Case 0:97-cv-06037-DTKH Document 1 Entered on FLSD Docket 01/22/1997 Page 1 of 26 IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF FLORIDA NORTHERN DIVISION DAVID JACKOWITZ, ) Plaintiff, CIVIL ACTION%k.4^w 37 7 1 % v . REPUBLIC INDUSTRIES, INC., ) _ H. WAYNE HUIZENGA, STEVEN R. ) CLASS ACTION COMpiaMISTRA77 BERRARD, HARRIS W. HUDSON, )'^ J.P. BRYAN, RICK L. BURDICK, } JURY TRIAL DEMANbED ~ ~ ap^^ MICHAEL G. DEGROOTE, JOHN J. ) MELK, GEORGE D. JOHNSON, JR., ) DONALD E. KOOGLER, J. RONALD ) =T CASTELL, ROBERT A. GUERIN, ) c ^^ , RICHARD L. HANDLEY, THOMAS W. ) J,,: c_ HAWKINS, ROBERT J. HENNINGER, ) JR., MICHAEL S. KARSNER, ) T MICHAEL R. CARPENTER, and ) ,'= —^ LAWRENCE S. RICH ) -c7 Defendants. ) r`:' C-0 Plaintiff David Jackowitz ("Plaintiff") comes by his counsel and sues Defendants alleging as follows: SUMMARY OF ACTION 1. This is an action brought under Section 14(a) of the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-9 promulgated thereunder as well as the common law. This action arises out of a proposed transaction in which certain of the Individual Defendants who are Directors and/or Officers of Republic Industries, Inc. ("Republic" or the "Company") plan to sell to the Company all of the common stock of AutoNation, a privately held, development stage company whose stock is owned principally by them. Under the proposed transaction, which the public shareholders of Republic approved by vote at a special meeting held on January 16,
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Case 0:97-cv-06037-DTKH Document 1 Entered on FLSD Docket 01/22/1997 Page 1 of 26
IN THE UNITED STATES DISTRICT COURTFOR THE SOUTHERN DISTRICT OF FLORIDA
NORTHERN DIVISION
DAVID JACKOWITZ, )
Plaintiff,CIVIL ACTION%k.4^w 37 71%v .
REPUBLIC INDUSTRIES, INC., ) _H. WAYNE HUIZENGA, STEVEN R. ) CLASS ACTION COMpiaMISTRA77BERRARD, HARRIS W. HUDSON, )'^J.P. BRYAN, RICK L. BURDICK, } JURY TRIAL DEMANbED ~ ~ ap^^MICHAEL G. DEGROOTE, JOHN J. )MELK, GEORGE D. JOHNSON, JR., )DONALD E. KOOGLER, J. RONALD ) =TCASTELL, ROBERT A. GUERIN, ) c ^^ ,RICHARD L. HANDLEY, THOMAS W. ) J,,: c_HAWKINS, ROBERT J. HENNINGER, )JR., MICHAEL S. KARSNER, ) TMICHAEL R. CARPENTER, and ) ,'= —^LAWRENCE S. RICH ) -c7
Defendants. ) r`:'C-0
Plaintiff David Jackowitz ("Plaintiff") comes by his counsel
and sues Defendants alleging as follows:
SUMMARY OF ACTION
1. This is an action brought under Section 14(a) of the
Securities Exchange Act of 1934 (the "Exchange Act") and Rule 14a-9
promulgated thereunder as well as the common law. This action
arises out of a proposed transaction in which certain of the
Individual Defendants who are Directors and/or Officers of Republic
Industries, Inc. ("Republic" or the "Company") plan to sell to the
Company all of the common stock of AutoNation, a privately held,
development stage company whose stock is owned principally by them.
Under the proposed transaction, which the public shareholders of
Republic approved by vote at a special meeting held on January 16,
Case 0:97-cv-06037-DTKH Document 1 Entered on FLSD Docket 01/22/1997 Page 2 of 26
1997, AutoNation, started by Defendant Huizenga_ and others in
September 1995, will be merged into Republic (the "Merger"). The
shareholders of AutoNation, including ten of the individual
Defendants in this action, will receive shares of Republic stock at
the rate of .0217796 shares for each AutoNation share previously
owned by them. The deal was originally negotiated in April 1996.
