UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date Of Report (Date Of Earliest Event Reported) January 28, 2009
   AUTONATION, INC.   
(Exact Name Of Registrant As Specified In Its Charter)
         
DELAWARE   1-13107   73-1105145
         
(State Or Other Jurisdiction
Of Incorporation) 		  (Commission
File Number) 		  (IRS Employer
Identification No.)
110 S.E. 6th Street
Ft. Lauderdale, Florida 33301
 
(Address Of Principal Executive Offices, Including Zip Code)
Registrant’s Telephone Number, Including Area Code (954) 769-6000
 
(Former Name Or Former Address, If Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
o   Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
o   Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
o   Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
o   Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 

 

 

Item 1.01   Entry into a Material Definitive Agreement.
On January 28, 2009, the board of directors (the “ Board ”) of AutoNation, Inc. (the “ Company ”) authorized and approved letter agreements with certain automotive manufacturers in order to, among other things, eliminate any potential adverse consequences under such manufacturers’ framework agreements with the Company in the event that ESL Investments, Inc. and certain investment affiliates of ESL Investments, Inc. (together, “ ESL ”) acquires fifty percent (50%) or more of the Company’s Common Stock (the “ Common Stock ”). The letter agreements with American Honda Motor Co., Inc. (“ Honda ”) and Toyota Motor Sales, U.S.A., Inc (“ Toyota ”) (such agreements, the “ Honda Agreement ” and the “ Toyota Agreement ,” respectively), which were entered into on January 28, 2009, also contain governance-related and other provisions as described below. Also a party to both the Honda and Toyota Agreements is ESL, the Company’s largest shareholder. ESL currently owns approximately forty-five percent (45%) of the Common Stock.
Under the terms of the Honda Agreement, Honda has agreed not to assert its right to purchase the Company’s Honda and Acura franchises and/or similar remedies under the manufacturer framework agreement between Honda and the Company in the event that ESL acquires fifty percent (50%) or more of the Common Stock. If ESL acquires more than fifty percent (50%) of the Common Stock, ESL has agreed to vote all shares in excess of fifty percent (50%) in the same proportion as all non-ESL-owned shares are voted. In addition, the Company has agreed to ensure that a majority of the Company’s Board is independent of both the Company and ESL under existing New York Stock Exchange (“ NYSE ”) listing standards. Furthermore, the Honda Agreement provides that Honda’s consent does not apply to a “going private” transaction under Rule 13e-3 of the Securities Exchange Act of 1934. The terms and conditions of the Honda Agreement will only apply at such time and for so long as ESL owns more than fifty percent (50%) of the Common Stock.
Under the terms of the Toyota Agreement, Toyota has agreed not to assert its right to purchase the Company’s Toyota and Lexus franchises and/or similar remedies under the manufacturer framework agreement between Toyota and the Company in the event that ESL acquires fifty percent (50%) or more of the Common Stock. If ESL acquires more than fifty percent (50%) of the Common Stock, ESL has agreed to vote all shares in excess of fifty percent (50%) in the same proportion as all non-ESL-owned shares are voted. Furthermore, the Company has agreed that a majority of the Company’s Board will be independent from both the Company and from ESL under existing NYSE listing standards. The Company has also agreed not to merge, consolidate or combine with any entity owned or controlled by ESL unless Toyota consents thereto. In addition, the Toyota Agreement provides that in the event that the Company appoints a Chief Operating Officer who, in the good faith judgment of the Board, does not have sufficient breadth and depth of experience, a relevant, successful automotive track record and extensive successful automotive experience, ESL shall be required to divest its shares in excess of fifty percent (50%) within nine (9) months or its voting interest will be limited to twenty-five percent (25%), and if ESL does not divest such shares within eighteen (18) months, it will lose all voting rights until it divests such shares. The terms and conditions of the Toyota Agreement will only apply at such time and for so long as ESL owns more than fifty percent (50%) of the Common Stock and will terminate on December 31, 2009 with respect to future stock acquisitions by ESL, provided that ESL may seek successive annual one-year extensions, and Toyota shall not unreasonably withhold or delay its consent thereto.

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In addition, on January 28, 2009, the Board authorized and approved a separate letter agreement between the Company and ESL (the “ ESL Agreement ”) in which ESL has agreed to vote shares of the Common Stock owned by ESL in excess of forty-five percent (45%) in the same proportion as all non-ESL-owned shares are voted. The ESL Agreement expires on January 28, 2010, unless extended by mutual agreement of the parties.
The foregoing summaries of the Honda, Toyota and ESL Agreements do not purport to be complete and are qualified in their entirety by reference to such agreements, copies of which are included as Exhibits 10.1 to 10.3 to this Form 8-K and are incorporated by reference herein.
The Company has also entered into separate letter agreements with each of Chrysler LLC, Ford Motor Company, General Motors Corporation and Mercedes Benz USA, LLC that eliminate any potential adverse consequences under such manufacturers’ framework agreements with the Company in the event that ESL acquires fifty percent (50%) or more of the Common Stock. ESL is not a party to any of these agreements.
As described in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2007, some of the Company’s manufacturer framework agreements give the manufacturer the right to acquire, or the right to compel the Company to sell, the automotive stores franchised by that manufacturer in the event of a change in control of the Company, which generally includes certain material changes in the composition of the Company’s Board during a specified time period, the acquisition of twenty percent (20%) or more of the Company’s voting stock by another vehicle manufacturer or distributor or the acquisition of fifty percent (50%) or more of the Company’s voting stock by a person, entity or group not affiliated with a vehicle manufacturer or distributor or other extraordinary corporate transactions such as a merger or sale of the Company’s assets. None of the aforementioned letter agreements modify, or provide consent to or waiver of, such provisions other than the acquisition by ESL of over fifty percent (50%) of the Common Stock.

