend, stock split or combination of shares the number of shares subject to the Plan and to options granted hereunder shall be proportionately adjusted; (b) in the event of any merger, consolidation or reorganization of the Company with any other corporation of corporations, there shall be substituted, on an equitable basis as determined by the Board, for each share of Common Stock then subject to the Plan, whether or not at the time subject to outstanding options, the number and kind of shares of stock or other securities to which the holders of shares
of Common Stock will be entitled pursuant to the transaction; and (c) in the event of any other relevant change in the capitalization of the Company, the Board shall provide for an equitable adjustment in the number of shares of Common Stock then subject to the Plan, whether or not then subject to outstanding options. In the event of any such adjustment, the purchase price per share shall be proportionately adjusted.
11. NO IMPAIRMENT OF RIGHTS. Nothing contained in the Plan or any option granted pursuant to the Plan shall confer upon any optionee any right to be continued in the employment of the Company or any subsidiary of the Company or to be continued as a consultant to the Company or any subsidiary of the Company or interfere in any way with the right of the Company or its subsidiaries to terminate such employment or consulting relationship and/or to remove any optionee who is a director from service on the Board or any of it's subsidiaries at any time in accordance with the provisions of applicable law.
12. AMENDMENT OF PLAN. The Board may amend or discontinue the Plan at any time. However, no such amendments or discontinuance shall be made without the requisite approval of the stockholders of the Company if stockholder approval is required as a condition to the Plan continuing to comply with the provisions of Rule 16b-3 or Section 162(m) of the Code.
13. GOVERNANCE BY RULE 16B-3. The Plan is intended to comply with all applicable conditions of Rule 16b-3 and its successors promulgated under the Exchange Act, regardless of whether such conditions are set forth in the Plan. To the extent any provision of the Plan or action of the Plan administrators fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Plan administrators.
14. HOLDING PERIOD. From and after the registration of the Common Stock under Section 12 of the Exchange Act, anything contained in the Plan to the contrary notwithstanding, any disposition of an option otherwise permitted by the terms of the Plan, or of the Common Stock acquired upon exercise of an option, shall be subject to compliance with the requirements of Rule 16b-3 or its successors promulgated under the Exchange Act, applicable to such disposition, and any date, period or procedure specified or referred to in the Plan with respect to any such disposition shall be adjusted, if necessary so as to give effect to this Section 1.4.
15. EFFECTIVE DATE. On November 22, 1995, this Plan was adopted and authorized by the Board and approved by the stockholders of the Company, This plan shall be deemed to have become effective on November 22, 1995.
EXHIBIT 10.4
AUTONATION, INC.
1997 EMPLOYEE STOCK OPTION PLAN
(As Amended and Restated on April 17, 2000)
AutoNation, Inc. (the "Company") hereby adopts this AutoNation, Inc. 1997 Employee Stock Option Plan (the "Plan"), amended and restated as of November 2, 1998, the terms of which shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of The Company by providing eligible individuals (as designated pursuant to Section 4 below) with an opportunity to acquire or increase a proprietary interest in the Company, which thereby will create a stronger incentive to expend maximum effort for the growth and success of the Company and its subsidiaries, and will encourage such eligible individuals to remain in the employ of the Company or one or more of its subsidiaries. Each stock option granted under the Plan (an "Option") shall be an option that is not intended to constitute an "incentive stock option" ("Incentive Stock Option") within the meaning of Section 422 of the Internal Revenue Code of 1986, or the corresponding provision of any subsequently-enacted tax statute, as amended from time to time (the "Code") unless such Option is granted to an employee of the Company or a "subsidiary corporation" (a "Subsidiary") thereof within the meaning of Section 424 (f) of the Code and is specifically designated at the time of grant as being an Incentive Stock Option. Any Option so designated shall constitute an Incentive Stock Option only to the extent that it does not exceed the limitations set forth in Section 7 below.
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of Directors of the Company (the "Board"), which shall have the full power and authority to take all actions, and to make all determinations required or provided for under the Plan or any Option granted or Option Agreement (as defined in Section 8 below) entered into under the Plan and all such other actions and determinations not inconsistent with the specific terms and provisions of the Plan deemed by the Board to be necessary or appropriate to the administration of the Plan or any Option granted or Option Agreement entered into hereunder. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting at which any issue relating to the Plan is properly raised for consideration or without a meeting by written consent of the Board executed in accordance with the Company's Certificate of Incorporation
and Bylaws, and with applicable law. The interpretation and construction by the Board of any provision of the Plan or of any Option granted or Option Agreement entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint a Stock Option Committee (the "Committee") consisting of not less than two members of the Board, none of whom shall be an officer or other salaried employee of the Company or any Subsidiary, and each of whom shall qualify in all respects as a "non-employee director" as defined in Rule 16b-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the "Exchange Act") and an "outside director" for purposes of Section 162(m) of the Code. The Board, in its sole discretion, may provide that the role of the Committee shall be limited to making recommendations to the Board concerning any determinations to be made and actions to be taken by the Board pursuant to or with respect to the Plan, or the Board may delegate to the Committee such powers and authorities related to the administration of the Plan, as set forth in Section 2(a) above, as the Board shall determine, consistent with the Certificate of Incorporation and Bylaws of the Company and applicable law. The Board may remove members, add members, and fill vacancies on the Committee from time to time, all in accordance with the Company's Certificate of Incorporation and Bylaws, and with applicable law. The majority vote of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any Option granted or Option Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken by or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in Section 2(b) above. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final and conclusive.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan shall be shares of common stock, $.01 par value, of the Company (the "Stock"), which shares may be treasury shares or authorized but unissued shares. The
number of shares of Stock that may be issued pursuant to Options granted under the Plan shall not exceed in the aggregate 20,000,000 shares, subject to adjustment as provided in Section 17 below. If any Option expires, terminates, or is terminated or canceled for any reason prior to exercise in full, the shares of Stock that were subject to the unexercised portion of such Option shall be available for future Options granted under the Plan. Any Stock covered by an award (or portion of an award) granted under the Plan, which is forfeited or canceled, expires or is settled in cash, including the settlement of tax withholding obligations using Stock, shall be deemed not to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. Likewise, if. any Option is exercised by tendering shares of Stock, either actually or by attestation, to the Company as full or partial payment for such exercise under this Plan or any prior plan of the Company, only the number of shares issued net of the shares tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. Further, Stock issued under the Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of the Company acquiring another entity shall not reduce the maximum number of shares of Stock available for delivery.
4. ELIGIBILITY
(a) EMPLOYEES. Options may be granted under the Plan to any employee of the Company, a Subsidiary or any other entity of which on the relevant date at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions ("Voting Securities") are at the time owned directly or indirectly by the Company or any Subsidiary (an "Affiliate"), including any such employee who is an officer or director of the Company, a Subsidiary or an Affiliate, as the Board shall determine and designate from time to time prior to expiration or termination of the Plan. The maximum number of shares of Stock subject to Options that may be granted during any calendar year under the Plan to any executive officer or other employee of the Company or any Subsidiary or Affiliate whose compensation is or may be subject to Code ss.162(m) is 5,000,000 shares (subject to adjustment as provided in Section 17 hereof).
(b) INDEPENDENT CONTRACTORS. Options may be granted to independent contractors performing services for the Company or any Subsidiary or Affiliate as determined by the Board from time to time on the basis of their importance to the business of the Company or such Subsidiary or Affiliate. Independent contractors shall not be eligible to receive options intended to constitute
Incentive Stock Options. Nonemployee directors of the Company shall not be eligible to receive options under the Plan.