On May 8, 1996, a so-called special committee of the Board of
Directors of Republic, composed of the three Republic Directors who
do not own stock in AutoNation, agreed to the transaction based on
a so-called "fairness opinion" issued by Merrill Lynch. Merrill
Lynch opined that the transaction was fair to the Company and its
public shareholders at a time when the approximately 17.4 million
shares of Republic common stock to be issued to purchase AutoNation
had a market value of approximately $250 million. The market value
of the Republic stock is now more than double what it was at the
time the transaction was originally announced. Nevertheless, the
Company and the individual Defendants, most of whom will reap a
substantial windfall if the transaction is consummated, urged that
the transaction proceed on its original terms purportedly relying
on the recommendation of the Special Committee, despite the fact
that the May 7 "fairness opinion" issued by Merrill Lynch expressly
does not apply to the current circumstances. The Company's Proxy
statement, dated December 16, 1996 ("December 16 Proxy") which was
mailed out so as to reach shareholders during the Christmas
holidays, is materially false and misleading in stating that the
Special Committee has determined and believes that the transaction
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is fair to the company and its public shareholders and is based on
the May 7 Merrill Lynch fairness opinion. The proposed transaction
represents a breach of fiduciary duty by the individual Defendants
and is motivated by self-interest. If consummated, the Merger will
result in the Directors and Officers of Republic increasing their
ownership of the Company's stock from 38.6% to 45.80.
JURISDICTION AND PARTIES
2. This Court has jurisdiction of this action pursuant to
Section 27 of the Exchange Act, 15 U.S.C. § 78aa. The claims
asserted arise under Section 14(a) of the Exchange Act, 15 U.S.C.
§ 78n giving rise to federal question jurisdiction.
3. Venue is proper in this district pursuant to Section 27
of the Exchange Act. Many of the acts alleged herein, including
the solicitation of proxies and many of the activities of the
individual Defendants leading up to the solicitation of proxies
occurred, in substantial part, in this district. At all relevant
times, Republic maintained its principal place of business in this
District, and it is currently located at 450 East Las Olas
Boulevard, Fort Lauderdale, Florida 33301. In addition, many of
the individual Defendants named herein, including Defendants
Huizenga, Berrard, Hudson, Johnson and Koogler reside in this
District.
4. In connection with the acts alleged in this Complaint,
the Defendants directly or indirectly used various means and
instrumentalities of interstate commerce, including, but not
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limited to, the mails, interstate telephonic communications and the
facilities of the national securities markets.
5. Plaintiff is a citizen of the State of Florida. As of
December 16, 1996 the date the Proxy was filed with the SEC, he was
the holder of 400 shares of Republic common stock.
6. Defendant Republic is a Delaware corporation. Although
originally a waste collection and disposal company, Republic which
changed its name in November 1995 from Republic Waste Industries,
has recently diversified itself to include electronic security
monitoring services and within the last several months has acquired
or agreed to acquire certain car rental companies including Alamo
and National Car Rental Systems and car dealerships including
Maroone Automotive Group. As of the close of business on November
29, 1996, the record date for shareholder voting on the Merger,
Republic had 232,466,608 shares outstanding held by thousands of
individual shareholders. The Company's common stock is listed for
trading on the Nasdaq national over-the-counter market under the
symbol 'IRWIN."
7. Defendant H. Wayne Huizenga has served as the Chairman of
the Board and Chief Executive Officer of Republic since August 1995
(Co-Chief Executive Officer since October, 1996). Mr. Huizenga
served as the Vice Chairman of Viacom Inc. ("Viacom") from
September 1994 until October 1995. Mr. Huizenga also served as the
Chairman of the Board of Blockbuster Entertainment Group, a
division of Viacom, from September 1994, at which time Viacom
acquired Blockbuster Entertainment Corporation ("Blockbuster")
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through a merger, until October 1995. From April 1987 through
September 1994, Defendant Huizenga served as the Chairman of the
Board and Chief Executive Officer of Blockbuster. Mr. Huizenga
also co-founded Waste Management, Inc., now know as WMX
Technologies, Inc. ("Waste Management"), the world's largest
integrated environmental services company, in 1971, and served in
various capacities, including the President, the Chief Operating
Officer and a Director from its inception until 1984. Mr. Huizenga
also owns or controls the Miami Dolphins, Florida Marlins and
Florida Panthers professional sports franchises, as well as Pro
Player Stadium, in South Florida, and has served as the Chairman of
the Board of Florida Panthers Holdings, Inc. ("PUCK") since
September 1996. In addition, Mr. Huizenga has served as the
Chairman of the Board of Extended Stay America, Inc. ("STAY"), an
economy extended-stay lodging chain, since August 1995. In
addition, Defendant Huizenga is Chairman of the Board of AutoNation
and beneficially owns 29,375,000 shares of its common stock which
will be exchanged for 6,397,757 shares of Republic common stock
upon the consummation of the Merger.