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Item 9.01   Financial Statements and Exhibits.
(d)     Exhibits
         
  10.1    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., American Honda Motor Co., Inc. and ESL Investments, Inc.
       
 
  10.2    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., Toyota Motor Sales, U.S.A., Inc. and ESL Investments, Inc. and certain investment affiliates of ESL Investments, Inc.
       
 
  10.3    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., ESL Investments, Inc. and certain investment affiliates of ESL Investments, Inc.

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SIGNATURES
     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
         
  AUTONATION, INC.
  		 
  By:   /s/ Jonathan P. Ferrando    
    Jonathan P. Ferrando   
    Executive Vice President,
General Counsel and Secretary  		 
 
Dated: January 29, 2009

5

 

INDEX TO EXHIBITS
         
Exhibit   Exhibit
Number   Description
  10.1    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., American Honda Motor Co., Inc. and ESL Investments, Inc.
       
 
  10.2    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., Toyota Motor Sales, U.S.A., Inc. and ESL Investments, Inc. and certain investment affiliates of ESL Investments, Inc.
       
 
  10.3    
Letter Agreement, dated January 28, 2009, between AutoNation, Inc., ESL Investments, Inc. and certain investment affiliates of ESL Investments, Inc.

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EXHIBIT 10.1
[Company Letterhead]
January 28, 2009
American Honda Motor Co., Inc.
1919 Torrance Boulevard
Torrance, CA 90501
Attention: Dealer Development
                    RE:      AutoNation, Inc. Framework Agreement
Dear Mr. Colliver:
     Reference is made to that certain Framework Agreement, dated as of June 9, 1998 and as amended from time to time (the “ Framework Agreement ”), by and between American Honda Motor Co., Inc. (“ American Honda ”) and AutoNation, Inc. (formerly known as Republic Industries, Inc.) (“ AutoNation ”).
     American Honda hereby consents to the acquisition by ESL Investments, Inc. and any person, entity or group that directly, or indirectly though one or more intermediaries, controls, or is controlled by, or is under common control with, ESL Investments, Inc. (for the avoidance of doubt, other than AutoNation and its subsidiaries) (collectively, the “ ESL Parties ”) of fifty percent (50%) or more of the outstanding common stock, par value $0.01 per share, of AutoNation (the “ Common Stock ”) (the “ Acquisition ”), upon the following terms and conditions which shall only apply at such time and for so long as the ESL Parties own fifty percent (50%) or more of the then outstanding Common Stock:
  1.   At each meeting of the stockholders of AutoNation, whether an annual meeting or a special meeting, however called, and at each adjournment or postponement of any such meeting (a “ Stockholders’ Meeting ”), and in all other circumstances in which a vote, consent or other approval (including, without limitation, by written consent) is sought by or from the stockholders of AutoNation (any such vote, consent or approval, a “ Stockholders’ Consent ”), the ESL Parties

 

 

American Honda Motor Co., Inc.
Page 2
      shall appear at such Stockholders’ Meeting or otherwise cause all shares of Common Stock owned by the ESL Parties to be counted as present for the purpose of establishing a quorum.
      At each Stockholders’ Meeting and in connection with the execution of each Stockholders’ Consent, in either case at such times that the ESL Parties own in excess of fifty percent (50%) of the then outstanding Common Stock, all shares of Common Stock owned by the ESL Parties in excess of fifty percent (50%) of the then outstanding Common Stock on the applicable record date (the “ Additional Shares ”) shall be voted on each matter proposed in the same proportion as all outstanding shares of Common Stock not owned by the ESL Parties are actually voted on such matter (it being understood that, in connection with any Stockholders’ Consent, shares of Common Stock not owned by the ESL Parties that abstain or are not present will be treated as shares abstaining or not present, as the case may be).
 
  2.   AutoNation shall use best efforts to provide that its board of directors shall be comprised of a majority of directors who qualify as “independent” directors under the listing standards of Rule 303A.02(b) of The New York Stock Exchange (the “ NYSE ”) Listed Company Manual, as in effect on the date hereof, and who would qualify as “independent” directors of ESL Investments, Inc. under the listing standards of Rule 303A.02(b) of the NYSE Listed Company Manual, as in effect on the date hereof, if ESL Investments, Inc. was an NYSE-listed company; provided , however , that if AutoNation should fail to comply with the foregoing requirement due to (i) a vacancy on its board of directors or (ii) a member of its board of directors ceasing to meet such independence standards due to circumstances beyond AutoNation’s reasonable control, AutoNation shall regain compliance with the foregoing requirement by the later of (A) its next annual stockholders’ meeting or (B) 180 days from the occurrence of the event that caused the failure to comply.
 