(c) MULTIPLE GRANTS. An individual may hold more than one Option, subject to such restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of adoption by the Board, which date is set forth below, subject to approval of the Plan, within one year of such effective date, by the stockholders of the Company by a majority of the votes present and entitled to vote at a duly held meeting of the stockholders at which a quorum representing a majority of all outstanding voting stock is present, either in person or by proxy or by written consent in accordance with the Company's Certificate of Incorporation and Bylaws; provided, however, that upon approval of the Plan by the stockholders of the Company as set forth above, all Options granted under the Plan on or after the effective date shall be fully effective as if the stockholders of the Company had approved the Plan on the effective date. If the stockholders fail to approve the Plan within one year of such effective date, any options granted hereunder shall be null and void and of no effect.
(b) TERM. The Plan shall terminate on the date 10 years from the effective date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any time and from time to time, prior to the date of termination of the Plan, grant to such eligible individuals as the Board may determine ("Optionees"), Options to purchase such number of shares of the Stock on such terms and conditions as the Board may determine. The date on which the Board approves the grant of an Option (or such later date as is specified by the Board) shall be considered the date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option intended to constitute an Incentive Stock Option (and so designated at the time of grant) shall qualify as an Incentive Stock Option only to the extent that the aggregate fair market value (determined at the time the
Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under the Plan and all other plans of the Optionee's employer corporation and its parent and subsidiary corporations within the meaning of Section 422(d) of the Code) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written agreements ("Option Agreements"), to be executed by the Company and by the Optionee, in such form or forms as the Board shall from time to time determine. Option Agreements covering Options granted from time to time or at the same time need not contain similar provisions; provided, however, that all such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option shall be not less than 100 percent of the fair market value of a share of the Stock which shall mean either the closing price of a share of the Stock on the business day prior to the date the option is granted or, with respect to annual grants of stock options commencing with the year 2000, the average of the closing price of a share of the Stock on the first three business days of the year as reported on the New York Stock Exchange, absent manifest error, or at a price otherwise fixed by the Board or by the Committee in good faith as the fair market value and stated in an option agreement with the Optionee (the "Option Price") provided, however, that in the event the Optionee would otherwise be ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b) (6) and 424(d) of the Code (relating to stock ownership of more than 10 percent), the Option Price of an Option that is intended to be an Incentive Stock Option shall be not less than 110 percent of the fair market value of a share of Stock at the time such Option is granted.
10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD. Each Option granted under the Plan shall terminate and all rights to purchase shares thereunder shall cease upon the expiration of ten years from the date such Option is granted, or on such date prior thereto as may be fixed by the Board and stated in the Option Agreement relating to such Option; PROVIDED, HOWEVER, that in the event the Optionee would otherwise be
ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b) (6) and 424(d) of the Code (relating to stock ownership of more than 10 percent), an Option granted to such Optionee that is intended to be an Incentive Stock Option shall in no event be exercisable after the expiration of five years from the date it is granted.
(b) VESTING AND LIMITATIONS ON EXERCISE. Except as otherwise provided herein, each Option shall become exercisable with respect to 25% of the total number of shares subject to the Option on the date that is 12 months after the date of its grant (the "Vesting Date") and with respect to an additional 25% of the number of such shares on each of the next three succeeding anniversaries of the Vesting Date; provided, however, that the Board may in its discretion provide that an Option may be exercised, in whole or in part, at any time and from time to time, over a period commencing on or after the date of grant and ending upon the expiration or termination of the Option, as the Board shall determine and set forth in the Option Agreement relating to such Option. Without limiting the foregoing, the Board, subject to the terms and conditions of the Plan, may in its sole discretion provide that an Option may be exercised immediately upon grant or that it may not be exercised in whole or in part for any period or periods of time during which such Option is outstanding; provided, however, that any vesting requirement or other such limitation on the exercise of an Option may be rescinded, modified or waived by the Board, in its sole discretion, at any time and from time to time after the date of grant of such Option, so as to accelerate the time at which the Option may be exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at its principal
office, addressed to the attention of the Stock Option Administrator, of written
notice of exercise, which notice shall specify the number of shares with respect
to which the Option is being exercised, and shall be accompanied by payment in
full of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to the Company of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to the Company that the Option
be exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to the Company by a broker
upon receipt of stock certificates from the Company) or a cashless exercise/loan
procedure (pursuant to which the optionees would obtain a margin loan from a
broker to fund the exercise) through a licensed broker acceptable to the Company
whereby the stock certificate or certificates for the shares of Stock for which
the Option is exercised will be delivered to such broker as the agent for the
individual exercising the Option and the broker will deliver to the Company cash
(or cash equivalents acceptable to the Company) equal to the Option Price for
the shares of Stock purchased pursuant to the exercise of the Option plus the
amount (if any) of federal and other taxes that the Company, may, in its
judgment, be required to withhold with respect to the exercise of the Option;
(iv) to the extent permitted by applicable law and under the terms of the Option
Agreement with respect to such Option, by the delivery of a promissory note of
the Optionee to the Company on such terms as shall be set out in such Option
Agreement; or (v) by a combination of the methods described in (I), (ii), (iii)
and (iv). The Optionee must also satisfy any tax obligations through delivery of
cash, Stock or withholding of shares of Stock by the Company. Payment in full of
the Option Price need not accompany the written notice of exercise if the Option
is exercised pursuant to the cashless exercise/sale procedure described above.
An attempt to exercise any Option granted hereunder other than as set forth
above shall be invalid and of no force and effect. Promptly after the exercise
of an Option, the individual exercising the Option shall be entitled to the
issuance of a Stock certificate or certificates evidencing his ownership of such
shares. A separate Stock certificate or certificates shall be issued for any
shares purchased pursuant to the exercise of an Option that is intended to be an
Incentive Stock Option, which certificate or certificates shall not include any
shares that were purchased pursuant to the exercise of an Option that is not an
Incentive Stock Option. An individual holding or exercising an Option shall have
none of the rights of a shareholder until the shares of Stock covered thereby
are fully paid and issued to him and, except as provided in Section 18 below, no
adjustment shall be made for dividends or other rights for which the record date
is prior to the date of such issuance.
(d) CHANGE IN CONTROL. In the event of a Change in Control (as defined below), except as the Board shall otherwise provide in an Option Agreement with respect to an Option granted under the Plan, all outstanding Options shall become immediately exercisable in full, without regard to any limitation on exercise imposed pursuant to Section 10(b) above, and, unless waived in advance of such Change in Control by the Board, each Optionee who is a director, an employee or a consultant of the Company or a Subsidiary or Affiliate at the time of such Change in Control shall have the right to require the Company to pay, in cancellation of such Option, an amount equal to the product of (i) the excess of
(x) the fair market value per share of the Stock over (y) the Option Price times
(ii) the number of shares of Stock specified by the Optionee in a written notice
to the Company (up to the full number of shares of Stock then subject to such
Option). For purposes of the Plan, a "Change in Control" shall be deemed to
occur if any person shall (a) acquire direct or indirect beneficial ownership of
more than 50% of the total combined voting power with respect to the election of
directors of the issued and outstanding stock of the Company (except that no
Change in Control shall be deemed to have occurred if the persons who were
stockholders of the Company immediately before such acquisition own all or
substantially all of the voting stock or other interests of such person
immediately after such transaction), or (b) have the power (whether as a result
of stock ownership, revocable or irrevocable proxies, contract or otherwise) or
ability to elect or cause the election of directors consisting at the time of
such election of a majority of the Board. A "person" for this purpose shall mean
any person, corporation, partnership, joint venture or other entity or any group
(as such term is defined for purposes of Section 13 (d) of the Exchange Act) and
a Person shall be deemed to be a beneficial owner as that term is used in Rule
13d-3 under the Exchange Act. The amount payable under this Section 10(e) shall
be remitted by the Company in cash or by certified or bank check, reduced by
applicable tax withholding.
(e) Notwithstanding any other provision of the Plan, no Option granted
to an Optionee under the Plan shall be exercisable in whole or in part prior to
the date the Plan is approved by the stockholders of the Company as provided in
Section 5 above.
11. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution, except that, upon approval by the Board, the Optionee may transfer an Option that is not intended to constitute an Incentive Stock Option (a) pursuant to a qualified domestic relations order as defined for purposes of the Employee Retirement Income Security Act of 1974, as amended, or (b) by gift: to a member of the "Family" (as defined below) of the Optionee, to or for the benefit of one or more organizations qualifying under Code ss.~501(c)(3) and 170(c)(2) (a "Charitable Organization") or to a trust for the exclusive benefit of the Optionee, one or more members of the Optionee's Family, one or more Charitable Organizations, or any combination of the foregoing, provided that any such transferee shall enter into a written agreement to be bound by the terms of this Agreement. For this purpose, "Family" shall mean the ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses of lineal descendants of the Optionee. During the lifetime of an Optionee to whom an
Incentive Stock Option is granted, only such Optionee (or, in the event of legal incapacity or incompetence, the Optionee's guardian or legal representative) may exercise the Incentive Stock Option.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) GENERAL. Except as otherwise provided in Section 12 (b) or 13 below or as may otherwise be provided by the Board, upon the termination of employment or other service of an Optionee with the Company, a Subsidiary, a spin-off corporation or an Affiliate for any reason, all Options held by such Optionee at the time of such termination shall immediately terminate and such Optionee shall have no further right to purchase shares of Stock pursuant to such Option; provided, however, that, unless such termination is by the Company for "Cause," all such Options, to the extent exercisable on the date of such termination, shall remain exercisable until the earlier of (a) the expiration date of such Option as fixed by the Board pursuant to Section 10(a) and (b) the 60th day following the date of such termination. For purposes of the foregoing, "Cause" shall mean (1) the Optionee's conviction for commission of a felony or other crime; (2) the commission by the Optionee of any act against the Company constituting willful misconduct, dishonesty, fraud, theft or embezzlement; (3) the Optionee's failure, inability or refusal to perform any of the material services, duties or responsibilities required of him by the Company, or to materially comply with the policies or procedures established from time to time by the Company, for any reason other than his illness or physical or mental incapacity; (4) the Optionee's dependence, as determined in good faith by the Company, on any addictive substance, including, but not limited to, alcohol or any illegal or narcotic drugs; (5) the destruction of or material damage to Company property caused by the Optionee's willful or grossly negligent conduct; and (6) the willful engaging by the Optionee in any other conduct which is demonstrably injurious to the Company or its subsidiaries, monetarily or otherwise. Determination of Cause shall be made by the Board in its sole discretion. Notwithstanding the foregoing, if the Optionee is a party to an employment agreement with the Company, "Cause" with respect to such Optionee shall have the meaning set forth therein.
(b) CHANGE IN OWNERSHIP OF SUBSIDIARY OR AFFILIATE. If an Optionee ceases to be an employee or an independent contractor of the Company or any Subsidiary following a "Change in Ownership" (as defined below) (whether because of the termination of employment or service of the Optionee, because the corporation or other entity by which the Optionee was employed or for which the Optionee was providing services as an independent contractor, ceases to be a Subsidiary or Affiliate or otherwise) then such options shall continue to vest according to the vesting schedule unless the Board determines otherwise. A
"Change in Ownership" shall be deemed to have occurred with respect to an Optionee if (i) as a result of a merger, consolidation, reorganization, business combination, sale, exchange or other disposition of Voting Securities (as defined in Section 4 (a)) or other transaction, the corporation or other entity by which the Optionee is employed or for which the Optionee is providing services as an independent contractor ceases to be a Subsidiary or Affiliate of the Company and, immediately after such transaction, the persons who were stockholders of the Company immediately before such transaction (the "the Company Stockholders") do not own at least a majority of the Voting Securities of such corporation or other entity or (ii) there is a sale or other disposition of all or substantially all of the assets of the trade or business by which the Optionee is employed or for which the Optionee is providing services as an independent contractor and, immediately after such transaction, the Company or the Company Stockholders do not own at least a majority of the Voting Securities of a corporation or other entity that acquires such assets and engages in such trade or business.
(c) Whether a leave of absence or leave on military or government service shall constitute a termination of employment of service for purposes of the Plan shall be determined by the Board, which determination shall be final and conclusive. For purposes of the Plan, a termination of employment or service with the Company, a Subsidiary, a spin-off corporation or Affiliate shall not be deemed to occur if the Optionee is immediately thereafter employed by or otherwise providing services to the Company, any Subsidiary, any spin-off corporation or Affiliate.
13. RIGHTS IN THE EVENT OF DEATH, DISABILITY OR RETIREMENT
Except as otherwise provided by the Board and notwithstanding anything in Section 12 to the contrary, if an Optionee's termination of employment or service is by reason of the death, "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code) or "Retirement"of such Optionee, all Options held by such Optionee at the time of such termination shall become immediately vested and exercisable in full and shall remain exercisable until the earlier of (a) the expiration date of such Option as fixed by the Board pursuant to Section 10(a) and (b) the 3rd anniversary of the date of such termination. Whether a termination of employment or service is to be considered by reason of "permanent and total disability" for purposes of this Plan shall be determined by the Board, which determination shall be final and conclusive. For purposes of the foregoing, "Retirement" shall mean the Optionee's termination of employment or other service from the Company or a Subsidiary after attainment of age 55 and completion of at least 6 years of service with the Company or a Subsidiary. For purposes of the preceding sentence employment or other service
with an entity prior to its becoming a Subsidiary or after its ceasing to be a Subsidiary shall be disregarded.
14. USE OF PROCEEDS
The proceeds received by the Company from the sale of Stock pursuant to Options granted under the Plan shall constitute general funds of the Company.
15. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. The Company shall not be required to sell or issue any shares of Stock under any Option if the sale or issuance of such shares would constitute a violation by the individual exercising the Option or the Company of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
(b) COMPLIANCE WITH RULE 16B-3. The intent of this Plan is to qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board and shall not affect the validity of the Plan. In the event Rule l6b-3 is revised or replaced, the Board, or the Committee acting on behalf of the Board, may exercise discretion to modify this Plan in any respect necessary to satisfy the requirements of the revised exemption or its replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or terminate the Plan as to any shares of Stock as to which Options have not been granted; provided, however, that no amendment by the Board shall, without
approval by a majority of the votes present and entitled to vote at a duly held meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy, present and voting on the amendment, or by written consent in accordance with applicable state law and the Certificate of Incorporation and Bylaws of the Company, change the requirements as to eligibility to receive Options that are intended to qualify as Incentive Stock Options, increase the maximum number of shares of Stock in the aggregate that may be sold pursuant to Options that are intended to qualify as Incentive Stock Options granted under the Plan (except as permitted under Section 17 hereof) or modify the Plan so that Options granted under the Plan could not satisfy the applicable requirements of Code ss.162(m). Except as permitted under Section 17 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the holder of the Option, alter or impair rights or obligations under any Option theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) ADJUSTMENT FOR CORPORATE TRANSACTIONS. The Board may determine that a corporate transaction has affected the price of the Stock such than an adjustment or adjustments to outstanding awards are required to preserve (or prevent enlargement of) the benefits or potential benefits intended at time of grant. For this purpose a corporate transaction may include, but is not limited to, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares of Stock, or other similar occurrence. In the event of such a corporate transaction, the Board may, in such manner as the Board deems equitable, adjust (i) the number and kind shares of Stock which may be delivered under the Plan pursuant to Section 3; (ii) the number and kind of shares of Stock subject to outstanding awards; and (iii) the exercise price of outstanding stock options.