8. Defendant Steven R. Berrard has served as Co-Chief
Executive Officer, President and a Director of Republic since
October 1996. He has also served as Chief Executive Officer of
AutoNation since March 1996. From September 1994 through March
1996, Mr. Berrard served as President and Chief Executive Officer
of Blockbuster Entertainment Group. He became Vice Chairman of the
Board of Blockbuster in November 1989 and served as Blockbuster's
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President and Chief Operating Officer from January 1993 until
September 1994. In addition, Mr. Berrard served as President and
Chief Executive Officer and a director of Spelling Entertainment
Group Inc., a television and filmed entertainment producer and
distributor, from March 1993 through March 1996, and served as a
director of Viacom from September 1994 until March 1996. Mr.
Berrard also serves as a Director of PUCK. Defendant Berrard
beneficially owns 14,500,000 shares of AutoNation stock which will
be exchanged for 3,158,042 shares of Republic common stock upon the
consummation of the Merger.
9. Defendant Harris W. Hudson, Defendant Huizenga I s brother-
in-law, has served as the Vice Chairman of the Board of Republic
since October 1996, and as a Director of Republic since August
1995. Mr. Hudson also serves as the Chairman of Republic's Solid
Waste Services Division. Mr. Hudson had served as the President of
Republic from August 1995 until October 1996. From May 1995 until
August 1995, Mr. Hudson had served as a consultant to Republic.
Mr. Hudson founded and since inception in 1983 has served as
Chairman of the Board, Chief Executive Officer and President of
Hudson Management Corporation, which was acquired by Republic in
August 1995. From 1964 to 1982, Mr. Hudson served as Vice
President of Waste Management of Florida, Inc., a subsidiary of
Waste Management, and its predecessor. Mr. Hudson has been a
Director of PUCK since September 1996. Defendant Hudson
beneficially owns 100,000 shares of AutoNation common stock which
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will be exchanged for 21,779 shares of Republic common stock upon
consummation of the Merger.
10. Defendant J.P. Bryan has served as a Director of Republic
since May 1991 and also was a Director of Republic from August 1990
until March 1991. Since January 1995, Mr. Bryan has served as
President and Chief Executive Officer of Gulf Canada Resources Ltd.
("Gulf Canada"), which is engaged in oil and gas exploration and
production. Since 1981, Mr. Bryan has served as the Chairman of the
Board and Chief Executive Officer of Torch Energy Advisors Inc., a
subsidiary of Torchmark Corporation, engaged in the management of
institutional holdings in energy-related fields and has, since
March 1990, held the same positions with Nuevo Energy Company, a
company involved in the oil and gas industry. Mr. Bryan also
currently serves on the Board of Directors of Bellweather
Exploration Company, an oil and gas exploration company.
11. Defendant Rick L. Burdick has been a Director of Republic
since May 1991. Since June 1995, Mr. Burdick has served as a
Director of J. Ray McDermott, S.A. Mr. Burdick is the sole
shareholder of a professional corporation which is a partner in the
law firm of Akin, Gump, Strauss, Hauer & Feld, L.L.P., a limited
liability partnership including professional corporations.
12. Defendant Michael G. DeGroote has been a Director of
Republic since 1991 and had served as the Vice Chairman of the
Board of Directors of Republic from August 1995 until October 1996.
Mr. DeGroote had served as the Chairman of the Board and President
of Republic from August 1991 until August 1995, and as the Chief
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Executive Officer of Republic from May 1991 until August 1995.
Since April 1995, Mr. DeGroote has served as Chairman of the Board,
President and Chief Executive Officer of Republic Environmental
Systems, Inc., now known as International Alliance Services, Inc.