  3.   The parties hereto agree to the following:
  (a)   No ESL Party shall knowingly acquire any direct or indirect ownership interest in any Honda or Acura dealership except through or in conjunction with AutoNation (which acquisition will be subject to the Framework Agreement), provided that the ESL Parties may make or acquire passive investments in public companies, mutual funds and similar entities where such investments by the ESL Parties represent cumulatively

 

 

American Honda Motor Co., Inc.
Page 3
      less than five percent (5%) interest in any Honda or Acura dealership in which such entity is so invested. For purposes of this Section 3(a), any acquisition of a direct or indirect ownership interest in any Honda or Acura dealership by Edward S. Lampert or any person who is in the Immediate Family (as such term is defined in the American Honda Motor Co., Inc. Policy on the Ownership of Multiple Honda and Acura Dealerships) of Edward S. Lampert shall be attributable to the ESL Parties.
  (b)   The ESL Parties, AutoNation and American Honda agree that any dispute arising under this letter agreement shall be resolved by the dispute resolution procedures set forth in Section 8 of the Framework Agreement.
 
  (c)   The ESL Parties acknowledge and agree to abide by the limits on representation of AutoNation on any Honda and Acura Dealer organizations as set forth in Section 3 of the Framework Agreement.
 
  (d)   The terms of this letter agreement shall be governed by and construed according to the laws of the State of New York without applying is conflicts of law principles.
 
  (e)   The ESL Parties may not pledge or grant a security interest in the Common Stock owned by the ESL Parties except as provided in the following sentence or with the consent of American Honda in accordance with the “American Honda Motor Co., Inc. Policy on the Granting of Security Interest in the Shares of Any Entity That Owns an Interest in a Honda or Acura Dealership,” a copy of which is attached as Exhibit A hereto. American Honda hereby agrees that the ESL Parties may grant a security interest in the proceeds of the sale of the shares of Common Stock owned by the ESL Parties, provided that the grantee agrees as follows:
  (i)   that it will never attempt to vote such shares (except to approve an American Honda-approved transfer of such shares) or exercise managerial control over any Listed Dealership; and
 
  (ii)   that its interest in such shares shall be limited to the proceeds derived from the sale of such shares to the

 

 

American Honda Motor Co., Inc.
Page 4
      extent of the outstanding balance of the note secured by such shares.
  (f)   The ESL Parties agree to abide by the remedies set forth in the Framework Agreement and, with respect to any ownership interest they may have in a Listed Dealership that becomes subject to any such remedies, they will cooperate in the execution of such remedies (for example, the purchase of a Listed Dealership by American Honda as ordered by an arbitrator) and not oppose any such remedy except as part of AutoNation’s participation in arbitration pursuant to Section 8 of the Framework Agreement.
 
  (g)   The ESL Parties shall be jointly and severally responsible for compliance by each ESL Party with the provisions of Section 3 of this letter agreement.
 
  (h)   The ESL Parties that currently own Common Stock are listed on Exhibit B hereto.
  4.   AutoNation and American Honda hereby reaffirm the terms and conditions of the Framework Agreement, which they agree shall continue in existence without modification. This letter agreement (a) may not be amended, waived or modified except by an instrument in writing signed by American Honda, AutoNation and the ESL Parties and (b) may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but which when taken together shall constitute one and the same letter agreement.
 
  5.   In light of the consent given pursuant to this letter agreement and in consideration of the continuing adherence of AutoNation and the ESL Parties to the terms hereof, American Honda will not exercise any rights pursuant to Section 1.3.5 and/or Section 7 of the Framework Agreement that it might otherwise have as a result of the Acquisition. Nothing in this letter agreement shall be construed as consent to a “Rule 13e-3 transaction” as that term is defined in Rule 13e-3 of the Securities Exchange Act of 1934.
 
  6.   All communications and notices pursuant to this letter agreement shall be in writing and be given in person or by means of facsimile or other means of wire transmission, by overnight courier or by mail and shall be addressed as follows:

 

 

American Honda Motor Co., Inc.
Page 5
 
      If to American Honda:
American Honda Motor Co., Inc.
Honda Division
1919 Torrance Boulevard
Torrance, CA 90501
Attention: Dealer Development
Facsimile: (310) 222-7065
with a copy to:
Associate General Counsel
Honda North America, Inc.
Law Department
700 Van Ness Avenue
Torrance, CA 90509-2206
Facsimile: (310) 781-4970
If to AutoNation:
AutoNation, Inc.
110 S.E. 6 th St.
Fort Lauderdale, FL 33301
Attention: President
Facsimile: (954) 769-4666
with a copy to:
AutoNation, Inc.
110 S.E. 6 th St.
Fort Lauderdale, FL 33301
Attention: General Counsel
Facsimile: (954) 769-6340
If to the ESL Parties:
ESL Investments, Inc
200 Greenwich Avenue
Greenwich, CT 06830
Attention: William C. Crowley
Facsimile: 203-861-9834
*     *     *     *

 

 

American Honda Motor Co., Inc.
Page 6
     This letter agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Please acknowledge your agreement to the foregoing by signing and returning to the undersigned as soon as possible a counterpart of this letter.
         
  Very truly yours,


AUTONATION, INC.
  		 
  /s/ Michael E. Maroone    
  Michael E. Maroone, President   
     
 
AGREED TO AS OF THE DATE
FIRST WRITTEN ABOVE:
AMERICAN HONDA MOTOR CO., INC.
         
     
/s/ Richard Colliver    
Richard Colliver, Executive Vice President   
     
 
SOLELY WITH RESPECT TO SECTIONS 1, 2, 3, 5 AND 6 ABOVE AND THE SECOND SENTENCE OF SECTION 4 ABOVE, ACKNOWLEDGED BY AND AGREED TO AS OF THE DATE FIRST WRITTEN ABOVE:
ESL INVESTMENTS, INC. (on behalf of itself and the ESL Parties)
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
     
 

 

 

Exhibit A
Attached.