(b) DISSOLUTION OR LIQUIDATION; REORGANIZATION IN WHICH THE COMPANY IS
NOT THE SURVIVING CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution
or liquidation of the Company the Plan and all Options outstanding hereunder
shall terminate. In the event of any termination of the Plan under this Section
17(b), each individual holding an Option shall have the right, immediately prior
to the occurrence of such termination and during such reasonable period as the
Board in its sole discretion shall determine and designate, to exercise such
Option in whole or in part, whether or not such Option was otherwise exercisable
at the time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above. In connection
with a merger, consolidation, reorganization or other business combination
of the Company with one or more other entities in which the Company is not the surviving entity, or upon a sale of all or substantially all of the assets of the Company to another entity, or upon any transaction (including, without limitation, a merger or reorganization in which the Company is the surviving corporation) that results in any person or entity (or persons or entities acting as a group or otherwise in concert) owning more than 50 percent of the combined voting power of all classes of stock of the Company, the Company and the acquiring or surviving entity shall provide for the continuation of the Plan and the assumption of the Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and exercise prices. The Board shall send prior written notice of the occurrence of an event described in this Section 17(b) to all individuals who hold Options not later than the time at which the Company gives notice to its stockholders that such event is proposed.
(c) NO LIMITATIONS ON CORPORATION. The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement entered into pursuant to the Plan shall be construed to confer upon any individual the right to remain in the employ of the Company, any Subsidiary, any spin-off corporation or Affiliate, or to interfere in any way with the right and authority of the Company, any Subsidiary, any spinoff corporation or Affiliate either to increase or decrease the compensation of any individual at any time, or to terminate any employment or other relationship between any individual and the Company, any Subsidiary, any spin-off corporation or Affiliate.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular
individual or individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options or stock appreciation rights otherwise than under the Plan.
This Plan was duly adopted and approved by the Board of Directors of the Company effective as of the 2nd day of January, 1997, subject to approval and adoption by the stockholders of the Company.
This Plan was duly approved and adopted by the stockholders of the Company at a meeting held the 13th day of May, 1997.
This Plan was duly amended by the Board of Directors of the Company effective as of the 2nd day of November, 1998.
This Plan was duly amended by the Board of Directors of the Company effective as of the 6th day of January, 1999.
This Plan was duly amended and restated by the Board of Directors of the Company effective as of April 17, 2000.
EXHIBIT 10.5
AUTONATION, INC.
1998 EMPLOYEE STOCK OPTION PLAN
(As Amended and Restated on April 17, 2000)
AutoNation, Inc. (the "Company") hereby adopts this AutoNation, Inc. 1998 Employee Stock Option Plan (the "Plan"), the terms of which shall be as follows:
1. PURPOSE
The Plan is intended to advance the interests of the Company by providing eligible individuals (as designated pursuant to Section 4 below) with an opportunity to acquire or increase a proprietary interest in the Company , which thereby will create a stronger incentive to expend maximum effort for the growth and success of the Company and its subsidiaries, and will encourage such eligible individuals to remain in the employ of the Company or one or more of its subsidiaries. Each stock option granted under the Plan (an "Option") shall be an option that is not intended to constitute an "incentive stock option" ("Incentive Stock Option") within the meaning of Section 422 of the Internal Revenue Code of 1986, or the corresponding provision of any subsequently-enacted tax statute, as amended from time to time (the "Code") unless such Option is granted to an employee of the Company or a "subsidiary corporation" (a "Subsidiary") thereof within the meaning of Section 424(f) of the Code and is specifically designated at the time of grant as being an Incentive Stock Option. Any Option so designated shall constitute an Incentive Stock Option only to the extent that it does not exceed the limitations set forth in Section 7 below.
2. ADMINISTRATION
(a) BOARD. The Plan shall be administered by the Board of Directors of the Company (the "Board"), which shall have the full power and authority to take all actions, and to make all determinations required or provided for under the Plan or any Option granted or Option Agreement (as defined in Section 8 below) entered into under the Plan and all such other actions and determinations not inconsistent with the specific terms and provisions of the Plan deemed by the Board to be necessary or appropriate to the administration of the Plan or any Option granted or Option Agreement entered into hereunder. All such actions and determinations shall be by the affirmative vote of a majority of the members of the Board present at a meeting at which any issue relating to the Plan is properly raised for consideration or without a meeting by written consent of the Board executed in accordance with the Company 's Certificate of Incorporation and Bylaws, and with applicable law. The interpretation and construction by the
Board of any provision of the Plan or of any Option granted or Option Agreement entered into hereunder shall be final and conclusive.
(b) COMMITTEE. The Board may from time to time appoint a Stock Option Committee (the "Committee") consisting of not less than two members of the Board, none of whom shall be an officer or other salaried employee of the Company or any Subsidiary, and each of whom shall qualify in all respects as an "outside director" for purposes of Section 162(m) of the Code. The Board, in its sole discretion, may provide that the role of the Committee shall be limited to making recommendations to the Board concerning any determinations to be made and actions to be taken by the Board pursuant to or with respect to the Plan, or the Board may delegate to the Committee such powers and authorities related to the administration of the Plan, as set forth in Section 2 (a) above, as the Board shall determine, consistent with the Certificate of Incorporation and Bylaws of the Company and applicable law. The Board may remove members, add members, and fill vacancies on the Committee from time to time, all in accordance with the Company 's Certificate of Incorporation and Bylaws, and with applicable law. The majority vote of the Committee, or acts reduced to or approved in writing by a majority of the members of the Committee, shall be the valid acts of the Committee.
(c) NO LIABILITY. No member of the Board or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Option granted or Option Agreement entered into hereunder.
(d) DELEGATION TO THE COMMITTEE. In the event that the Plan or any Option granted or Option Agreement entered into hereunder provides for any action to be taken by or determination to be made by the Board, such action may be taken by or such determination may be made by the Committee if the power and authority to do so has been delegated to the Committee by the Board as provided for in Section 2(b) above. Unless otherwise expressly determined by the Board, any such action or determination by the Committee shall be final and conclusive.
3. STOCK
The stock that may be issued pursuant to Options granted under the Plan shall be shares of common stock, $.01 par value, of the Company (the "Stock"), which shares may be treasury shares or authorized but unissued shares. The number of shares of Stock that may be issued pursuant to Options granted under the Plan shall not exceed in the aggregate 30,000,000 shares, subject to adjustment as provided in Section 17 below. If any Option expires, terminates,
or is terminated or canceled for any reason prior to exercise in full, the shares of Stock that were subject to the unexercised portion of such Option shall be available for future Options granted under the Plan. Any Stock covered by an award (or portion of an award) granted under the Plan, which is forfeited or canceled, expires or is settled in cash, including the settlement of tax withholding obligations using Stock, shall be deemed not to have been delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. Likewise, if any Option is exercised by tendering shares of Stock, either actually or by attestation, to the Company as full or partial payment for such exercise under this Plan or any prior plan of the Company , only the number of shares issued net of the shares tendered shall be deemed delivered for purposes of determining the maximum number of shares of Stock available for delivery under the Plan. Further, Stock issued under the Plan through the settlement, assumption or substitution of outstanding awards or obligations to grant future awards as a condition of the Company acquiring another entity shall not reduce the maximum number of shares of Stock available for delivery.
4. ELIGIBILITY
(a) EMPLOYEES. Options may be granted under the Plan to any employee of the Company , a Subsidiary or any other entity of which on the relevant date at least a majority of the securities or other ownership interest having ordinary voting power (absolutely or contingently) for the election of directors or other persons performing similar functions ("Voting Securities") are at the time owned directly or indirectly by the Company or any Subsidiary (an "Affiliate"), including any such employee who is an officer or director of the Company , a Subsidiary or an Affiliate, as the Board shall determine and designate from time to time prior to expiration or termination of the Plan. The maximum number of shares of Stock subject to Options that may be granted during any calendar year under the Plan to any executive officer or other employee of the Company or any Subsidiary or Affiliate whose compensation is or may be subject to Code ss.162(m) is 5,000,000 shares (subject to adjustment as provided in Section 17 hereof).