("RESI"). Mr. DeGroote owned a controlling interest in Laidlaw
Inc. ("Laidlaw"), a Canadian company, from 1959 until he sold his
interest in 1988. During his tenure, Laidlaw became the third
largest waste service company in North America and the Largest
operator of school buses with over 28,000 vehicles. Mr. DeGroote
served as the Chairman of the Board and Chief Executive Officer of
Laidlaw from 1959 until June 1990, when he resigned from those
positions to pursue personal business matters. Mr. DeGroote has
served as a Director of Gulf Canada since May 1995, and a Director
of RESI since April 1995. Defendant DeGroote sold 500,000 shares
of Republic common stock to Defendant Melk on November 15, 1996.
He sold an additional 1.5 million shares publicly in November for
prices ranging between $29.50 and $32.00 per share.
13. Defendant John J. Melk, a long-term crony and business
associate of Huizenga, has served as a Director of Republic since
August 1995. Mr. Melk has been Chairman and Chief Executive
Officer of H2O Plus Inc., a bath and skin care product manufacturer
and retail distributor, since 1988. Mr. Melk as been a private
investor in various businesses since March 1984 and prior to March
1984, he held various positions with Waste Management and
Management International, plc., a subsidiary of Waste Management.
Mr. Melk also served as a Director of Psychemedics Corporation and
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of STAY. From February 1987 until March 1989 and from May 1993
until September 1994, Mr. Melk served as a Director of Blockbuster.
He also served as the Vice Chairman of Blockbuster from February
1987 until March 1989. Defendant Melk beneficially owns 825,000
shares of AutoNation common stock which will be exchanged for
179,681 shares of Republic common stock upon consummation of the
Merger.
14. Defendant George D. Johnson, Jr. has served as a Director
of Republic since November 1995. Mr. Johnson presently is
President, Chief Executive Officer and a Director of STAY. From
1993 until 1995, Mr. Johnson served in various executive positions
with Blockbuster Entertainment Group and, prior to its merger with
Viacom, with Blockbuster, including as President of the Consumer
Products Division, and also as a Director of Blockbuster. From
1987 until 1993, Mr. Johnson was the managing general partner of
WJB Video L.P., becoming the largest Blockbuster franchisee with
over 200 video stores prior to a merger with Blockbuster in 19932.
He is also a Director of Duke Power Company, Viacom and PUCK.
Defendant Johnson beneficially owns 2,500,000 shares of AutoNation
common stock which will be exchanged for 544, 000 shares of Republic
common stock upon consummation of the Merger.
15. Defendant Donald E. Koogler has served as an Executive
Vice President of Republic since May 1991. From May 1991 until
August 1995, Mr. Koogler also served as a Director of Republic and
from May 1991 until 1996 as Chief Operating Officer. In September
1990, Mr. Koogler founded K&K Investment and Consulting Services
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and served as its President until May 1991. Mr. Koogler joined
Laidlaw as a Vice President in 1985 and became an Executive Vice
President in October 1987. Mr. Koogler also served as Vice
President of Waste Management from 1980 until 1985. Mr. Koogler
has been employed in the solid waste industry for over 25 years, in
various executive positions.
16. Defendant J. Ronald Castell joined Republic as a Vice
President in August 1995, and was promoted to Senior Vice President
in October 1995. From September 1994 until joining Republic, he
served as a consultant to Viacom. Prior to that, Mr. Castell was
Senior Vice President of Programming and Communications for
Blockbuster from August 1991 until September 1994 and was Senior
Vice President of Programming and Merchandising from February 1989
until August 1991. From October 1985 to February 1989, he was Vice
President of Marketing and Merchandising at Erol I s, then a chain of
two hundred video stores headquartered in the Washington, D.C.
area.
17. Defendant Robert A. Guerin has served as Senior Vice
President of Republic since August 1995, and has served as
President of Republic's Security Services Division since June 1996.
From September 1994 until joining Republic, he served as a
consultant to Viacom. Prior to that, Mr. Guerin was Senior Vice
President of Domestic Franchising for Blockbuster from January 1992
until September 1994, was Senior Vice President of Administration
and Development for Blockbuster from October 1989 until December
1991, and was a Vice President of Blockbuster from March 1988 until
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October 1989. From March 1986 to March 1988, Mr. Guerin served as
Vice President and Region Manger of Waste Management of North
America, Inc., a subsidiary of Waste Management. From June 1982 to
March 1986, he served as President of Wells Fargo Armored Service
Corp. Defendant Guerin beneficially owns 125,000 shares of
AutoNation common stock which will be exchanged for 27,224 shares
of Republic common stock upon consummation of the Merger.