A-1

 

AMERICAN HONDA MOTOR CO., INC.
POLICY ON THE GRANTING OF SECURITY
INTEREST IN THE SHARES OF ANY ENTITY
THAT OWNS AN INTEREST IN A HONDA OR ACURA DEALERSHIP
I.   PURPOSE OF THIS POLICY
This “Policy on the Granting of Security Interest in the Shares of Any Entity That Owns an Interest in a Honda or Acura Dealership” (the “Security Interest Policy”) is intended to respond to questions that are frequently addressed to American Honda Motor Co., Inc. (“AHM”) by its Dealers as to whether and when it may be appropriate under the Honda and/or Acura Automobile Dealer Sales and Service Agreement (the “Dealer Agreement”) for Dealers to grant a security interest in an entity that owns any Honda and/or Acura dealership(s) and the form that such security interest may take.
II.   SUMMARY OF THE SECURITY INTEREST POLICY
  A.   Any pledging of stock (or membership interests in the case of a non-corporate entity) of an Ownership Entity (as this term is defined in Section III below) is a violation of the Dealer Agreement and may result in AHM’s termination of the Dealer Agreement.
 
  B.   Any grant of a security interest in the stock (or membership interests in the case of a non-corporate entity) of a Direct Ownership Entity (as this term is defined in Section III below) is a violation of the Dealer Agreement and may result in AHM’s termination of the Dealer Agreement.
 
  C.   Under certain conditions (discussed in Section IV below), AHM will consent to the granting of a security interest in the stock (or membership interests in the case of a non-corporate entity) of an Indirect Ownership Entity (as this term is defined in Section III below). These conditions include contractual provisions that insure that the party to whom the security interest is granted will be limited to obtaining an interest in the proceeds of the sale of the stock but will never exercise any practical control over the dealership or the Direct Ownership Entity.
 
  D.   Nothing in this Security Interest Policy shall be construed to limit any Ownership Entity from granting a security interest in any of its tangible assets.
III.       BACKGROUND
AHM requires that each Honda and or Acura dealership be organized as a separate legal entity. (Most frequently, a dealership is organized as a corporation, a limited liability company (“LLC”) or a partnership.) In this Security Interest Policy, the separate legal entity that owns and operates the individual Honda or Acura dealership is referred to as a Direct Ownership Entity. Direct Ownership Entities are frequently owned, in whole or in part, by other companies, which, in turn, may be owned by other companies and so on. In this Security Interest Policy, a company that owns any interest in a Direct Ownership Entity, whether directly or through one or more layers of other companies, is referred to as an Indirect Ownership Entity. Direct Ownership Entities and Indirect Ownership Entities are referred to generally as Ownership Entities.

 

 

Security Interest Policy (104-0603)
Revised 03/04
Page 2
In connection with financing the purchase of Honda and Acura Automobiles, Parts and Accessories and improvements to Dealership Premises, Ownership Entities generally grant security interests in the tangible assets (for example, automobiles, parts, tools, real estate) of their Dealership Operations. Such security interests are standard in the industry. Nothing in this Security Interest Policy is intended to have any impact on the granting of security interests in tangible assets.
On a number of occasions, AHM has been approached by Dealer Owners who wish to grant a security interest in the shares (that is, the stock or membership interests) of a Direct Ownership Entity in order to secure a bank loan or some other financial obligation. In all cases, AHM has rejected such requests. The Dealer Agreement states that there shall be no voluntary or involuntary change, direct or indirect, in the legal or beneficial ownership or responsibility of Dealer for the Dealership Operations, without the prior written approval of American Honda. The grant of a security interest in the shares of a Direct Ownership Entity effects a change in the beneficial ownership of a Dealership Operations and would, in the event of a default by the Dealer Owner who has granted such security interest, vest control and/or ownership of the Dealership Operations in the party to whom the security interest has been granted.
The situation may be less critical with respect to the granting of a security interest in the shares of an Indirect Ownership Entity. At one extreme, if a large, publicly-traded corporation owned an interest in a Honda or Acura dealership, AHM would not attempt to prevent the owners of the publicly traded stock from granting a security interest in that stock for at least two reasons: (1) such prohibition would be impossible to monitor and enforce; and (2) granting a security interest in freely-tradeable stock would almost certainly have no greater impact on the control of the dealership than the sale of that stock, which is generally permitted. 1
Recently AHM has been confronted by what it considers to be an intermediate situation. By way of illustration, Investor X owns shares of A, an Indirect Ownership Entity that has an ownership interest in Direct Ownership Entity B. Investor X requests permission to pledge the shares of A to Bank C, to secure a loan that would be invested in improvements in the dealership. AHM would not approve the transaction for the reasons described above; that is, that, in the event of a default by Investor X, Bank C, through its control of the shares of Indirect Ownership Entity A, might control or influence the management of Direct Ownership Entity B.
However, AHM may permit the transaction to go forward provided that Bank C agrees that it will not, under any circumstances, exercise control over the dealership; that it will respect AHM’s right to approve or, if appropriate, deny approval of the transfer of the dealership; and that its sole interest will be in the proceeds of the sale of the stock or membership interests. In summary, rather than pledging the shares of A to Bank C, Investor X would grant Bank C a security interest in the proceeds of the sale of the shares of A. In such case, X would get his loan and AHM would have a contractual guarantee that B will at all times be managed by experienced, professional automobile-oriented personnel.
IV.   THE SECURITY INTEREST POLICY
  A.   AHM will strictly enforce the prohibition on the pledging of the stock (or membership interests, in the case of a non-corporate entity) of Ownership Entities.
 