(b) INDEPENDENT CONTRACTORS. Options may be granted to independent contractors performing services for the Company or any Subsidiary or Affiliate as determined by the Board from time to time on the basis of their importance to the business of the Company or such Subsidiary or Affiliate. Independent contractors shall not be eligible to receive options intended to constitute Incentive Stock Options. Nonemployee directors of the Company shall not be eligible to receive options under the Plan.
(c) MULTIPLE GRANTS. An individual may hold more than one Option, subject to such restrictions as are provided herein.
5. EFFECTIVE DATE AND TERM OF THE PLAN
(a) EFFECTIVE DATE. The Plan shall be effective as of the date of adoption by the Board, which date is set forth below, subject to approval of the Plan, within one year of such effective date, by the stockholders of the Company by a majority of the votes present and entitled to vote at a duly held meeting of the stockholders at which a quorum representing a majority of all outstanding voting stock is present, either in person or by proxy or by written consent in accordance with the Company 's Certificate of Incorporation and Bylaws; provided, however, that upon approval of the Plan by the stockholders of the Company as set forth above, all Options granted under the Plan on or after the effective date shall be fully effective as if the stockholders of the Company had approved the Plan on the effective date. If the stockholders fail to approve the Plan within one year of such effective date, any options granted hereunder shall be null and void and of no effect.
(b) TERM. The Plan shall terminate on the date 10 years from the effective date.
6. GRANT OF OPTIONS
Subject to the terms and conditions of the Plan, the Board may, at any time and from time to time, prior to the date of termination of the Plan, grant to such eligible individuals as the Board may determine ("Optionees"), Options to purchase such number of shares of the Stock on such terms and conditions as the Board may determine. The date on which the Board approves or ratifies the grant of an Option (or if the grant is ratified by the Board or Committee such earlier date as is specified by the Board or Committee) shall be considered the date on which such Option is granted.
7. LIMITATION ON INCENTIVE STOCK OPTIONS
An Option intended to constitute an Incentive Stock Option (and so designated at the time of grant) shall qualify as an Incentive Stock Option only to the extent that the aggregate fair market value (determined at the time the Option is granted) of the stock with respect to which Incentive Stock Options are exercisable for the first time by the Optionee during any calendar year (under the Plan and all other plans of the Optionee's employer corporation and
its parent and subsidiary corporations within the meaning of Section 422(d) of the Code) does not exceed $100,000. This limitation shall be applied by taking Options into account in the order in which they were granted.
8. OPTION AGREEMENTS
All Options granted pursuant to the Plan shall be evidenced by written agreements ("Option Agreements"), to be executed by the Company and by the Optionee, in such form or forms as the Board shall from time to time determine. Option Agreements covering Options granted from time to time or at the same time need not contain similar provisions; provided, however, that all such Option Agreements shall comply with all terms of the Plan.
9. OPTION PRICE
The purchase price of each share of the Stock subject to an Option shall be not less than 100 percent of the fair market value of a share of the Stock which shall mean either the closing price of a share of the Stock on the business day prior to the date the Option is granted or with respect to annual grants of stock options commencing with the year 2000, the average of the closing price of a share of the Stock on the first three business days of the year as reported on the New York Stock Exchange, absent manifest error, or a price otherwise fixed by the Board or the Committee in good faith as the fair market value and stated in an Option Agreement with the Optionee (the "Option Price"); provided however, that in the event that the Optionee would otherwise be ineligible to receive an Incentive Stock Option by reason of the provisions of Section 422(b)(6) and 424(d) of the Code (relating to stock ownership of more than 10 percent), the Option Price of an Option that is intended to be an Incentive Stock Option shall be not less than 110 percent of the fair market value of a share of Stock at the time such Option is granted.
10. TERM AND EXERCISE OF OPTIONS
(a) OPTION PERIOD. Each Option granted under the Plan shall terminate and all rights to purchase shares thereunder shall cease upon the expiration of ten years from the date such Option is granted, or on such date prior thereto as may be fixed by the Board and stated in the Option Agreement relating to such Option; provided, however, that in the event the Optionee would otherwise be ineligible to receive an Incentive Stock Option by reason of the provisions of Sections 422(b)(6) and 424(d) of the Code (relating to stock ownership of more
than 10 percent), an Option granted to such Optionee that is intended to be an Incentive Stock Option shall in no event be exercisable after the expiration of five years from the date it is granted.
(b) VESTING AND LIMITATIONS ON EXERCISE. Except as otherwise provided herein, each Option shall become exercisable with respect to 25% of the total number of shares subject to the Option on the date that is 12 months after the date of its grant (the "Vesting Date") and with respect to an additional 25% of the number of such shares on each of the next three succeeding anniversaries of the Vesting Date; provided, however, that the Board may in its discretion provide that an Option may be exercised, in whole or in part, at any time and from time to time, over a period commencing on or after the date of grant and ending upon the expiration or termination of the Option, as the Board shall determine and set forth in the Option Agreement relating to such Option. Without limiting the foregoing, the Board, subject to the terms and conditions of the Plan, may in its sole discretion provide that an Option may be exercised immediately upon grant or that it may not be exercised in whole or in part for any period or periods of time during which such Option is outstanding; provided, however, that any vesting requirement or other such limitation on the exercise of an Option may be rescinded, modified or waived by the Board, in its sole discretion, at any time and from time to time after the date of grant of such Option, so as to accelerate the time at which the Option may be exercised.
(c) METHOD OF EXERCISE. An Option that is exercisable hereunder may be
exercised by delivery to the Company on any business day, at its principal
office, addressed to the attention of the Stock Option Administrator, of written
notice of exercise, which notice shall specify the number of shares with respect
to which the Option is being exercised, and shall be accompanied by payment in
full of the Option Price of the shares for which the Option is being exercised,
except as provided below. The minimum number of shares of Stock with respect to
which an Option may be exercised, in whole or in part, at any time shall be the
lesser of 100 shares or the maximum number of shares available for purchase
under the Option at the time of exercise. Payment of the Option Price for the
shares of Stock purchased pursuant to the exercise of an Option shall be made
(i) in cash or in cash equivalents; (ii) through the tender to the Company of
shares of Stock, which shares shall be valued, for purposes of determining the
extent to which the Option Price has been paid thereby, at their fair market
value (determined in the manner described in Section 9 above) on the date of
exercise; (iii) by delivering a written direction to the Company that the Option
be exercised pursuant to a "cashless" exercise/sale procedure (pursuant to which
funds to pay for exercise of the Option are delivered to the Company by a
broker, upon receipt of stock certificates from the Company ) or a cashless
exercise/loan procedure (pursuant to which the optionees would obtain a margin
loan from a broker to fund the exercise) through a licensed broker acceptable to
the Company whereby the stock certificate or certificates for the shares of
Stock for which the Option is exercised will be delivered to such broker as the
agent for the individual exercising the Option and the broker will deliver to
the Company cash (or cash equivalents acceptable to the Company ) equal to the
Option Price for the shares of Stock purchased pursuant to the exercise of the
Option plus the amount (if any) of federal and other taxes that the Company ,
may, in its judgment, be required to withhold with respect to the exercise of
the Option; (iv) to the extent permitted by applicable law and under the terms
of the Option Agreement with respect to such Option, by the delivery of a
promissory note of the Optionee to the Company on such terms as shall be set out
in such Option Agreement; or (v) by a combination of the methods described in
(i), (ii), (iii) and (iv). The Optionee must also satisfy any tax obligations
through delivery of cash, Stock or withholding of shares of Stock by the
Company. Payment in full of the Option Price need not accompany the written
notice of exercise if the Option is exercised pursuant to the cashless
exercise/sale procedure described above. An attempt to exercise any Option
granted hereunder other than as set forth above shall be invalid and of no force
and effect. Promptly after the exercise of an Option, the individual exercising
the Option shall be entitled to the issuance of a Stock certificate or
certificates evidencing his ownership of such shares. A separate Stock
certificate or certificates shall be issued for any shares purchased pursuant to
the exercise of an Option that is intended to be an Incentive Stock Option,
which certificate or certificates shall not include any shares that were
purchased pursuant to the exercise of an Option that is not an Incentive Stock
Option. An individual holding or exercising an Option shall have none of the
rights of a shareholder until the shares of Stock covered thereby are fully paid
and issued to him and, except as provided in Section 18 below, no adjustment
shall be made for dividends or other rights for which the record date is prior
to the date of such issuance.