18. Defendant Richard L. Handley joined Republic in October
1995 as Senior Vice President and the General Counsel. In May
1996, Mr. Handley was also appointed Secretary of Republic. From
June 1993 until joining Republic, he was a principal of Randolph
Management Group, Inc., a management consulting firm specializing
in the environmental industry. Prior to that, Mr. Handley was Vice
President, Secretary and General Counsel of The Brand Companies,
Inc., an environmental services company, from July 1990 until May
1993, Associate General Counsel of Waste Management of North
America, Inc. from January 1987 to June 1990, and legal counsel to
waste Management Energy Systems, Inc., a waste-to-energy company,
from September 1985 to January 1987, all of which companies were
affiliates or subsidiaries of Waste Management. Prior to September
1985, Mr. Handley was a lawyer in private practice in Chicago,
Illinois.
19. Defendant Thomas W. Hawkins joined Republic in June 1996
as Senior Vice President. From September 1994 until June 1996, Mr.
Hawkins served as Executive Vice President -- Administration of
Blockbuster Entertainment Group. Prior to that, he was Senior Vice
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President, General Counsel and Secretary of Blockbuster from
February 1994. He joined Blockbuster as Senior Corporate Counsel
in November 1989, became Associate General Counsel and Secretary in
August 1991 and Vice President, General Counsel and Secretary in
February 1993. Prior to November 1989, Mr. Hawkins was a lawyer in
private practice in Chicago, Illinois. Defendant Hawkins
beneficially owns 450,000 shares of AutoNation common stock which
will be exchanged for 98,000 shares of Republic common stock upon
consummation of the Merger.
20. Defendant Robert J. Henninger, Jr. has served as a Senior
Vice President of Republic since October 1995. From September 1994
until joining Republic, he served as a consultant to Viacom, and
from July 1994 until September 1994, he served as Senior Vice
President and Chief Administrative Officer of Blockbuster. Prior
to July 1994, Mr. Henninger was employed by Arthur Andersen LLP, an
international public accounting firm, for 23 years, and had been
Managing Partner of the firm's Fort Lauderdale, Florida office
since 1984. Defendant Henninger beneficially owns 500,000 shares
of AutoNation common stock which will be exchanged for 108,898
shares of Republic common stock upon consummation of the Merger.
21. Defendant Michael S. Karsner has served as Senior Vice
President and Chief Financial Officer of Republic since October
1996. Prior to joining Republic, Mr. Karsner served as Senior Vice
President and Chief Financial Officer at Dole Food Company, Inc.,
a multinational packaged food company ( "Dole") , from May 1996 until
September 1996, as Vice President, Chief Financial Officer and
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Treasurer of Dole from February 1995 until May 1996, and as Vice
President and Treasurer of Dole from January 1994 until February
1995. From January 1990 through December 1993, Mr. Karsner served
as Vice President and Treasurer of the Black & Decker Corporation,
a multinational consumer products company.
22. Defendant Michael R. Carpenter has served as Vice
President and Corporate Controller of Republic since August 1995.
From September 1994 until August 1995, Mr. Carpenter served as Vice
President and Corporate Controller of Blockbuster Entertainment
Group. Prior to that, he was Vice President and Assistant
Corporate Controller of Blockbuster from May 1992. He joined
Blockbuster as Director of Financial Reporting in April 1988. Mr.
Carpenter is a certified public accountant.
23. Defendant Lawrence S. Rich is Chief Operating Officer and
Director of JMFE, a diversified automotive corporation founded in
1968. Mr. Rich was an Executive Vice President of JMFE from 1986
to 1994, when he was elected Chief Operating Officer. He has also
served as a Director of AutoNation since September 1995. Defendant
Rich beneficially owns 750,000 shares of AutoNation common stock
which will be exchanged for 163,347 shares of Republic common stock
upon consummation of the Merger.
CLASS ACTION ALLEGATIONS
24. Plaintiff brings this action as a class action pursuant
to Federal Rules of Civil Procedure 23(a) and (b)(2) and (3) on
behalf of all shareholders of record of Republic as of December 16,
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1996, the date Republic filed its Proxy Statement with the
Securities and Exchange Commission.
25. The members of the Class are so numerous and geographi-
cally dispersed that the joinder of all members is impracticable.
While the exact number of Class Members is not known at this time,
as of the close of business on November 29, 1996, there were
232,466,608 shares of the Company's common stock outstanding and
thousands of stockholders of record.