  B.   AHM will strictly enforce the prohibition on the granting of any security interests in the stock (or membership interests, in the case of a non-corporate entity) of Direct Ownership Entities.
 
    1 Certain sales of the stock of public corporations that own interests in Honda and Acura dealerships are regulated through contracts between AHM and such public corporations.

 

 

Security Interest Policy (104-0603)
Revised 03/04
Page 3
  C.   AHM will review on a case-by-case basis requests by individuals and entities that wish to grant a security interest in the proceeds of the sale of the stock (or membership interests, in the case of a non-corporate entity) of Indirect Ownership Entities. AHM will not approve any such transaction unless:
  1.   Both the party that wishes to grant the security interest in the shares (the “grantor”) and the Indirect Ownership Entity are otherwise in compliance with their agreements with AHM.
 
  2.   The party to whom the security interest will be granted (the “grantee”) is a responsible financial institution and agrees in writing to abide by all applicable provisions of any agreements between AHM and grantor, the Indirect Ownership Entity and the Direct Ownership Entity.
 
  3.   The grantee and AHM enter into a written agreement that insures that:
  a)   the grantee will never attempt to vote the shares of the Indirect Ownership Entity (except to ratify an AHM-approved transfer of the shares) or exercise managerial control over the dealership;
 
  b)   the grantee’s interest in the shares shall be limited to the proceeds derived from the sale of such shares to the extent of the outstanding balance of the note;
 
  c)   the grantee will not transfer the shares without AHM’s prior written approval, which will be based on the qualifications of the proposed transferee to own and operate an automobile dealership;
 
  d)   in the event that it cannot timely locate a buyer for the shares that meets with AHM’s approval, the grantee will transfer the shares to AHM or AHM’s designee at fair market value; and
 
  e)   in the event of a dispute as to the fair market value of the shares, AHM and the grantee will submit the matter to expedited, binding arbitration.
  4.   In addition to the provisions set forth in Section IV.C.3(a)-(e) above, AHM may require further contractual protections to insure compliance with the objectives of the Security Interest Policy, including, by way of example:
  a)   Placement of the stock in escrow with an escrow agent approved by AHM;
 
  b)   Management of the dealership by AHM’s designee pending transfer of the shares;
 
  c)   Cooperation of the grantee with AHM to effect an orderly and prompt sale of the dealership to an AHM-approved owner;
 
  d)   Time limitations on the duration of the security interest; and

 

 

Security Interest Policy (104-0603)
Revised 03/04
Page 4
  e)   Indemnification of AHM for liabilities incurred in connection with the transaction.
  5.   AHM RESERVES THE RIGHT TO REJECT ANY REQUEST TO GRANT A SECURITY INTEREST IN THE SHARES OF ANY ENTITY THAT OWNS AN INTEREST IN A HONDA OR ACURA DEALERSHIP IF SUCH SECURITY INTEREST WOULD BE DETRIMENTAL TO THE INTERESTS OF AHM, ITS DEALER NETWORK OR ITS CUSTOMERS.
Revised 3/04

 

 

Exhibit B
ESL Partners, L.P.
ESL Institutional Partners, L.P.
ESL Investors, L.L.C.
CBL Partners, L.P.
Tynan, LLC
ESL Investment Management, L.P.
RBS Partners, L.P.
RBS Investment Management, L.L.C.
Edward S. Lampert
William C. Crowley

B-1

EXHIBIT 10.2
[Company Letterhead]
January 28, 2009
Toyota Motor Sales, U.S.A., Inc.
President
19001 South Western Avenue
Torrance, California 90509
                    RE:      AutoNation, Inc. Framework Agreement
Dear Sir or Madam:
     Reference is made to that certain Framework Agreement, dated as of September 26, 1997 (as supplemented by that certain letter agreement dated September 26, 1997, the “ Framework Agreement ”), by and between Toyota Motor Sales, U.S.A., Inc. (“ Toyota ”) and AutoNation, Inc. (formerly known as Republic Industries, Inc.) (“ AutoNation ”). Capitalized terms used but not defined in this letter agreement shall have the meanings ascribed thereto in the Framework Agreement.
     Toyota hereby consents to, and waives all of its rights and remedies under Sections 6.1.1 and 10 of the Framework Agreement with respect to, the acquisition (as defined in the Framework Agreement) or Ownership (for the avoidance of doubt, including Ownership resulting from any share buy back program or other stock repurchase, reclassification or other change in share rights) by ESL Investments, Inc., its investment affiliates set forth on Exhibit A hereto and any other affiliates of ESL Investments, Inc. whose sole business is or shall be to invest in securities and related instruments that in the future Own Common Stock (as defined below) (collectively, “ ESL ”) of more than fifty percent (50%) of the outstanding common stock, par value $0.01 per share, of AutoNation (the “ Common Stock ”) (the “ ESL Acquisition ”), subject to the following terms and conditions which shall only apply at such time and for so long as ESL Owns more than fifty percent (50%) of the then outstanding Common Stock:

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 2
  1.   At each meeting of the stockholders of AutoNation, whether an annual meeting or a special meeting, however called, and at each adjournment or postponement of any such meeting (a “ Stockholders’ Meeting ”), and in all other circumstances in which a vote, consent or other approval (including, without limitation, by written consent) is sought by or from the stockholders of AutoNation (any such vote, consent or approval, a “ Stockholders’ Consent ”), ESL shall appear at such Stockholders’ Meeting or otherwise cause all shares of Common Stock Owned by ESL to be counted as present for the purpose of establishing a quorum.
      At each Stockholders’ Meeting and in connection with the execution of each Stockholders’ Consent, in either case at such times that ESL Owns in excess of fifty percent (50%) of the then outstanding Common Stock, all shares of Common Stock Owned by ESL in excess of fifty percent (50%) of the then outstanding Common Stock (the “ Additional Shares ”) on the applicable record date shall be voted on each matter proposed in the same proportion as all outstanding shares of Common Stock not Owned by ESL are actually voted on such matter (it being understood that, in connection with any Stockholders’ Consent, shares of Common Stock not Owned by ESL that abstain or are not present will be treated as shares abstaining or not present, as the case may be).
 
  2.   In accordance with the listing standards of The New York Stock Exchange (the “ NYSE ”) and AutoNation’s currently effective Corporate Governance Guidelines, as part of AutoNation’s succession planning process, (i) the board of directors of AutoNation has adopted the qualifications for Chief Executive Officer and Chief Operating Officer attached as Exhibit B hereto and (ii) Michael E. Maroone has at this time been designated as a successor to Mike Jackson as Chief Executive Officer of AutoNation; however, Toyota recognizes that such qualifications and designation are solely the determinations of the board of directors of AutoNation made based on its fiduciary duties and may change at any time in the future.
 
      In addition, the Chief Operating Officer of AutoNation shall have sufficient breadth and depth of experience, a relevant, successful automotive track record and extensive successful automotive experience, in each case as determined in the good faith judgment of

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 3
      AutoNation’s board of directors. In the event AutoNation’s board of directors appoints a Chief Operating Officer who either is not Michael E. Maroone or does not, in the good faith judgment of AutoNation’s board of directors, meet the standards in the immediately preceding sentence, Toyota may notify AutoNation of same in writing within sixty (60) days after the public announcement of such appointment. AutoNation will reasonably cooperate with Toyota in Toyota’s efforts to obtain information regarding the experience and qualifications of the newly appointed Chief Operating Officer. Within twenty (20) days after receiving Toyota’s written notice, AutoNation may initiate the dispute resolution procedures of Exhibit 13 of the Framework Agreement (the “ Dispute Resolution ”). In the event that AutoNation does not initiate the Dispute Resolution within twenty (20) days, ESL shall be required to dispose of the Additional Shares no later than nine (9) months after receipt of Toyota’s notice referred to above, or if AutoNation does initiate the Dispute Resolution within twenty (20) days and if a final determination is made that the Chief Operating Officer does not meet the foregoing requirements, ESL shall be required to dispose of the Additional Shares not later than nine (9) months after the conclusion of the Dispute Resolution (in either case, the relevant nine (9) month period being the “ Disposal Period ”).
      In the event that, notwithstanding the foregoing, ESL fails to dispose of the Additional Shares under the circumstances required by the preceding paragraph (a) within the Disposal Period or (b) within nine (9) months after the conclusion of the Disposal Period, then until ESL disposes of the Additional Shares, all shares of Common Stock Owned by ESL in excess of twenty-five percent (25%) in the case of clause (a) above, or in excess of zero percent (0%) in the case of clause (b) above, of the then outstanding Common Stock on the applicable record date for any AutoNation Stockholders’ Meeting or Stockholders’ Consent shall be voted on each matter proposed in the same proportion as all outstanding shares of Common Stock not Owned by ESL are actually voted on such matter (it being understood that, in connection with any Stockholders’ Consent, shares of Common Stock not Owned by ESL that abstain or are not present will be treated as shares abstaining or not present, as the case may be).

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 4
      ESL shall not purchase any Common Stock after the commencement of the Disposal Period. In the event ESL fails to dispose of the Additional Shares by the end of the Disposal Period, ESL hereby consents to the entry of a court order directing ESL to comply with the voting restrictions set forth in the preceding paragraph pending such disposition. ESL shall reimburse Toyota for Toyota’s reasonable attorneys’ fees in obtaining or enforcing such court order.
 
  3.   The board of directors of AutoNation shall be comprised of a majority of directors who qualify as “independent” directors under the listing standards of Rule 303A.02(b) of the NYSE Listed Company Manual, as in effect on the date hereof, and who would qualify as “independent” directors of ESL Investments, Inc. under the listing standards of Rule 303A.02(b) of the NYSE Listed Company Manual, as in effect on the date hereof, if ESL Investments, Inc. was an NYSE-listed company; provided , however , that if AutoNation should fail to comply with the foregoing requirement due to (i) a vacancy on its board of directors or (ii) a member of its board of directors ceasing to meet such independence standards due to circumstances beyond AutoNation’s reasonable control, AutoNation shall regain compliance with the foregoing requirement by the later of (A) its next annual stockholders’ meeting or (B) 180 days from the occurrence of the event that caused the failure to comply.
 