(d) CHANGE IN CONTROL. In the event of a Change in Control (as defined
below), except as the Board shall otherwise provide in an Option Agreement with
respect to an Option granted under the Plan, all outstanding Options shall
become immediately exercisable in full, without regard to any limitation on
exercise imposed pursuant to Section 10(b) above, and, unless waived in advance
of such Change in Control by the Board, each Optionee who is a director, an
employee or a consultant of the Company or a Subsidiary or Affiliate at the time
of such Change in Control shall have the right to require the Company to pay, in
cancellation of such Option, an amount equal to the product of (i) the excess of
(x) the fair market value per share of the Stock over (y) the Option Price times
(ii) the number of shares of Stock specified by the Optionee in a written notice
to the Company (up to the full number of shares of Stock then subject to such Option). For purposes of the Plan, a "Change in Control" shall be deemed to occur if any person shall (a) acquire direct or indirect beneficial ownership of more than 50% of the total combined voting power with respect to the election of directors of the issued and outstanding stock of the Company (except that no Change in Control shall be deemed to have occurred if the persons who were stockholders of the Company immediately before such acquisition own all or substantially all of the voting stock or other interests of such person immediately after such transaction), or (b) have the power (whether as a result of stock ownership, revocable or irrevocable proxies, contract or otherwise) or ability to elect or cause the election of directors consisting at the time of such election of a majority of the Board. A "person" for this purpose shall mean any person, corporation, partnership, joint venture or other entity or any group (as such term is defined for purposes of Section 13(d) of the Exchange Act) and a person shall be deemed to be a beneficial owner as that term is used in Rule 13d-3 under the Exchange Act. The amount payable under this Section 10(e) shall be remitted by the Company in cash or by certified or bank check, reduced by applicable tax withholding.
(e) Notwithstanding any other provision of the Plan, no Option granted
to an Optionee under the Plan shall be exercisable in whole or in part prior to
the date the Plan is approved by the stockholders of the Company as provided in
Section 5 above.
11. TRANSFERABILITY OF OPTIONS
No Option shall be assignable or transferable by the Optionee to whom it is granted, other than by will or the laws of descent and distribution, except that, upon approval by the Board, the Optionee may transfer an Option that is not intended to constitute an Incentive Stock Option (a) pursuant to a qualified domestic relations order as defined for purposes of the Employee Retirement Income Security Act of 1974, as amended, or (b) by gift: to a member of the "Family" (as defined below) of the Optionee, to or for the benefit of one or more organizations qualifying under Code ss.~50l(c)(3) and 170(c)(2) (a "Charitable Organization") or to a trust for the exclusive benefit of the Optionee, one or more members of the Optionee's Family, one or more Charitable Organizations, or any combination of the foregoing, provided that any such transferee shall enter into a written agreement to be bound by the terms of this Agreement. For this purpose, "Family" shall mean the ancestors, spouse, siblings, spouses of siblings, lineal descendants and spouses of lineal descendants of the Optionee. During the lifetime of an Optionee to whom an Incentive Stock Option is granted, only such Optionee (or, in the event of legal incapacity or incompetence, the Optionee's guardian or legal representative) may exercise the Incentive Stock Option.
12. TERMINATION OF EMPLOYMENT OR SERVICE
(a) GENERAL. Except as otherwise provided in Section 12 (b) or 13 below or as may otherwise be provided by the Board, upon the termination of employment or other service of an Optionee with the Company , a Subsidiary, a spin-off corporation or an Affiliate for any reason, all Options held by such Optionee at the time of such termination shall immediately terminate and such Optionee shall have no further right to purchase shares of Stock pursuant to such Option; provided, however, that, unless such termination is by the Company for "Cause," all such Options, to the extent exercisable on the date of such termination, shall remain exercisable until the earlier of (a) the expiration date of such Option as fixed by the Board pursuant to Section 10(a) and (b) the 60th day following the date of such termination. For purposes of the foregoing, "Cause" shall mean (1) the Optionee's conviction for commission of a felony or other crime; (2) the commission by the Optionee of any act against the Company constituting willful misconduct, dishonesty, fraud, theft or embezzlement; (3) the Optionee's failure, inability or refusal to perform any of the material services, duties or responsibilities required of him by the Company , or to materially comply with the policies or procedures established from time to time by the Company , for any reason other than his illness or physical or mental incapacity; (4) the Optionee's dependence, as determined in good faith by the Company , on any addictive substance, including, but not limited to, alcohol or any illegal or narcotic drugs; (5) the destruction of or material damage to Company property caused by the Optionee's willful or grossly negligent conduct; and (6) the willful engaging by the Optionee in any other conduct which is demonstrably injurious to the Company or its subsidiaries, monetarily or otherwise. Determination of Cause shall be made by the Board in its sole discretion. Notwithstanding the foregoing, if the Optionee is a party to an employment agreement with the Company , "Cause" with respect to such Optionee shall have the meaning set forth therein.
(b) CHANGE IN OWNERSHIP OF SUBSIDIARY OR AFFILIATE. If an Optionee ceases to be an employee or an independent contractor of the Company or any Subsidiary, spin-off corporation or Affiliate following a "Change in Ownership" (as defined below) (whether because of the termination of employment or service of the Optionee, because the corporation or other entity by which the Optionee was employed or for which the Optionee was providing services as an independent contractor, ceases to be a Subsidiary or Affiliate or otherwise) then such options shall continue to vest according to the vesting schedule unless the Board determines otherwise. A "Change in Ownership" shall be deemed to have occurred with respect to an Optionee if (i) as a result of a merger, consolidation, reorganization, business combination, sale, exchange or other
disposition of Voting Securities (as defined in Section 4(a)) or other transaction, the corporation or other entity by which the Optionee is employed or for which the Optionee is providing services as an independent contractor ceases to be a Subsidiary or Affiliate of the Company and, immediately after such transaction, the persons who were stockholders of the Company immediately before such transaction (the "the Company Stockholders") do not own at least a majority of the Voting Securities of such corporation or other entity or (ii) there is a sale or other disposition of all or substantially all of the assets of the trade or business by which the Optionee is employed or for which the Optionee is providing services as an independent contractor and, immediately after such transaction, the Company or the Company Stockholders do not own at least a majority of the Voting Securities of a corporation or other entity that acquires such assets and engages in such trade or business.
(c) Whether a leave of absence or leave on military or government service shall constitute a termination of employment of service for purposes of the Plan shall be determined by the Board, which determination shall be final and conclusive. For purposes of the Plan, a termination of employment or service with the Company , a Subsidiary, a spin-off corporation or Affiliate shall not be deemed to occur if the Optionee is immediately thereafter employed by or otherwise providing services to the Company , any Subsidiary, any spin-off corporation or Affiliate.
13. RIGHTS IN THE EVENT OF DEATH, DISABILITY OR RETIREMENT
Except as otherwise provided by the Board and notwithstanding anything in Section 12 to the contrary, if an Optionee's termination of employment or service is by reason of the death, "permanent and total disability" (within the meaning of Section 22(e)(3) of the Code) or "Retirement"of such Optionee, all Options held by such Optionee at the time of such termination shall become immediately vested and exercisable in full and shall remain exercisable until the earlier of (a) the expiration date of such Option as fixed by the Board pursuant to Section 10(a) and (b) the 3rd anniversary of the date of such termination. Whether a termination of employment or service is to be considered by reason of "permanent and total disability" for purposes of this Plan shall be determined by the Board, which determination shall be final and conclusive. For purposes of the foregoing, "Retirement" shall mean the Optionee's termination of employment or other service from the Company or a Subsidiary after attainment of age 55 and completion of at least 6 years of service with the Company or a Subsidiary. For purposes of the preceding sentence employment or other service with an entity prior to its becoming a Subsidiary or after its ceasing to be a Subsidiary shall be disregarded.