26. Plaintiff's claims are typical of the claims of the
members of the Class because Plaintiff and the Class Members have
been harmed in the same manner as a result of the violations of the
federal securities laws alleged herein.
27. Plaintiff will adequately protect the interests of the
Class. Plaintiff is the holder of shares of common stock of the
Company. In addition, Plaintiff has retained counsel who are
competent and experienced in class action and securities litiga-
tion. Plaintiff has no interests which are in conflict or
antagonistic with those of the members of the Class.
28. A class action is superior to other available methods for
the fair and efficient adjudication of this controversy. No
difficulty will be encountered in the management of this action as
a class action.
29. Questions of law and fact are common to the members of
the Class and such questions predominate over any questions which
may affect individual members only. Among the common questions of
law and fact are:
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a. whether Section 14(a) of the Exchange Act has been
violated by the conduct alleged in this Complaint;
b. whether the Individual Defendants have breached
their fiduciary duties to the Company, to Plaintiff and the members
of the Class; and
C. the extent of damages sustained by reason of the
claims asserted herein.
BACKGROUND
30. In May 1995, Defendants Huizenga and Hudson invested $31
million in Republic in exchange for 13.7 million shares of its
common stock and warrants to purchase 22.4 million additional
shares. As a result Huizenga and Hudson became two of the largest
shareholders of Republic; Huizenga became Chairman and Chief
Executive Officer and Hudson became President and a Director.
31. In November 1995 Republic changed its name from Republic
Waste Industries, Inc. to Republic Industries, Inc. Republic is
currently a holding company with major business segments in vehicle
rental, vehicle retailing, integrated solid waste services, and
electronic security services. In November 1996 Republic completed
the acquisition of Alamo Rental Car, and affiliated companies. In
August 1996 it completed the acquisition of CarChoice, Inc. which
operates two used vehicle so-called mega stores in Dallas, Texas
and Detroit, Michigan.
32. AutoNation is a privately owned corporation. According
to the December 16 Proxy, it was started by Defendant Huizenga and
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others in September 1995. AutoNation is currently a "development
stage enterprise" which, according to the December 16 Proxy has
started a "national roll out" of a chain of mega stores which will
each sell reconditioned automobiles with each mega store stocking
more than 1,000 late model, used automobiles. AutoNation opened
and commenced operation of its first megastore in October 1996.
33. The largest single shareholder of AutoNation is Defendant
Huizenga who is Chairman of the Board, followed by Defendant
Berrard, as Chief Executive Officer. Defendant Rich has also
served as a Director of AutoNation since September 1995.
34. Since its inception on September 12, 1995 AutoNation has
been engaged solely in development stage activities. It has a net
loss of Twenty-One Million Three Hundred Ninety-Six dollars
($21,396,000) since inception on revenues of $9,190,000. The
Company is admittedly a "development stage" enterprise for
accounting purposes. According to the December 16 Proxy AutoNation
generated insignificant revenues of $9,190,184 from its three
locations which opened from March 1996 through September 1996.
According to the December 16 Proxy, its planned, principal
operations were expected to commence in the fourth quarter of 1996
at which time the Company expects a significant increase in
revenues.
35. According to the December 16 Proxy, since its inception
on September 12, 1995, AutoNation has financed its development
stage activities with cash contributions from shareholders
totalling $52,130,000 plus advances from Republic totalling
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$112,900,000. The contributions have been used principally to fund
the purchase of land sites and other development activities. While
the shareholders of AutoNation are obligated to make capital
contributions up to a total of $80,200,000, in the event the
transaction is consummated with Republic the AutoNation
shareholders would not be required to make any further cash
contributions.
36. AutoNation's financial condition, a summary of which is
disclosed in the December 16, 1996 Proxy, portrays a company that
hardly meets a $250 million purchase price, much less the $643
million purchase price ultimately paid for AutoNation. AutoNation
has never generated any earnings. Since its inception, AutoNation
has lost $21,396,000 on revenues of $9,190,000. It had a working
capital deficiency of $103,639,000 as of September 29, 1996. As of
that same date, AutoNation's shareholders' equity, or net worth,
was $30,734,000. By the time the acquisition was approved on
January 16, 1996, the net worth was presumably less than $30
million due to continuing losses.