  4.   AutoNation and Toyota (i) reaffirm the terms and conditions of the Framework Agreement, including Section 5.1.3 thereof, which the parties hereto agree shall continue in existence except to the extent expressly modified herein and (ii) agree
      and acknowledge that this letter agreement shall constitute written notice of a proposed Change in Management or Ownership to Toyota pursuant to, and in compliance with, Section 6.2 of the Framework Agreement; provided , however , that both parties recognize and acknowledge that ESL is not a party to this Section 4 or to such agreement.
 
  5.   For the avoidance of doubt, Toyota’s consent to, and waiver of its rights and remedies with respect to, the ESL Acquisition shall apply only to the ESL Acquisition and not to the acquisition of any Ownership interest in AutoNation by any other Person or any other Change in Management or Ownership under Section 6 of the Framework Agreement.

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 5
      This letter constitutes Toyota’s consent to the ESL Acquisition to the extent any such consent is required under any Toyota Dealer Agreement or Lexus Dealer Agreement. Other than as set forth in the preceding sentence, nothing in this letter shall constitute a waiver or modification of any party’s rights or remedies under, or any other provision in, any Dealer Agreements; provided that the terms of this letter agreement shall supersede any terms of the Dealer Agreements to the extent of any contrary provisions but only for so long as this letter agreement is in effect.
 
  6.   In the event that AutoNation merges, consolidates or combines with, or is merged, consolidated or combined with, any Person, the surviving entity shall be subject to the terms and conditions of this letter agreement and the Framework Agreement. AutoNation agrees that it shall not merge, consolidate or combine with, or be merged, consolidated or combined with, any Person owned or controlled, directly or indirectly, by ESL, unless Toyota consents thereto in writing in advance.
 
  7.   Toyota’s consent and waiver pursuant to this letter agreement shall terminate on December 31, 2009 (the “ Termination Date ”) solely with respect to shares of Common Stock acquired by ESL after the Termination Date, provided that ESL may seek successive annual one-year extensions of the Termination Date and Toyota shall not unreasonably withhold or delay its consent thereto. For the avoidance of doubt, for purposes of the immediately foregoing sentence, the term “acquired” shall not include any increases in ESL’s Ownership of Common Stock resulting from any customary share buy back program, reclassification or other customary change in share rights applicable generally to the Common Stock (including a stock split). Notwithstanding the foregoing, this letter agreement shall remain in effect so long as ESL continues to Own in excess of fifty percent (50%) of the then outstanding Common Stock.

 

 

Toyota Motor Sales, U.S.A., Inc.
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  8.   In the event that ESL, after having Owned in excess of fifty percent (50%) of the outstanding Common Stock, no longer Owns in excess of fifty percent (50%) of the then outstanding Common Stock (including, without limitation, because of a disposal of shares under Section 2 above), this letter agreement, and Toyota’s consent and waiver hereunder, shall automatically terminate and be of no further force and effect, and Sections 6.1.1 and 10 of the Framework Agreement shall apply to any future acquisition of in excess of fifty percent (50%) of the then outstanding Common Stock by ESL.
 
  9.   ESL agrees that any other investment affiliates of ESL Investments, Inc. not listed on Exhibit A hereto that in the future Own Common Stock shall be added as parties to this letter agreement within thirty (30) days of acquisition of Common Stock. ESL also agrees that Edward S. Lampert and William C. Crowley shall be added as parties to this letter agreement within thirty (30) days in the event that such person (individually and together with immediate family members) directly owns shares of Common Stock outside of ESL in excess of one-half percent (0.5%) of the then outstanding Common Stock.
     This letter agreement (a) may not be amended, waived or modified except by an instrument in writing signed by Toyota, AutoNation and ESL Investments, Inc. and (b) may be executed in one or more counterparts, each of which when executed shall be deemed to be an original but which when taken together shall constitute one and the same letter agreement. Neither this letter agreement nor any of the rights, interests or obligations hereunder shall be assigned by Toyota, AutoNation or ESL (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this letter agreement shall be binding upon, inure to the benefit of and be enforceable by Toyota, AutoNation and ESL and their respective successors and assigns.
     Please acknowledge your agreement to the foregoing by signing and returning to the undersigned as soon as possible a counterpart of this letter.
*     *     *     *

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 7
         
  Very truly yours,

AUTONATION, INC.
  		 
  /s/ Michael E. Maroone    
  Michael E. Maroone, President   
     
 
AGREED TO AS OF THE DATE
FIRST WRITTEN ABOVE:
TOYOTA MOTOR SALES, U.S.A., INC.
         
     
/s/ James Lentz   
James Lentz, President   
     
 
SOLELY WITH RESPECT TO SECTION 4 ABOVE,
ACKNOWLEDGED AS OF THE DATE
FIRST WRITTEN ABOVE, AND
WITH RESPECT TO ALL OTHER PROVISIONS
OF THIS LETTER AGREEMENT
ACKNOWLEDGED AND AGREED TO AS OF THE DATE
FIRST WRITTEN ABOVE:
ESL INVESTMENTS, INC.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
     
 
ESL PARTNERS, L.P.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate General Partner to
ESL Partners, L.P.  		 

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 8
ESL INSTITUTIONAL PARTNERS, L.P.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate General Partner to
ESL Institutional Partners, L.P.  		 
 
ESL INVESTORS, L.L.C.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate Managing Member to ESL Investors, L.L.C.   
 
CBL PARTNERS, L.P.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate General Partner to CBL Partners, L.P.   
 