14. USE OF PROCEEDS
The proceeds received by the Company from the sale of Stock pursuant to Options granted under the Plan shall constitute general funds of the Company .
15. REQUIREMENTS OF LAW
(a) VIOLATIONS OF LAW. the Company shall not be required to sell or issue any shares of Stock under any Option if the sale or issuance of such shares would constitute a violation by the individual exercising the Option or the Company of any provisions of any law or regulation of any governmental authority, including without limitation any federal or state securities laws or regulations. Any determination in this connection by the Board shall be final, binding, and conclusive. The Company shall not be obligated to take any affirmative action in order to cause the exercise of an Option or the issuance of shares pursuant thereto to comply with any law or regulation of any governmental authority. As to any jurisdiction that expressly imposes the requirement that an Option shall not be exercisable unless and until the shares of Stock covered by such Option are registered or are subject to an available exemption from registration, the exercise of such Option (under circumstances in which the laws of such jurisdiction apply) shall be deemed conditioned upon the effectiveness of such registration or the availability of such an exemption.
(b) COMPLIANCE WITH RULE 16B-3. The intent of this Plan is to qualify for the exemption provided by Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan does not comply with the requirements of Rule 16b-3, it shall be deemed inoperative to the extent permitted by law and deemed advisable by the Board and shall not affect the validity of the Plan. In the event Rule l6b-3 is revised or replaced, the Board, or the Committee acting on behalf of the Board, may exercise discretion to modify this Plan in any respect necessary to satisfy the requirements of the revised exemption or its replacement.
16. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, at any time and from time to time, amend, suspend or terminate the Plan as to any shares of Stock as to which Options have not been granted; provided, however, that no amendment by the Board shall, without approval by a majority of the votes present and entitled to vote at a duly held meeting of the stockholders of the Company at which a quorum representing a majority of all outstanding voting stock is, either in person or by proxy,
present and voting on the amendment, or by written consent in accordance with applicable state law and the Certificate of Incorporation and Bylaws of the Company , change the requirements as to eligibility to receive Options that are intended to qualify as Incentive Stock Options, increase the maximum number of shares of Stock in the aggregate that may be sold pursuant to Options that are intended to qualify as Incentive Stock Options granted under the Plan (except as permitted under Section 17 hereof) or modify the Plan so that Options granted under the Plan could not satisfy the applicable requirements of Code ss.162 (m). Except as permitted under Section 17 hereof, no amendment, suspension or termination of the Plan shall, without the consent of the holder of the Option, alter or impair rights or obligations under any Option theretofore granted under the Plan.
17. EFFECT OF CHANGES IN CAPITALIZATION
(a) ADJUSTMENT FOR CORPORATE TRANSACTIONS. The Board may determine that a corporate transaction has affected the price of the Stock such than an adjustment or adjustments to outstanding awards are required to preserve (or prevent enlargement of) the benefits or potential benefits intended at time of grant. For this purpose a corporate transaction may include, but is not limited to, any stock dividend, stock split, extraordinary cash dividend, recapitalization, reorganization, merger, consolidation, split-up, spin-off, combination or exchange of shares of Stock, or other similar occurrence. In the event of such a corporate transaction, the Board may, in such manner as the Board deems equitable, adjust (i) the number and kind shares of Stock which may be delivered under the Plan pursuant to Section 3; (ii) the number and kind of shares of Stock subject to outstanding awards; and (iii) the exercise price of outstanding stock options.
(b) DISSOLUTION OR LIQUIDATION; REORGANIZATION IN WHICH THE COMPANY IS
NOT THE SURVIVING CORPORATION OR SALE OF ASSETS OR STOCK. Upon the dissolution
or liquidation of the Company the Plan and all Options outstanding hereunder
shall terminate. In the event of any termination of the Plan under this Section
17 (b), each individual holding an Option shall have the right, immediately
prior to the occurrence of such termination and during such reasonable period as
the Board in its sole discretion shall determine and designate, to exercise such
Option in whole or in part, whether or not such Option was otherwise exercisable
at the time such termination occurs and without regard to any vesting or other
limitation on exercise imposed pursuant to Section 10(b) above. In connection
with a merger, consolidation, reorganization or other business combination of
the Company with one or more other entities in which the Company is not the
surviving entity, or upon a sale of all or substantially all of the assets of
the Company to another entity, or upon any transaction (including, without
limitation, a merger or reorganization in which the Company is the surviving corporation) that results in any person or entity (or persons or entities acting as a group or otherwise in concert) owning more than 50 percent of the combined voting power of all classes of stock of the Company, the Company and the acquiring or surviving entity shall provide for the continuation of the Plan and the assumption of the Options theretofore granted, or for the substitution for such Options of new options covering the stock of a successor entity, or a parent or subsidiary thereof, with appropriate adjustments as to the number and kinds of shares and exercise prices. The Board shall send prior written notice of the occurrence of an event described in this Section 17 (b) to all individuals who hold Options not later than the time at which the Company gives notice to its stockholders that such event is proposed.
(c) NO LIMITATIONS ON CORPORATION. The grant of an Option pursuant to the Plan shall not affect or limit in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge, consolidate, dissolve or liquidate, or to sell or transfer all or any part of its business or assets.
18. DISCLAIMER OF RIGHTS
No provision in the Plan or in any Option granted or Option Agreement entered into pursuant to the Plan shall be construed to confer upon any individual the right to remain in the employ of the Company , any Subsidiary, any spin-off corporation or Affiliate, or to interfere in any way with the right and authority of the Company , any Subsidiary, any spin-off corporation or Affiliate either to increase or decrease the compensation of any individual at any time, or to terminate any employment or other relationship between any individual and the Company , any Subsidiary, any spin-off corporation or Affiliate.
19. NON-EXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan nor the submission of the Plan to the stockholders of the Company for approval shall be construed as creating any limitations upon the right and authority of the Board to adopt such other incentive compensation arrangements (which arrangements may be applicable either generally to a class or classes of individuals or specifically to a particular individual or individuals) as the Board in its discretion determines desirable, including, without limitation, the granting of stock options or stock appreciation rights otherwise than under the Plan.
This Plan was duly adopted and approved by the Board of Directors of the Company effective as of the 3rd day of February, 1998, subject to approval and adoption by the stockholders of the Company .
This Plan was duly approved and adopted by the stockholders of the Company at a meeting held the 20th day of May, 1998.
This Plan was duly amended by the Board of Directors of the Company effective as of the 2nd day of November, 1998.
This Plan was duly amended by the Board of Directors of the Company effective as of the 6th day of January, 1999.
This Plan was duly amended and Restated by the Board of Directors of the Company effective as of April 17, 2000.
Exhibit 10.6
AutoNation PETER C. SMITH Senior Vice President Human Resources
April 18, 2000
Mr. Craig Monaghan
146 Armand Road
Ridgefield, CT 06877
Dear Craig:
Welcome to AutoNation, Inc.! This letter will confirm our offer of employment as follows:
POSITION: Chief Financial Officer, Senior Vice
President, reporting to the Chief Executive
Officer of the Company, Michael Jackson.
START DATE: May 8, 2000, or a mutually agreed upon date.
SALARY: $17,307.69 payable bi-weekly ($450,000
annualized)
SIGNING BONUS: Upon joining AutoNation, Inc. and your
appointment by the Board of Directors as a
Senior Executive, you will also receive a
$100,000 signing bonus, less applicable tax
withholding.