37. According to the December 16 Proxy the Board of Directors
of Republic held a special meeting on March 29, 1996 to consider a
possible transaction with AutoNation. At that meeting, according
to the December 16 Proxy, Defendant Huizenga summarized for the
Board a possible initial public offering of stock by AutoNation and
discussed alternatives including AutoNation's interest in being
acquired by Republic for approximately 17 to 20 million shares of
Republic common stock having a market value of approximately $250
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to $300 million based on the then current market price for Republic
stock.
38. According to the December 16, Proxy, the Republic board
was "favorably impressed" with the concept of acquiring AutoNation
at the $250 million valuation proposed by AutoNation. The board
appointed a so-called Special Committee composed of Defendants
DeGroote, Burdick, and Bryan who did not themselves own shares of
AutoNation common stock.
39. According to the December 16 Proxy, after several
meetings with their counsel and Merrill Lynch who was hired as a
financial advisor, the Special Committee determined on May 8 that
the terms of the Merger Agreement were . . . "fair to and in the
best interests of Republic and its shareholders"; adopted them on
behalf of the Company; and authorized their execution on behalf of
Republic. In doing so the Special Committee supposedly relied on
an opinion from Merrill Lynch dated May 7 that the transaction was
fair to the Company and its public shareholders.
40. Under the terms agreed to, AutoNation will be merged into
and become a subsidiary of Republic upon consummation of the
transaction. At that time, each outstanding share of common stock
of AutoNation will be converted into 0.217796 of a share of
Republic common stock. The Merger Agreement provided for no
modification of the conversion formula in the event that the
Republic common stock were to increase in value after the agreement
was entered into and before the consummation of the Merger.
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41. Under the terms of the Merger Agreement, Defendants
Huizenga and Berrard agreed not to sell any of the shares of
Republic common stock to be received by them in the Merger
transaction for up to two years following the date of the Merger;
Defendant Rich agreed to a similar two year "lockup agreement";
Defendant Guerin agreed to a one year lockup agreement; and all
other AutoNation shareholders agreed to a six month lockup
agreement except for Jim Moran who agreed to a one year lockup.
They are free to vote, and otherwise enjoy the benefits of said
ownership hereunder.
42. While Merrill Lynch issued an opinion on May 7 opining
that the transaction was fair to Republic and its public
shareholders as of that date, that opinion contained certain
important limitations. In the first place, it was expressly
limited to the circumstances as of the date it was issued and was
by its own terms not applicable to changed circumstances. In its
opinion, Merrill Lynch expressly disclaimed any obligation to
update, revise, reaffirm or withdraw its opinion as a result of any
subsequent developments or events. In that regard the opinion
states as follows:
This opinion speaks only as of the datehereof, based on the Transaction presented andthe facts and circumstances existing as of thedate hereof. Subsequent events anddevelopments including, but not limited to, achange in the applicable law, facts,circumstances, (including, but not limited tochanges effecting our assumptions set forthabove) may affect the conclusions set forth inthis opinion and, in such event, this opinionshould not be relied on in the future. Weassume no obligation to update, revise,
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Case 0:97-cv-06037-DTKH Document 1 Entered on FLSD Docket 01/22/1997 Page 20 of 26
reaffirm or withdraw as a result of any suchsubsequent events or developments, theinvalidity of the assumptions set forth above,or otherwise."
43. Since the date of the May 7 fairness opinion, the market
price of Republic common stock has increased substantially. The
stock, which ended the trading day on May 7 at $17.50 is now
trading for more than twice as much per share, ending the trading
day on January 16 at $36.875. As a result, each of the AutoNation
shareholders, including Defendants Huizenga, Berrard, Hudson, Melk,
Rich, Guerin, Castell, Hawkins, Henninger and Rich will reap
substantial windfall profits. The magnitude of that windfall is
illustrated by the following chart:
Shares ofRepublicCommon Stock Value of Value of
Shares of to be Issued Republic Shares Republic SharesAutoNation in Exchange to be to beCommonStock Therefor Upon Received as of Received as of
Name and Beneficially Consummation close of business close of businessCurrent Position Owned of The Merqer May 7, 1996 January 16, 1997
H. Wayne Huizenga 29,375,000 6,397,757 $111,960,748 $235,917,289Chairman and Co-ChiefExecutive Officer
Steven R. Berrard 14,500,000 3,158,042 $ 55,265,735 $116,452,799Co-Chief ExecutiveOfficer, President,and Director