TYNAN, LLC
         
     
/s/ William C. Crowley    
William C. Crowley, Managing Member   
     
 

 

 

Toyota Motor Sales, U.S.A., Inc.
Page 9
ESL INVESTMENT MANAGEMENT, L.P.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate General Partner to
ESL Investment Management, L.P.  		 
RBS PARTNERS, L.P.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate General Partner to
RBS Partners, L.P.  		 
 
RBS INVESTMENT MANAGEMENT, L.L.C.
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
of ESL Investments, Inc., the ultimate Managing Member to RBS Investment Management, L.L.C.   
 

 

 

Exhibit A
ESL Partners, L.P.
ESL Institutional Partners, L.P.
ESL Investors, L.L.C.
CBL Partners, L.P.
Tynan, LLC
ESL Investment Management, L.P.
RBS Partners, L.P.
RBS Investment Management, L.L.C.
Edward S. Lampert
William C. Crowley

A-1

 

Exhibit B
Chief Executive Officer
•   Outstanding leadership ability
  –   Excellent communication and interpersonal skills
 
  –   Tone from the top – ability to set the right standard of conduct for the organization
 
  –   Ability to motivate retail store leadership
•   Strategic vision
  –   Ability to align organization and motivate management to implement strategy
•   Ability to attract, motivate and retain top talent
•   Understanding of retail business, combined with large company management experience
•   Ability to drive process change while maintaining the positive attributes of entrepreneurial spirit of organization
•   Seasoned judgment and ability to make tough decisions
•   Ability to shape auto industry and public policy issues
President & Chief Operating Officer
•   Strong operations experience
•   Strategic management skills
  –   Ability to leverage scale and implement standardized processes
 
  –   Ability to develop store leadership
 
  –   Ability to drive strategic plan to increase customer loyalty and profitability
•   Outstanding leadership ability
  –   Excellent communication and people skills
 
  –   Ability to motivate store leadership
•   Ability to attract, motivate and retain top talent
•   Deep understanding of auto retail business
•   Ability to establish strong relationships with auto manufacturers

B-1

EXHIBIT 10.3
[Company Letterhead]
January 28, 2009
ESL Investments, Inc
200 Greenwich Avenue
Greenwich, CT 06830
Attention: William C. Crowley
                    RE:      ESL Voting Agreement
Dear Mr. Crowley:
     Reference is made to that certain letter agreement, dated as of the date hereof (the “ Honda Consent ”), among American Honda Motor Co., Inc. (“ American Honda ”), AutoNation, Inc. (“ AutoNation ”) and the ESL Parties (as defined in the Honda Consent) and to that certain letter agreement, dated as of the date hereof (the “ Toyota Consent ”), among Toyota Motor Sales, U.S.A., Inc. (“ Toyota ”), AutoNation and ESL (as defined in the Toyota Consent).
     For the period provided in Section 3 below, notwithstanding any provision to the contrary contained in the Honda Consent and Toyota Consent and at such time as ESL Investments, Inc. and any person, entity or group that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, ESL Investments, Inc. (for the avoidance of doubt, other than AutoNation and its subsidiaries) (together with ESL Investments, Inc., the “ ESL Affiliated Parties ”) own forty-five percent (45%) or more of the outstanding common stock, par value $0.01 per share, of AutoNation (the “ Common Stock ”):
  1.   At each meeting of the stockholders of AutoNation, whether an annual meeting or a special meeting, however called, and at each adjournment or postponement of any such meeting (a “ Stockholders’ Meeting ”), and in all other circumstances in which a vote, consent or other approval (including, without limitation, by written consent) is sought by or from the stockholders of AutoNation (any such vote, consent or approval, a “ Stockholders’ Consent ”), the ESL Affiliated Parties shall appear at such Stockholders’ Meeting or otherwise cause all shares of Common Stock owned by the ESL Affiliated Parties to be counted as present for the purpose of establishing a quorum.

1

 

 
  2.   At each Stockholders’ Meeting and in connection with the execution of each Stockholders’ Consent, all shares of Common Stock owned by the ESL Affiliated Parties in excess of forty-five percent (45%) of the then outstanding Common Stock on the applicable record date (the “ Additional Shares ”) shall be voted on each matter proposed in the same proportion as all outstanding shares of Common Stock not owned by the ESL Affiliated Parties are actually voted on such matter (it being understood that, in connection with any Stockholders’ Consent, shares of Common Stock not owned by the ESL Affiliated Parties that abstain or are not present will be treated as shares abstaining or not present, as the case may be).
 
  3.   This letter agreement shall commence as of the date first set forth above and shall continue in full force and effect until January 28, 2010 unless the parties mutually agree to extend the agreement. The termination of this letter agreement shall have no effect on the Honda Consent or the Toyota Consent.
     The terms of this letter agreement shall be governed by and construed according to the laws of the State of Delaware without applying its conflicts of law principles.
*     *     *     *

2

 

     This letter agreement may be executed in one or more counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. Please acknowledge your agreement to the foregoing by signing and returning to the undersigned as soon as possible a counterpart of this letter.
         
  Very truly yours,


AUTONATION, INC.
  		 
  /s/ Michael E. Maroone    
  Michael E. Maroone, President   
     
 
AGREED TO AS OF THE DATE
FIRST WRITTEN ABOVE:
ESL INVESTMENTS, INC.
(on behalf of itself and the other ESL Affiliated Parties)
         
     
/s/ William C. Crowley    
William C. Crowley, President & Chief Operating Officer   
     
 

3