YEAR 2000 ANNUAL BONUS: You will be eligible for a Year 2000 bonus
representing up to 50% of annual base salary
($450,000), from January 1, 2000, in the
event the Company's earnings per share (EPS)
equals or exceeds .90 per share, and subject
to approval or modification of the Board of
Directors.
RELOCATION: The Company will provide you with relocation
assistance in moving you and your personal
property to our area. Attached for your
review is a copy of the Relocation Policy.
You are eligible for Tier 4 benefits. Should
you voluntarily terminate employment, other
than for Good Reason (as defined in the
attached rider) on or before one year of
employment, a pro-rated share of all
relocation
|
Mr. Craig Monaghan
04/18/00
Page 2
reimbursements must be repaid to the Company
pursuant to the policy.
STOCK OPTION PLAN - The Company intends to give you an Initial
INITIAL GRANT: Grant of options to acquire 350,000 shares
of AutoNation, Inc. common stock. This grant
is subject to approval by the Board of
Directors. The strike price will be the
closing price of AutoNation, Inc. common
stock on the last trading day prior to your
date of employment. As stated above, under
the provisions of the Company's Employee
Stock Option Plan (the "Plan") stock options
vest twenty-five percent (25%) per year
during your term of employment beginning
with the date of your grant. This Initial
Grant will represent your entire stock
option grant for the year 2000, and as such,
you will not be eligible to receive any
additional stock option grants during 2000.
STOCK OPTION PLAN - Subject to the discretion of the Board of
FUTURE GRANTS: Director's Compensation Committee, in 2001
and future years, you may participate in the
Company's Plan for options awarded
commensurate with your position. The terms
and conditions of the Plan are subject to
change from time to time as determined by
the Board of Directors.
SEVERANCE: At any time during your employment, the
Company has the right to terminate the
employment relationship and to discharge
your employment and you may also terminate
the employment relationship for any reason
or no reason at all. Upon termination of
your employment by the Company at any time
other than for cause, or upon termination of
your employment for "Good Reason" at any
time, in each case as defined in this letter
agreement, you will be eligible to receive
an amount equivalent to eighteen (18) months
of your initial annual base salary,
$450,000, (i.e., a gross total severance
payment of $675,000) less applicable taxable
withholding. (See "Good Reason" rider
attached). The severance payments shall be
disbursed as salary continuation in equal
bi-monthly installments in accordance with
the Company's normal payroll practices and
shall be contingent upon your execution of a
general waiver and release of all claims.
You shall have no obligation to obtain
alternative employment during the severance
period. The severance payments will not
discontinue OR BE DECREASED IN ANY WAY as a
result of your obtaining employment
during the severance period, except if you
become re-employed with AutoNation or any of
its subsidiaries. Additionally, during the
severance period the Company will provide
you with a COBRA subsidy, representing the
cost of your COBRA premium,
|
Mr. Craig Monaghan
04/18/00
should you be eligible for and elect
continuation of the Company's group health
and welfare benefits plans. Stock option
vesting will cease on the last day of
employment, thus vesting will not continue
during the severance period; provided,
however, that you shall have 60 calendar
days after the termination of your
employment to exercise all vested stock
options. In the event the Company ceases
severance payments in breach of the general
waiver and release of claims, you will be
released from the non-compete restrictions
within the Confidentiality and
Non-Competition Agreement. Similarly, in the
event you materially breach any of the
covenants of the general waiver and release
of claims or any provision of the
Confidentiality and Non-Competition
Agreement, in addition to any remedies and
damages that may be available to the
Company, the Company will cease all
severance payments and benefits.
If your employment is terminated for cause
you will be paid that portion of the salary
prorated through the date of termination,
and the Company will have no further
obligations. For purposes of this letter
agreement, termination for "cause" shall
mean a termination of your employment by the
Company as a result of (i) your failure or
refusal to perform the material duties and
responsibilities required by the Company to
be performed by you which are consistent
with your position as Chief Financial
Officer of the Company (provided that you
are notified in writing of such failure or
refusal and do not cure such failure or
refusal within a reasonable period of time);
(ii) your gross negligence or willful
misconduct in the performance of your
duties; (iii) the commission of an act of
dishonesty affecting the Company or the
commission of an act constituting common law
fraud or a felony; or (iv) the commission of
an act causing material damages to the
Company (other than as a result of good
faith exercise of your business judgment) or
your following the directions of the CEO of
the Company or the Board of Directors.
BENEFITS: You will be eligible to participate in the
Company's group health and dental benefit
programs effective on the first day of the
month coincident with or following the
completion of thirty days service.
DRUG SCREENING: This offer is contingent upon the successful
completion of the Company's hair analysis
drug screening process. Please contact Tracy
Hamm at (954) 769-6746 so that she may
arrange an
|
Mr. Craig Monaghan
04/18/00
appointment at a clinic for the purpose of
collecting a small hair sample for testing.
CONFIDENTIALITY AND Employment is contingent upon your signing NON-COMPETE the Company's Confidentiality and AGREEMENT: Non-Compete Agreement. |
This letter along with the Company's Confidentiality and Non-Compete Agreement represent the full and entire agreement of employment. Moreover no one in the organization, other than the Chief Executive Officer ("CEO"), has the authority or legal ability to modify the terms of this Agreement. The CEO can do so only if it is done specifically in a written agreement. The position of Senior Executive and the remuneration are subject to approval and/or modification of the Company's Board of Directors. Please confirm your acceptance of this offer by signing in the space provided below and then return one original signed copy to me as soon as possible.
We look forward to having you join our team.
Sincerely,
/s/ Peter C. Smith ------------------------------- Peter C. Smith |
ACCEPTED:
/s/ Craig Monaghan
-------------------------------
Craig Monaghan
April 19, 2000
-------------------------------
Date
|
Attachments:
(1) Amended and Restated 1998 Employee Stock Option Plan
(2) Confidentiality and Non-Compete Agreement
(3) Good Reason Rider
Mr. Craig Monaghan
04/18/00
GOOD REASON RIDER
For purposes of this letter agreement, "Good Reason" shall mean a voluntary termination of your employment as a result of (i) a material change by the Company in your authority, duties or responsibilities which would cause your position with the Company to become of materially less responsibility and importance; (ii) any decrease in your base salary by the Company, and/or (iii) during the first three (3) years of employment, your relocation by the Company
without your consent to an area outside of South Florida.
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| CURRENCY: U.S. DOLLARS |
| PERIOD TYPE | 6 MOS |
| FISCAL YEAR END | DEC 31 2000 |
| PERIOD START | JAN 01 2000 |
| PERIOD END | JUN 30 2000 |
| EXCHANGE RATE | 1 |
| CASH | 154,800 |
| SECURITIES | 0 |
| RECEIVABLES | 1,232,400 |
| ALLOWANCES | 40,700 |
| INVENTORY | 2,799,100 |
| CURRENT ASSETS | 4,318,800 |
| PP&E | 1,570,300 |
| DEPRECIATION | 165,600 |
| TOTAL ASSETS | 8,916,300 |
| CURRENT LIABILITIES | 3,239,800 |
| BONDS | 984,900 |
| PREFERRED MANDATORY | 0 |
| PREFERRED | 0 |
| COMMON | 4,800 |
| OTHER SE | 3,760,000 |
| TOTAL LIABILITY AND EQUITY | 8,916,300 |
| SALES | 10,569,700 |
| TOTAL REVENUES | 10,569,700 |
| CGS | 9,186,700 |
| TOTAL COSTS | 9,186,700 |
| OTHER EXPENSES | 0 |
| LOSS PROVISION | 0 |
| INTEREST EXPENSE | 22,400 |
| INCOME PRETAX | 258,000 |
| INCOME TAX | 96,700 |
| INCOME CONTINUING | 161,300 |
| DISCONTINUED | 1,800 |
| EXTRAORDINARY | 0 |
| CHANGES | 0 |
| NET INCOME | 163,100 |
| EPS BASIC | .45 |
| EPS DILUTED | .45 |